JUDGMENT
P.K. Balasubramanyan, J.
1. These references under Section 256(1) of the Income-tax Act, 1961, relate to the assessment years 1988-89 and 1989-90. I. T. R. Nos. 245 and 259 of 1999 relate to the assessment year 1988-89.I. T. R. No. 245 of 1999 is at the instance of the Revenue and I. T. R. No. 259 of 1999 is at the instance of the assessee. I. T. R. Nos. 289 of 1999 and 293 of 1999 relate to the assessment year 1989-90. I. T. R. No. 289 of 1999 is at the instance of the Revenue and I. T. R. No. 293 of 1999 is at the instance of the assessee. The assessee is a limited company registered under the Companies Act.
2. For the assessment year 1988-89, the assessee filed a return declaring a loss of Rs. 1,12,293 and claimed a refund of the sum of Rs. 8,62,730 pre-paid as tax. The Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, rejected the return and assessed the total income of the assessee at Rs. 47,26,270 and imposed a tax of Rs. 25,99,448 and a surcharge of Rs. 1,29,972 totalling Rs. 27,29,420. After adjusting the advance tax paid and the tax deducted at source, inclusive of interest, a total demand was made for Rs. 26,83,327. The Assessing Authority did not allow the deduction claimed by the assessee in terms of Section 80WA of the Income-tax Act since the said provision stood omitted with effect from April 1, 1988. The assessee went up in appeal before the Commissioner of Income-tax (Appeals), Cochin. The Commissioner of Income-tax (Appeals) allowed the appeal and ordered modification of the order of assessment. The Assessing Officer was directed to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The Assessing Officer was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. By order dated February 19, 1992, the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, recomputed the income of the assessee and revised the total loss as Rs. 41,50,280. By letter dated April 10, 1992, the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, called upon the assessee to furnish the computation in terms of Section 115J of the Income-tax Act and to furnish the same on or before April 23, 1992. In the book profit computed by the assessee, the Assessing Authority noticed that the assessee had claimed depreciation as per the Income-tax Rules amounting to Rs. 2,95,13,873 and investment allowance of Rs. 15,42,163 and thereby had not arrived at the book profit under the Companies Act for assessment under Section 115J of the Act. The assessee wrote back to the Deputy Commissioner of Income-tax (Assessment) enclosing therewith a statement showing the computation of book profit under Section 115J of the Income-tax Act. In that letter the assessee indicated that the profit and loss account was as per the Income-tax Rules and was not as per Schedule XIV to the Companies Act. Depreciation had been so worked out only according to the Companies Act. The assessee pointed out that the rate of depreciation as per Schedule XIV to the Companies Act came into force only by the Companies (Amendment) Act, 1988, and the amendment came into force only on May 24, 1988. Hence, the rate of depreciation as per that Schedule was applicable only from 1989-90. The Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, by order dated October 9, 1992, rejected the argument raised on behalf of the assessee and computed the book profit under Section 115J of the Income-tax Act at Rs. 17,26,617 by adopting the rate of depreciation provided under the Companies Act as against the rate of depreciation adopted by the assessee under the Income-tax Rules. The total income at 30 per cent, was assessed at Rs. 5,17,990. The tax was thus determined. The assessee appealed to the Commissioner of Income-tax (Appeals), Cochin. It complained of the computation of income under Section 115J of the Income-tax Act. The assessee also questioned the validity of the assessment under Section 115J of the Act on the ground that the procedure adopted by the Deputy Commissioner of Income-tax (Assessment) was not warranted and there was no mistake apparent on the record entitling the assessing authority to invoke Section 154 of the Income-tax Act. The Commissioner of Income-tax (Appeals) rejected the said contention of the assessee and held that the proceedings of the Assessing Officer were valid. The appellate authority held that there was a mistake apparent from the records when the Assessing Officer gave effect to the order of the Commissioner of Income-tax (Appeals) on February 19, 1992, and hence the order dated October 9, 1992, which was being challenged in appeal was an order val-idly passed under Section 154 of the Income-tax Act. The appellate authority held that the depreciation as computed by the assessee in its books of account had to be taken into account while computing the profit under Section 115J of the Income-tax Act. The Commissioner of Income-tax (Appeals) hence directed the Assessing Officer to compute the profit under Section 115J of the Act taking into account the depreciation for the year under consideration as per the Income-tax Rules. Both the assessee and the Revenue went up in appeal before the Income-tax Appellate Tribunal, Cochin Bench. The assessee filed I. T. A. No. 14 (Coch.) of 1995 and the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, filed I. T. A. No. 89 (Coch.) of 1995.
