2007 (3) TMI 435 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT (Appeals) is justified in confirming the orders of the Assessing Officer, which refused to deduct from the book profit carried forward business loss or depreciation as per section 115JA(2)(iii).

Issue-wise Detailed Analysis:

1. Justification of CIT (Appeals) in Confirming the Orders of the Assessing Officer:

The first issue pertains to whether the CIT (Appeals) was justified in confirming the orders of the Assessing Officer, who refused to deduct from the book profit the carried forward business loss or depreciation, whichever is minimum, as per the provisions of section 115JA(2)(iii). The assessee argued that the book profit should be computed as per the Companies Act, specifically Part-II and Part-III of Schedule-VI, and that the amount of loss brought forward or unabsorbed depreciation, whichever is less, should be reduced from the book profit. The assessee contended that the method of adjustment of losses and depreciation was not prescribed under section 115JA, and hence, the method adopted by the assessee should be accepted.

The Departmental Representative countered that the deduction is permissible only if both loss and unabsorbed depreciation are present, as per the Explanation to clause (iii) of section 115JA. The Tribunal examined the legislative intent and the provisions of section 115JA, noting that the concept of Minimum Alternative Tax (MAT) was introduced to ensure that companies with substantial book profits but paying no tax contribute to the exchequer. The Tribunal emphasized that the net profit as shown in the profit and loss account, prepared in conformity with the Companies Act, is to be considered for computing book profit under section 115JA.

The Tribunal referred to CBDT Circular No. 495, which provides guidance on the priority for deducting brought forward loss and depreciation. The Tribunal observed that the assessee's method of adjustment was not correct, as it could lead to inconsistent and distorted results. The Tribunal concluded that the correct approach is to follow the method prescribed in the CBDT Circular, which aligns with the legislative intent of section 115JA.

The Tribunal directed the Assessing Officer to determine the brought forward loss or unabsorbed depreciation eligible for deduction under clause (iii) of section 115JA(2) by following the method prescribed in the Circular. The Assessing Officer was instructed to call for necessary information from the assessee and to accept the figures if they conform to the Circular. The Tribunal set aside the order of the CIT (Appeals) on this issue and restored the matter to the file of the Assessing Officer for fresh determination.

Conclusion:

The appeals of the assessee were allowed for statistical purposes, with the matter being remanded to the Assessing Officer to determine the correct amount of brought forward loss or unabsorbed depreciation eligible for deduction under section 115JA(2)(iii) as per the method prescribed in CBDT Circular No. 495.