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2011 (7) TMI 1235 - AT - Income TaxRevision u/s 263 - MAT - Computation of Book Profit u/s 115JB - CIT held that there are no brought forward business losses/depreciation of earlier years, which could have been adjusted while computing the book profits of the current year - For the loss incurred during the immediate preceding year, the assessee adjusted the figure of accumulated loss with the paid up capital and balance in profit and loss account was not reflecting any loss. - HELD THAT - As per audited books of accounts, it is observed that the assessee has continuously suffered loss as per its books for the last four years and out of which in the first year the entire loss was on account of depreciation, and in the remaining three years, there was also loss more than depreciation, i.e., cash loss. In spite of the above, to say that there was no brought forward loss or unabsorbed depreciation as per books in the current year is, in our considered opinion, an absurdity. In the instant case, it is observed that the assessee has suffered loss continuously in the last four years. No material has been brought on record that such loss was set off against any profit of the subsequent year in determining the book profit of the assessee company after the year in which such loss was suffered. Thus, in our considered opinion, such loss was available for set off during the year under consideration for determining the book profit as per provisions of clause (iii) of section 115JB(2). In view of the above, in our considered opinion, there was no error in the order of the assessment as passed by the Assessing Officer. Our above view also finds support from the decision of the Hon'ble Delhi High Court in the case of CIT VERSUS SUMI MOTHERSON INNOVATIVE ENGINEERING LTD. 2010 (10) TMI 33 - DELHI HIGH COURT .
Issues Involved:
1. Whether the CIT erred in holding that there was no carry forward business loss shown in the balance sheet of Assessment Year 2005-06 warranting a set off against business income for the purposes of levy of minimum alternate tax (MAT) under Section 115JB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Carry Forward Business Loss and Set Off Against Business Income for MAT Purposes: The appeal filed by the assessee challenges the order passed by the CIT under Section 263 of the Income-tax Act, 1961 for the Assessment Year 2005-06. The CIT held that there was no carry forward business loss shown in the balance sheet of Assessment Year 2005-06 warranting a set off against business income of Rs. 1,17,38,472/- for the purposes of levy of minimum alternate tax (MAT) under Section 115JB of the Act. The CIT invoked the provisions of Section 263 of the Act by observing that the assessee company filed its return of income for the Assessment Year 2005-06 admitting a total income of NIL. The profit as per the Profit & Loss Account (less dividend receipts) was Rs. 1,17,38,472/-, which was adjusted against carried forward business or unabsorbed losses of the same amount, resulting in NIL total income. The Assessing Officer (AO) had set off loss to the tune of Rs. 1,13,01,457/- against the gross total income and determined the total income at NIL. The AO stated that the assessee's net profit was fully set off against the book profit, and hence there was no income under Section 115JB. The CIT noted from the balance sheet as of 31.03.2005 that there was no business loss/depreciation as per the books of account. The Profit & Loss Account for the year ended 31.03.2005 showed a profit of Rs. 1,31,66,579/-, including a profit brought forward of Rs. 22,96,427/-, which was taken to the 'Reserves and Surplus' schedule. The CIT concluded that no adjustment to the book profit as per Clause (iii) of Explanation to Section 115JB was called for, and the entire book profit of Rs. 1,17,38,472/- required to be considered for taxation under Section 115JB. The CIT held that the assessment order was liable for revision under Section 263 as the twin conditions of that section were satisfied. In response, the assessee submitted that it had incurred business loss and depreciation loss between Financial Years 2000-2001 and 2002-03, which were not set off till the Assessment Year 2005-06. The company was eligible to set off these losses against book profit. The assessee also highlighted that as per the Scheme of Amalgamation approved by the Shareholders and the Hon'ble High Court of Madras, the company reduced the paid-up capital not represented by assets due to incurred losses in earlier years. The entire balance of Profit & Loss Account amounting to Rs. 3,58,75,731/- was transferred to the paid-up equity capital account, which was not income for any year but represented reduction of paid-up capital. The CIT(A) held that there were no brought forward depreciation/business losses as per the books of accounts for the year under consideration. The CIT(A) referred to the Hon'ble Supreme Court's decision in M/s Apollo Tyres Ltd. v. CIT, which stated that book profits are required to be computed based on the books of accounts prepared in accordance with the Companies Act, 1956. The CIT(A) concluded that there was no brought forward business loss/depreciation that could be set off against the book profits of the current year, and rejected the assessee's contentions. Upon hearing the rival submissions and perusing the records, the Tribunal found that the original assessment was completed under Section 143(3) wherein book profit under Section 115JB was computed at NIL after allowing set off of brought forward loss or depreciation of Rs. 1,13,01,457/-. The CIT revised this order under Section 263, stating that no amount could be allowed as deduction under Clause (iii) of Explanation to Section 115JB(2) as there was no loss balance in the profit and loss account. The Tribunal noted that the assessee had continuously suffered losses since Financial Year 2000-01 till the immediately preceding previous year and had adjusted the accumulated loss of Rs. 3,58,75,731/- with the paid-up capital. The Tribunal observed that the assessee had suffered losses continuously for the last four years, and the figures were as per audited books of account. The Tribunal held that the phrase 'loss brought forward' and 'debit balance in profit and loss account' are different and do not convey the same meaning. The Tribunal referred to the CBDT Circular No. 495, which clarified that 'brought forward losses' or 'unabsorbed depreciation' could be reduced in arriving at book profits. The Tribunal emphasized that the loss or unabsorbed depreciation is to be determined with reference to books of account and not necessarily from the profit and loss account or balance sheet. The Tribunal concluded that the loss or unabsorbed depreciation of one year could be set off against the profit of the subsequent year, and there was no requirement that the loss should appear in the balance sheet of the succeeding year. The Tribunal found that the assessee's losses were available for set off during the year under consideration for determining the book profit as per Clause (iii) of Section 115JB(2). The Tribunal held that there was no error in the AO's order allowing the deduction of Rs. 1,13,01,457/- in determining the book profit, and set aside the CIT's order passed under Section 263. Conclusion: The appeal filed by the assessee was allowed, and the order passed under Section 263 of the Act was set aside. The Tribunal directed that the book profits for the current year should be computed considering the set off of brought forward losses/depreciation.
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