3. The Income-tax Appellate Tribunal, Cochin Bench, rejected the argument on behalf of the assessee that the Assessing Officer had the jurisdiction to apply Section 115J of the Act only at the time of computation of the total income in the order of assessment under Section 143(3) of the Act and that at a later stage, if the total income was found to be reduced consequent to the appellate order, he had no jurisdiction to apply the provisions of Section 115J of the Act. The Tribunal held that the income was determined finally after giving effect to the order of the Commissioner of Income-tax (Appeals) and the income so determined can only be the total income computed for the concerned assessment year. If at that stage it was found that Section 115J of the Act had application, the Assessing Officer had necessarily to apply Section 115J of the Income-tax Act and to complete the assessment. The Appellate Tribunal thus found no merit in the appeal filed by the assessee. In the appeal filed by the Department, the Tribunal rejected the contention that for computing the book profit under Section 115J of the Act the depreciation for the year as per the Income-tax Rules could not be taken into account. The argument that for the purpose of computing the profit depreciation had to be provided as per Schedule XIV to the Companies Act was rejected and the view of the Commissioner of Income-tax (Appeals) was upheld. Thus, the appeal by the Revenue was also found to be without substance. Thus, both the appeals were dismissed.
4. The Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, filed M. P. No. 123 (Coch.) of 1998 arising out of I. T. A. No. 89 (Coch.) of 1995 submitting that the direction to the Assessing Officer to compute the book profit under Section 115J of the Act taking into account the depreciation for the year as claimed by the assessee was not justified since the assessee had debited to the profit and loss account the allowance of depreciation as per the Income-tax Rules and further submitting that in the case of CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706 (Ker) the High Court had held that for the purpose of Section 115J of the Act depreciation has to be computed in accordance with the Companies Act and not as per the Income-tax Rules. This application was opposed on behalf of the assessee by pointing out that the decision of the High Court relied on could not be applied to the case on hand. The Tribunal held that in Appollo Tyres Ltd.’s case [1999] 237 ITR 706 (Ker) what was decided by the High Court was whether arrears of depreciation for earlier years were to be taken into account for computing the book profit under Section 115J of the Act. There was no direction in that decision that for the current year, depreciation was to be computed in accordance with the Companies Act and not as per the Income-tax Rules. Thus, the Tribunal refused to modify its decision in the appeal by the Revenue as sought for by the Revenue. The petition was thus dismissed.
5. Both the Revenue and the assessee sought the reference of the questions, which according to them arose for consideration by invoking Section 256(1) of the Income-tax Act. At the instance of the Revenue, the Tribunal referred the question :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals), directing the Assessing Officer to allow the claim of depreciation as per the Income-tax Rules for the purpose of computing the book profit under Section 115J of the Companies Act ?”
6. It is this reference that is the subject-matter of I. T. R. No. 245 of 1999. At the instance of the assessee, the Tribunal also referred for the decision by this court the following two questions :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the finding of the Commissioner of Income-tax (Appeals) that the proceeding of the assessing authority dated October 9, 1992, was a valid order under Section 154 of the Income-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in upholding the computation under Section 115J through the order passed on October 9, 1992 ?”
These questions are the subject-matter of I. T. R. No. 259 of 1999.
