Section 115JB – For computing book profits u/s. 115JB, no adjustment can be made in respect of depreciation provided at a rate higher than that prescribed under Schedule XIV of Companies Act provided the assessee shows how and on what basis the specified period and the higher rate of depreciation was arrived at.

9. [2018] 93 taxmann.com 215
(Chennai)

Indus Finance Corporation Ltd
vs. DCIT

ITA No. : 1348/Chennai/2017

A.Y.: 2012-13  

Dated: 03^rd May,
2018

Section 115JB – For computing book profits u/s. 115JB, no
adjustment can be made in respect of depreciation provided at a rate higher
than that prescribed under Schedule XIV of Companies Act provided the assessee
shows how and on what basis the specified period and the higher rate of
depreciation was arrived at.

FACTS

The
assessee, engaged in the business of providing non-banking financial services,
charged depreciation on wind mills at 80% as against 5.28% prescribed under
Schedule XIV of the Companies Act, 1956. The notes to the accounts mentioned
that depreciation on wind mill has been provided at the rates prescribed by the
Income-tax Act. For the purposes of computing book profits u/s. 115JB of the Act, the Assessing Officer (AO) sought to disallow the amount
of depreciation in excess of the amount computed by applying the rate
prescribed by Schedule XIV of the Companies Act, 1956. In the course of
assessment proceedings, it was submitted by the assessee that the rate of
depreciation given in Schedule XIV of the Companies Act was only the minimum
rate that had to be charged and the assessee was at a liberty to claim excess
depreciation when situation warranted. The AO, not being satisfied with the
contention of the assessee computed book profits by allowing depreciation on windmills
at the rate prescribed in Schedule XIV of the Companies Act, 1956.

Aggrieved,
the assessee preferred an appeal to the CIT(A) who confirmed the action of the
AO.

Aggrieved,
the assessee preferred an appeal to the Tribunal where on behalf of the assessee
it was contended that the wind mills had not performed to the level expected
and therefore assessee was constrained to charge depreciation, above the rate
prescribed under Companies Act and reliance was placed on the decision of
co-ordinate bench in the case of DCIT vs. Indowind Energy Ltd, (ITA
No.1854/2015, dated 25.10.2016).

HELD   

The
Tribunal noted that the assessee can, at its option, choose to provide
depreciation at a rate higher than that prescribed under Schedule of the
Companies Act.  However, in doing so, the
assessee must justify that the depreciation so computed, is in accordance with
section 205(2)(b) of the Companies Act which provides that depreciation can be
provided by dividing ninety-five per cent of the original cost thereof to the
company by the specified period in respect of such asset. It observed that
except for the note in the annual accounts, nothing was brought on record to
show how and on what basis the specified period and the higher rate of
depreciation was arrived by the assessee. In absence of justification by the
assessee on the basis of depreciation arrived by it, the Tribunal held that,
for the purposes of computing book profits u/s. 115JB, lower authorities were
justified in allowing depreciation based on the rates prescribed in the
Schedule. The Tribunal distinguished the decision relied upon by the assessee
by holding that the said decision was based on realistic facts.