2007 (8) TMI 643 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of brought forward book loss relating to the assessment year 2000-01 and earlier years in computing the liability u/s 115JB of the Act.

Summary:

Issue 1: Disallowance of Brought Forward Book Loss u/s 115JB

The primary issue in the appeal was the disallowance of brought forward book loss relating to the assessment year 2000-01 and earlier years in computing the liability u/s 115JB of the Act. The assessee claimed a reduction of this loss while working out the book profit u/s 115JB, citing clause (iii) of the Explanation below section 115JB(2), which allows for the reduction of "the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account".

The Assessing Officer disallowed this reduction, arguing that due to a substantial change in shareholding in the assessment year 2000-01, the provisions of section 79 of the Act were applicable, which restricts the carry forward of losses. The Commissioner of Income-tax (Appeals) upheld this view, stating that section 79 extends to book profit computation under section 115JB, and the benefit of past losses is not available in subsequent years when there is a substantial change in shareholding.

Before the Tribunal, the assessee contended that section 115JB is a self-contained code and the book profit should be computed within the parameters laid down in the section itself, which includes the reduction of the lower of the loss brought forward or unabsorbed depreciation as per the books of account. The assessee argued that section 79, which restricts the carry forward of losses due to a change in shareholding, should not apply to the computation of book profit u/s 115JB.

The Tribunal agreed with the assessee, stating that section 115JB is a special provision for payment of minimum tax by certain companies, and the book profit is to be computed as per the Explanation below sub-section (2) of section 115JB, which specifically allows for the reduction of the lower of the loss brought forward or unabsorbed depreciation as per the books of account. The Tribunal held that the provisions of section 79, which apply to the normal computation of income, do not affect the computation of book profit u/s 115JB. The Tribunal reversed the orders of the Commissioner of Income-tax (Appeals) and the Assessing Officer, directing the Assessing Officer to consider the loss as per the books of account of the assessee, irrespective of the applicability of section 79.

Pronounced in the open court on August 17, 2007.