7. I. T. R. Nos, 289 of 1999 and 293 of 1999 relate to the assessment year 1989-90. On February 28, 1992, the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, computed the total income of the assessee at Rs. 43,12,970 and determined the tax and surcharge payable as Rs. 24,90,740. After deducting the tax paid by the assessee, the balance payable with interest was determined as Rs. 5,80,160. The assessee went up in appeal. By order dated August 21, 1992, the Commissioner of Income-tax (Appeals), Cochin, substantially allowed the appeal and upheld some of the claims of the assessee. The Assessing Officer, by order dated March 29, 1993, gave effect to the appellate order and found that a sum of Rs. 3,92,256 was due to the assessee by way of refund. The Assessing Officer fixed the total income of the assessee at Rs. 38,27,898 and allowed the brought forward loss to be set off. At that stage, the Assessing Officer did not apply Section 115J of the Income-tax Act, which obviously had application as a consequence of the appellate order and the giving effect of that order by the Assessing Officer. But on November 23, 1963, the Assessing Officer issued a notice under Section 148 of the Income-tax Act calling upon the assessee to compute the income in terms of Section 115J of the Income-tax Act. The assessee filed a return dated December 22, 1993, showing the net loss at Rs. 3,22,382 and the income under Section 115J of the Income-tax Act at Rs. 17,70,442. After giving the assessee an opportunity of being heard, the Assessing Officer by order dated March 15, 1994, held that for the purpose of determination of depreciation, Schedule XIV to the Companies Act had to be applied. Since the assessee was a dividend declaring company, it should have adopted the depreciation rate as per the Companies Act instead of as per the Income-tax Rules. Thus, the Assessing Officer completed the assessment fixing the total demand at Rs. 54,60,170. The assessee went up in appeal before the Commissioner of Income-tax (Appeals), Cochin. The assessee questioned the reopening of the assessment under Section 147 of the Act and contended that Section 147 of the Act was not applicable to the Assessing Officer in the case on hand. The Commissioner of Income-tax (Appeals) noticing the relevant order regarding the invocation of Section 147 of the Income-tax Act and considering the other circumstances, held that the Assessing Officer had validly reopened the assessment. But the Commissioner of Income-tax (Appeals) upheld the contention of the assessee regarding the mode of computing the depreciation. The Commissioner of Income-tax (Appeals) held that the computation under the Companies Act meant for the purpose of declaring dividend cannot be adopted for the purpose of computing the taxable income under the provisions of the Income-tax Act. In the case on hand, the assessee had clearly debited depreciation as per the Income-tax Rules in its books of account. Therefore, for the purpose of Section 115] of the Act the book profit had to be taken as the net profit as shown in the profit and loss account for the relevant previous year. The Commissioner of Income-tax (Appeals) directed that the depreciation as claimed by the assessee in its books of account should be taken by the Assessing Officer while working out the computation under Section 115J of the Act. The Assessing Officer was directed to recompute the profit under Section 115J of the Act by adopting the depreciation as provided for in the profit and loss account of the assessee.
8. Both sides went up in appeal before the Income-tax Appellate Tribunal, Cochin Bench. The assessee filed ITA No. 823 (Coch.) of 1994 questioning the invocation of Section 147 of the Income-tax Act by the Assessing Officer after he had completed the assessment earlier as directed by the appellate authority. The Revenue filed ITA No. 820 (Coch.) of 1994 questioning the direction of the Commissioner of Income-tax (Appeals) to compute the profit under Section 115J of the Act by adopting the depreciation as provided for in the profit and loss account of the assessee as per the Income-tax Rules after holding that Schedule XIV to the Companies Act had no application. The Income-tax Appellate Tribunal, by order dated August 31, 1998, held that Section 147 of the Act was rightly invoked by the Assessing Officer and there was no want of jurisdiction or illegality in his proceeding to assess the assessee in terms of Section 115J of the Income-tax Act in the manner in which he had done. The Appellate Tribunal also upheld the view of the Commissioner of Income-tax (Appeals) that for the purpose of calculating depreciation, the method envisaged by the Income-tax Rules could be adopted and the assessee was not bound to compute it in terms of Schedule XIV to the Companies Act. Thus, the contention of the Revenue was also rejected. The Appellate Tribunal thus dismissed both the appeals.
9. The Revenue sought reference of the question relating to the mode of determination of depreciation by invoking Section 256(1) of the Income-tax Act. The Tribunal, at the instance of the Revenue, referred the following question for decision by this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Commissioner (Appeals), directing the Assessing Officer to allow the claim of depreciation as per Income-tax Rules for the purpose of computing the book profit under Section 115J of the Income-tax Act ?”
10. It is this reference that is the subject-matter of I. T. R. No. 289 of 1999. The assessee also sought a reference of the question regarding the jurisdiction of the Assessing Officer to invoke Section 147 of the Act on the facts and in the circumstances of the case. At the instance of the assessee, the Tribunal referred the following question under Section 256(1) of the Income-tax Act:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessment had been validly reopened under Section 147 to bring to tax the deemed income under Section 115J ?”
This is the subject-matter of I. T. R. No. 293 of 1999.
11. Thus, the two aspects that arise are the jurisdiction of the Assessing Officer in the circumstance of the case to invoke his jurisdiction under Section 154 and Section 147 of the Act in respect of the respective assessment years raised at the instance of the assessee and the question whether while computing the income in terms of Section 115J of the Income-tax Act the depreciation allowable has to be computed in terms of Schedule XIV to the Companies Act or in terms of the Income-tax Rules.
