2012 (1) TMI 228 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of method of adjustment of carried forward book losses and depreciation for MAT purposes.

Summary:

Disallowance of Method of Adjustment of Carried Forward Book Losses and Depreciation for MAT Purposes:

The appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-V, Pune, which arose from the order passed by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 for the assessment year 2006-07. The assessee company, engaged in manufacturing pig iron and grey iron castings, raised a solitary issue regarding the disallowance of the method of adjustment of carried forward book losses and depreciation for MAT purposes.

The Tribunal noted that an identical issue had arisen in the assessee's case for the assessment year 2005-06, where the Tribunal had set aside the order of the Commissioner of Income-tax (Appeals) and restored the issue to the file of the Assessing Officer with specific directions. The learned Departmental Representative did not dispute this fact.

The Tribunal reiterated its findings from the previous case, emphasizing that the dispute relates to the computation of book profits for determining tax liability u/s 115JB of the Act. The relevant clause (iii) of Explanation 1 below 115JB(2) prescribes adjustments to the net profit shown in the Profit & Loss Account for computing book profit. The clause specifies that the net profit should be reduced by the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account.

The Tribunal examined the assessee's computation of book profit, which involved adjusting the net profit by the amount of unabsorbed depreciation, resulting in a book profit of 'Nil'. The Assessing Officer, however, computed the book profits differently, leading to a book profit of Rs. 20,24,35,238/-.

The Tribunal found that the methodology adopted by the Assessing Officer was flawed as it did not align with the principles of determining losses and depreciation in each financial year. The Tribunal emphasized the need to follow the principles enshrined in section 115JB and section 205(1)(b) of the Companies Act, 1956, which involves reducing the lower of the loss or depreciation to arrive at the surplus.

Consequently, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remitted the matter back to the file of the Assessing Officer to revisit the working of book profit for the purposes of section 115JB, specifically relating to clause (iii) of Explanation 1 to section 115JB(2) of the Act. The Assessing Officer was directed to carry out this exercise in accordance with the Tribunal's discussion and after allowing the assessee a reasonable opportunity of being heard.

Conclusion:

The appeal of the assessee was partly allowed, with the decision pronounced in the open court on 31st January, 2012.