|Assessee changed its method of providing depreciation from ‘Straight Line Method (SLM) to “Written Down Value (WDV) during the year under consideration which resulted into shortfall in depreciation. Such shortfall was charged to P & L Account. AO disallowed claim of such additional depreciation on the count that Sec. 205 of the Companies Act does not entitled an assessee to claim depreciation for earlier years placing reliance on “McDowell and Co. v. CTO – 154 ITR 148”. Whether the change in method of accounting for depreciation was in accordance with Accounting Standards issued under the Companies Act? Whether AO has jurisdiction to go behind the “book profits” shown in P & L Account except to the extent of prescribed adjustments once it is found that books of accounts are certified by authorities under the Companies Act? What is the treatment of income on account of change in the method of depreciation? What is the treatment of additional claim / write back of depreciation in the books of account upon change in the method calculating the same?
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|CA. H. N. Motiwalla
|Book profit - AO has no jurisdiction to change book profit
The assessee has changed method depreciation from SLM to WDV and shortfall (deficiency) is charged to profit and loss account as per accounting standard. Thus prepared accounts is per schedule VI of the Companies Act, 1956 (i.e. schedule III of the Companies Act, 2013) and certified by the authorities under the Companies Act. Therefore the Assessing Officer has no jurisdiction to go behind the “book profit” shown in P & L account except to the extent of prescribed adjustment mentioned under section 115JB of the Income tax Act, 1961. As per the Supreme Court in Apollo Tyres Ltd. v. CIT [255 ITR 273], while interpreting similar provision under section 115J of the Act.