12. Chapter XII-B containing special provisions relating to certain companies was inserted in the Income-tax Act by the Finance Act, 1987, with effect from April 1, 1988. From the assessment year 1988-89, Section 115J as introduced, replaced section 80VVA of the Income-tax Act. Section 115J provided that where the total income of a company as computed under the Income-tax Act in respect of any accounting year was less than thirty per cent, of its book profit, as defined in the Explanation, the total income of the company chargeable to tax shall be deemed to be an amount equal to thirty per cent, of such book profit. According to Kanga and Palkiwala, “the whole purpose of this section is to tax a company which has no taxable income, merely because it shows a book profit”. It is explained in that section that for the purpose of the section, “book profit” meant the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (1A) as increased by the amounts referred to in Clauses (a) to (ha) of the Act. It may be noted that the words “prepared under Sub-section (1A)” were introduced by the Finance Act, 1989, with effect from April 1, 1989. Certain deductions were also provided by the Explanation. Sub-section (1A) introduced with effect from April 1, 1989 read :
“Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956).”
13. Thus going by the amendments introduced with effect from April 1, 1989, Section 115J(1A) had application as indicated by that provision and the Explanation thereto. For the assessment year 1989-90, the subject-matter of the references I. T. R. Nos. 289 and 293 of 1999, Sub-section (1A) to Section 115J as introduced has clear application. But regarding the assessment year 1988-89 covered by I. T. R. Nos. 245 and 259 of 1999, Section 115J had application without reference to Sub-section (1A) thereof and the Explanation thereto. The provision relating to one of the deductions contemplated by Explanation to Sub-section (1A) of Section 115J of the Act is “the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable.”
14. According to learned counsel for the Revenue, Section 205 of the Companies Act, has been legislatively incorporated into the Income-tax Act for the purpose of Section 115J of the Act and since this is legislation by incorporation, the said provision of the Companies Act has to be applied as indicated by that provision in the Companies Act. Counsel pointed out that in Section 205 of the Companies Act it is provided that for the purpose of calculating the depreciation under Section 205(1) of the Act, the same could be provided to the extent specified under Section 350 of the Companies Act. According to counsel, a reference to Section 350 of the Companies Act, would show that the amount of depreciation to be deducted shall be the amount calculated with reference to the written down value of the assets as shown by the books of the company at the end of the financial year expiring at the commencement of the Act or immediately thereafter and at the end of each subsequent financial year at the rate specified in Schedule XIV. Thus, according to counsel for the Revenue, the calculation of depreciation in terms of the Companies Act and Schedule XIV becomes a must while assessing an assessee under Section 115J of the Income-tax Act.
15. Learned counsel for the assessee, on the other hand, submitted that though with effect from April 1, 1989, Sub-section (1A) had been inserted and Clause (iv) of the Explanation was also inserted, it was open to the assessee to claim depreciation in terms of the Income-tax Act and the Rules and since there was no reference to Section 350 of the Companies Act in Section 115J of the Income-tax Act, the requirements of Section 350 of the Companies Act should not be roped in to make applicable Schedule XIV to the Companies Act or to insist that the rate of depreciation should be as specified in Schedule XIV to the Companies Act. In Surana Steels Put. Ltd. v. Deputy CIT [1999] 237 ITR 777, the Supreme Court speaking on Section 115] of the Act stated as follows (page 783):
“Section 115J was introduced in the assessment year 1988-89 to take care of the phenomenon of prosperous zero tax companies which had continued in spite of the enactment of Section 80VVA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies. A plain reading of Section 115J shows that if the assessee be a company and its total income determined under the Income-tax Act in respect of a previous year be less than thirty per cent, of its book profit, fictionally it will be deemed that its total income chargeable to tax for the relevant previous year was an amount equal to thirty per cent, of such book profit. The total income of the assessee shall first be computed in accordance with the provisions of the Income-tax Act and if the total income so computed be less than thirty per cent, of the book profit, then the profit and loss account of the company for the relevant previous year shall have to be prepared under Sub-section (1A) of Section 115] in accordance with Parts II and III of Schedule VI to the Companies Act. The book profit so arrived at under the Companies Act shall be suitably adjusted so as to satisfy the requirements of the Explanation. We are in this case concerned with the interpretation of Clause (iv) under the Explanation to Section 115J.”
16. Thereafter, the Supreme Court stated that Section 115J, Explanation, Clause (iv), is a piece of legislation by incorporation. After dealing with the principles of statutory interpretation their Lordships stated (page 786) :
“Once we have ascertained the object behind the legislation and held that the provisions of Section 205 quoted hereinabove stand bodily lifted and incorporated into the body of Section 115J of the Income-tax Act, all that we have to do is to read the provisions plainly and apply the rules of interpretation if any ambiguity survives. Section 205(1), proviso Clause (b), of the Companies Act brings out the unabsorbed portion of the amount of depreciation already provided for computing the loss for the year. The words ‘the amount provided for depreciation’ and ‘arrived at in both cases after providing for depreciation’ make it abundantly clear that in this clause ‘loss’ refers to the amount of loss arrived at after taking into account the amount of depreciation provided in the profit and loss account …. It applies to those cases where the depreciation has been provided in accordance with the provisions of Sub-section (1) of Section 205. The depreciation is provided for in the profit and loss account. The loss is arrived at after taking into account the depreciation provided. It is therefore clear that the word ‘loss’ as used in the proviso Clause (b) to Section 205(1) signifies the amount arrived at after taking into account the amount of depreciation and it has to be so read and understood in the context of Section 115J of the Income-tax Act, 1961. We do not agree with the view taken by the High Court that in case there is profit in a year but after adjustment of depreciation it results in loss, no adjustment in the book profit under Section 115J can be allowed. The view taken by the High Court would partially defeat the object sought to be achieved by Section 115J of the Income-tax Act, 1961. We also do not agree with the High Court saying that having lifted Section 205(1), proviso Clause (b), from the Companies Act into Section 115J of the Income-tax Act, there is no occasion to refer to the Companies Act, 1956, at all”.
17. It may be noted here that the Income-tax Appellate Tribunal, in its order, has relied on the decision of the Andhra Pradesh High Court in V. V. Trans-Invesments (P.) Ltd. v. C1T [1994] 207 ITR 508, for holding that the claim of depreciation as per the Income-tax Rules is allowable. That decision of the Andhra Pradesh High Court was also the subject-matter of one of the appeals dealt with in the decision reported in Surana Steels P. Ltd. v. Deputy CIT [1999] 237 ITR 777. That was Civil Appeal No. 4472 of 1995. That appeal was also allowed and the decision of the Andhra Pradesh High Court was reversed. The fact that Section 350 of the Companies Act may not apply to a private company unless it is a subsidiary of a public company may not matter since Section 205 of the Companies Act has been incorporated into Section 115J of the Income-tax Act and Section 205 of the Companies Act in turn insists that depreciation shall be provided to the extent specified in Section 350 of the Act. It is, therefore, not possible to keep out Schedule XIV to the Companies Act relating to ascertainment of depreciation as mentioned in Section 350 of the Companies Act. It is, therefore, clear that after the insertion of Sub-section (1A) of Section 115J of the Act with effect from April 1,1989, the ascertainment of depreciation has to be in terms of Section 205 of the Companies Act understood in the light of Section 350 of the Act and Schedule XIV to that Act.
18. Learned counsel for the assessee submitted that what was relevant was to determine the book profit of the assessee. As per the books of account of the assessee, the book profit as computed in the order of the Assessing Officer dated October 9, 1992, could be seen to be Rs. 17,26,617 and the question was whether the Assessing Officer could determine the book profit as Rs. 51,27,865 as was sought to be done. Counsel submitted that the only increases contemplated by the Explanation to Section 115J were contained in Clauses (a) to (ha) and the addition of the amount to book profits did not fall under any of those categories. The assessee had always shown depreciation in its accounts as per the Income-tax Rules and there was no warrant for the addition. It is seen from the order of assessment dated October 9,1992, that the depreciation as per the books of account of the assessee is Rs. 2,95,13,873 and the depreciation as per Schedule XIV to the Companies Act is Rs. 2,45,81,766. Counsel submitted that the balance-sheet prepared by the company was in terms of Section 211 of the Companies Act and there was no justification in ignoring the balance-sheet thus prepared. There was no reference to Schedule XIV in Section 211 of the Companies Act. Counsel, therefore, submitted that it could not be insisted that the rates of depreciation specified in Schedule XIV to the Companies Act should be applied, while preparing the profit and loss account of the assessee. Counsel also relied on the circular issued. Schedule XIV applies only to the assets purchased after the coming into force of Schedule XIV and Schedule XIV had to be applied on its terms, if at all it was to be applied and it was not open to add anything to Schedule XIV. Counsel further submitted that Clause (iv) of the Explanation to Section 115] of the Act deals only with a specific situation and in this case, the assessee did not come under the proviso to Section 205 of the Companies Act and, therefore, there was no question of upholding the contention that the depreciation has to be calculated only in terms of Schedule XIV to the Companies Act.
19. We think that in the light of the decision of the Supreme Court in Surana Steels Pvt. Ltd. v. Deputy CIT [1999] 237ITR 777, explaining the scope of Section 115J of the Income-tax Act and the reasoning therein based on this being a legislation by incorporation, this argument raised on behalf of the assessee cannot be accepted. Section 115J of the Act is a special provision relating to an assessee-company, the total income of which as computed under the Income-tax Act in respect of any previous year relevant for the assessment year commencing on or after April 1,1988, is less than thirty per cent, of the book profit and the section postulates that the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be the amount equal to thirty per cent, of such book profit. The section thereafter lays down the manner in which the book profits is to be calculated. We think that in the circumstances like the present, in respect of an assessment of a company, Section 115J of the Act has to be applied in all its rigour especially considering the object sought to be achieved by the introduction of that provision. In fact we may note that even the constitutional validity of this provision was doubted by the learned authors Kanga and Palkiwala in their Commentaries to the Income Tax Act. We are, therefore, of the view that the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals) were not justified in holding that the assessee was entitled to calculate depreciation as per the Income-tax Rules as opposed to the relevant provisions of the Companies Act.
20. It has to be held that for the purpose of Section 115J of the Income-tax Act, the depreciation has to be calculated in terms of Schedule XIV to the Companies Act in view of the incorporation of Section 205 of the Companies Act into Section 115J of the Act and the consequence arising therefrom.
21. Though it is seen that Sub-section (1A) of Section 115J of the Act was inserted only with effect from April 1, 1989, in the view we have taken on the scope of Section 115J of the Act with the Explanation thereof, in the light of the decision of the Supreme Court in Surana Steels Put. Ltd. v. Deputy CIT [1999] 237ITR 777, we are of the view that even as regards the assessment year 1989-90 the position would be the same. The depreciation allowable has to be calculated at the rates provided in Schedule XIV to the Companies Act in respect of that assessment year as well. Counsel for the assessee referred to the note given below Schedule XIV to the Companies Act and Circular No. 2 of 1989, dated March 7, 1989 (see [1989] 65 Comp Cas (St.) 628), and contended that for calculating book profit under the Companies Act, the assessee is entitled to charge depreciation at rates different from the standard rates provided in Schedule XIV to the Companies Act. However, he has not justified the basis on which the income-tax rates of depreciation were adopted for arriving at the book profit. It is stated in the circular that on the basis of technological evaluation bona fide made, higher rates of depreciation can be charged with proper disclosure. We cannot accept this contention for two reasons. Section 115J does not permit such a deviation and allow the assessee to charge rates of depreciation different from the rates provided in Schedule XIV to the Companies Act. Further, the assessee has no case that they have made any technical evaluation and charged depreciation accordingly. If at all any such evaluation is made, the same should be approved by the assessing authority. Therefore, we do not find any justification for the assessee to charge depreciation at the income-tax rates for calculating the book profit which defeats the very object of Section 115J of the Act. We also do not find any authority under Section 115J of the Income-tax Act to apply depreciation on the basis of the circular of the Company Law Board as against the rates to be applied as provided under Schedule XIV to the Companies Act.
22. In the light of these conclusions, the questions referred at the instance of the Revenue for the relevant assessment years have to be answered in the negative and in favour of the Revenue and against the assessee.
23. Now, we come to the questions referred at the instance of the assessee in I. T. R. No. 259 of 1999. Those questions relate to the assessment year 1988-89. At the first instance the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayarn, rejected the return filed by the assessee and assessed the taxable income of the assessee at Rs. 47,26,270 and imposed a tax of Rs. 25,99,448 and a surcharge. On appeal by the assessee, the Commissioner of Income-tax (Appeals), Cochin, ordered modification of the order of assessment by upholding some of the claims of the assessee and directing the Assessing Officer to consider the claim of the assessee for depreciation in the light of the decisions for the earlier years. The Assessing Officer was also directed to give effect to the orders of the appellate authority in respect of depreciation for earlier years and work out the correct depreciation admissible to the assessee for the concerned year. This order of the Commissioner of Income-tax (Appeals) was not appealed against by the Revenue. By order dated February 19, 1992, the Deputy Commissioner of Income-tax (Assessment), Special Range, Kottayam, gave effect to the appellate order and recomputed the income of the assessee and accepted the total loss as Rs. 41,50,280. At the time of recomputing the income thus, the Assessing Officer did not invoke Section 115J of the Act or make an assessment based on that section. But, on April 10, 1992, the Deputy Commissioner of Income-tax (Assessment) issued a notice to the assessee calling upon the assessee to furnish the computation of income in terms of Section 115J of the Act and to furnish the details. The Assessing Officer also indicated that the assessee had claimed depreciation as per the Income-tax Rules and also an investment allowance and thereby had not arrived at the book profit in terms of Section 115J of the Act. The assessee-respondent submitted a statement showing the computation of the book profit under Section 115J of the Act. In the covering letter the assessee indicated that the profit and loss account was prepared as per the Income-tax Rules and the same was not prepared as per Schedule XIV to the Companies Act. According to the assessee, depreciation need not be worked out according to the Companies Act. It was pointed out that the rate of depreciation as per Schedule XIV to the Companies Act came into force only on May 24, 1988, and hence the rate of depreciation as per that Schedule was applicable only from 1989-90. The Assessing Officer rejected the argument raised on behalf of the assessee and computed the book profit under Section 115J of the Act at Rs. 17,26,617. The total income at 30 per cent, was assessed and the tax was determined. Among other things, the assessee challenged the fresh assessment made by the Assessing Officer under Section 115J of the Act by raising a contention before the Commissioner of Income-tax (Appeals). It was contended on behalf of the assessee that the Assessing Officer was not entitled to invoke Section 154 of the Act on the facts and in the circumstances of the case. This contention of the assessee was overruled by the Commissioner of Income-tax (Appeals) who held that the Assessing Officer had jurisdiction to proceed to assess the assessee under Section 115J of the Act as he has done. This contention pursued by the assessee before the Income-tax Appellate Tribunal was also rejected. It is in that situation that the assessee has got the two questions referred, as to whether the proceeding of the assessing authority dated October 9, 1992, was a valid order in terms of Section 154 of the Income-tax Act and whether the Appellate Tribunal was justified in law in upholding the computation under Section 115J of the Act through the order passed on October 9, 1992.
24. As regards the assessment year 1989-90, more or less the same situation arose. The Assessing Officer while giving effect to the appellate order passed on March 29, 1993, did not apply Section 115J of the Act, which obviously had application as a consequence of the appellate order and the giving effect to of that order by the Assessing Officer. There also he issued a notice on November 23, 1993, under Section 148 of the Income-tax Act calling upon the assessee to compute the income in terms of Section 115J of the Act. The assessee filed a return. But the assessee also raised a contention that the Assessing Officer could not reopen the assessment under Section 147 of the Act since Section 147 of the Act was not available in the case on hand. That claim was rejected by the Assessing Officer, by the Commissioner of Income-tax (Appeals) and by the Tribunal and it is in that circumstance that at the instance of the assessee, the Tribunal has referred the question whether the assessment had been validly reopened under Section 147 of the Act to bring to tax the deemed income under Section 115J of the Act.
25. Under Section 154 of the Income-tax Act, the assessing authority has the power to rectify any mistake apparent from the record and amend any order passed by it under the provisions of the Act. As regards the assessment year 1988-89 while giving effect to the order of the Commissioner of Income-tax (Appeals) and recomputing the income of the assessee, the Assessing Officer failed to give effect to Section 115J of the Act which had clear application in the light of the order he passed giving effect to the appellate order. There was thus clearly an apparent omission or apparent mistake in the order of the assessing authority, in that he had omitted to apply a statutory provision which had clear application. In the context of the object sought to be achieved by the introduction of Section 115J into the Act, it has to be noted that it was a mandatory provision in respect of companies like the assessee here. In CIT v. Kesaria Tea Co. Ltd. [1998] 233 ITR 700, this court had held that overlooking a mandatory provision of law which allows no discretion to the taxing authorities is a mistake apparent from the record and the order passed overlooking such a mandatory provision could be rectified in exercise of power under Section 154 of the Act. The Division Bench referred to the decision of the Supreme Court in Venkatachalam (M. K.), ITO v. Bombay Dyeing and Manufacturing Co. Ltd. [1958] 34 ITR 143 ; Maharana Mills (Pvt.) Ltd. v. ITO [1959] 36 ITR 350 (SC); ITO v. Asok Textiles Ltd. [1961] 41 ITR 732 (SC) and in Balaram (T, S.), ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), in coming to this conclusion. After also referring to the decision of this court in CIT v. Quilon Marine Produce Co. [1986] 157 ITR 448, the Division Bench held (page 710) :
“From the aforesaid decisions of the Supreme Court and this court it is clear that overlooking a mandatory provision of law which allows no discretion in the taxing authorities is a mistake apparent from the record. It is also a settled position that a decision on a debatable point of law or where the law confers on the taxing authorities a discretion such decision cannot be corrected under Section 154 of the Act.”
26. Here, in view of the decision of the Commissioner of Income-tax (Appeals) and the giving effect to the same by the Assessing Officer, the position that emerged was that Section 115J of the Income-tax Act clearly became applicable. We have already adverted to the purpose for which the said provision was introduced. The Assessing Officer was, in the circumstances, bound to apply Section 115J of the Act and complete the assessment. But he overlooked or ignored the said statutory provision and purported to pass the order giving effect to the decision of the Commissioner of Income-tax (Appeals). Since while passing that order, he had ignored the mandate of Section 115J of the Act, it has to be held that the said order was capable of being rectified in exercise of power under Section 154 of the Act. We may also notice here that when he completed the original assessment, going by the order of assessment made by the Assessing Officer, Section 115J of the Act had no application and Section 115J of the Act became relevant and applicable only on the Assessing Officer giving effect to the decision of the Commissioner of Income-tax (Appeals). It was at that stage that the Assessing Officer ignored the mandatory statutory provision contained in Section 115J of the Income-tax Act. In that situation, the power available to the Income-tax Officer in terms of Section 154 of the Act is wide enough to justify the rectification of the mistake he had made.
27. In view of our conclusion as above, the questions referred to us in I. T. R. No. 259 of 1999 at the instance of the assessee have to be answered against the assessee and in favour of the Revenue.
28. Regarding the assessment year 1989-90, the Assessing Officer had while giving effect to the order of the Commissioner of Income-tax (Appeals) omitted to apply Section 115J of the Act which had clear application. But regarding that year the Assessing Officer invoked his jurisdiction under Section 147 of the Act and issued a notice to the assessee under Section 148 of the Act calling upon the assessee to compute the income-tax in terms of Section 115J of the Act. The question that is referred to us for decision arises out of the objection raised by the assessee that the Assessing Officer could not reopen the assessment in exercise of power under Section 147 of the Act in the circumstances of the case. Under Section 147 of the Act, the Assessing Officer can bring to assessment any income chargeable to tax that has escaped assessment for the concerned year. The deemed income in terms of Section 115J of the Act was chargeable to tax when the Assessing Officer gave effect to the order of the Commissioner of Income-tax (Appeals). Thus, the income equal to thirty per cent, of the book profit escaped assessment within the meaning of Section 147 of the Income-tax Act. Since such income at thirty per cent, of the book profit in terms of Section 115J of the Act chargeable to tax had escaped assessment the Assessing Officer, in our view, had jurisdiction under Section 147 of the Act to proceed to bring that income to assessment after issuing a notice under Section 148 of the Act.
29. In Alleppey Co. Ltd. v. CIT [1976] KLT 57, a Division Bench of this court, after referring to the decision of the Supreme Court in CIT v. A. Raman and Co. [1968] 67 ITR 11 held that information which was made the foundation for reassessment may well be obtained from the material on record or the facts disclosed thereby or from other enquiry or research into the facts or law, even if this could well have been obtained on the earlier occasion. This court also referred to an earlier decision of a Division Bench of this court in United Mercantile Co. ltd. v. CIT [1967) 64 ITR 218 and the decision of the Madras High Court in Salem Provident Fund Society Ltd. v. CIT [1961] 42 ITR 547. This court also relied on the decision of the Supreme Court in CWT v. Imperial Tobacco Co. of India Ltd. [1966] 61 ITR 461 in support of the proposition that if there is information leading to the belief that income has escaped assessment the mere fact that this information has resulted in a change of opinion will not make Section 34 inapplicable. A change of opinion is not sufficient for initiating proceedings under Section 34 only when such change of opinion is the result of a different method of reasoning and not based on information. In the case on hand, when he gave effect to the order of the Commissioner of Income-tax (Appeals) and passed the order, the material available was sufficient information to enable the Assessing Officer to invoke Section 147 of the Act and to rope in the income in terms of Section 115J of the Act to assessment on the ground that the same had escaped assessment. The fact that the information was available even when he originally gave effect to the order of the Commissioner of Income-tax (Appeals) does not preclude the exercise of jurisdiction under Section 147 of the Act since this was not a case where there was a change of opinion as a result of a different method of reasoning. This, in our view, was a case where the income at thirty per cent, of the book profit of the company had escaped assessment and the same could be brought to tax in exercise of power under Section 147 of the Act. In view of this conclusion, the question referred to us in I. T. R. No. 293 of 1999 at the instance of the assessee has also to be answered against the assessee and in favour of the Revenue. We are not in a position to agree with the submission of learned counsel for the assessee that this was merely a case of change of opinion by the Assessing Officer and consequently Section 147 of the Act could not be invoked by him.
30. In the light of our discussion as above, all the questions referred to us in these tax references have to be answered in favour of the Revenue and against the assessee. Consequently, we answer all the questions referred to us for opinion in favour of the Revenue and against the assessee.