2017 (8) TMI 236 - AT - Income Tax

Adding back excess deduction under the provision of Sec. 115JB(2) - MAT computation - unabsorbed depreciation adjustment - Held that - Neither the brought forward loss nor the unabsorbed depreciation has been written off in the books of the accounts. Both are appearing in the books of accounts in-spite of the facts that the unabsorbed depreciation was adjusted in the immediate preceding year to the extent of ₹ 107.47 while determining the book profit under section 115JB of the Act. It is because the aforesaid adjustment was not made in the books of accounts but in the computation of income while determining the book profit as per the provisions of section 115JB of the Act. Thus, law on this issue is fairly clear that the effect has to given for the brought forward loss or unabsorbed depreciation as per the books and as per the provisions of section 115JB of the Act. Respectfully following the order of this co-ordinate Bench in the case of Binani Industries Ltd. (2016 (3) TMI 873 - ITAT KOLKATA) we reverse the order of Ld. CIT(A) in this regard and direct the AO to delete the addition - Decided in favour of assessee.

Summary

Issues:
1. Excess deduction under Sec. 115JB(2) of the Income Tax Act, 1961.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the addition of excess deduction under Sec. 115JB(2) of the Act. The assessee, a government enterprise in the mining business, had brought forward losses and unabsorbed depreciation in its books. The Assessing Officer (AO) disallowed the claimed excess deduction of unabsorbed depreciation by the assessee. The issue was whether the lower authorities were correct in their actions.

The assessee contended that the lower of business loss or unabsorbed depreciation should be reduced from the book profit each year, irrespective of previous deductions. However, the CIT(A) upheld the AO's decision, citing precedents and Circular no. 495 of 1987. The assessee appealed, arguing that the Circular was issued under Sec. 115J, not Sec. 115JB as relevant in this case.

The ITAT Kolkata analyzed the situation and referred to a similar case involving Binani Industries Limited. The Tribunal held that losses, once adjusted, remain in the books until offset by profits. Therefore, the losses should be available for reduction from book profits under Sec. 115JB. Relying on this precedent, the ITAT reversed the CIT(A)'s order and directed the AO to delete the addition, allowing the assessee's appeal partly.

In conclusion, the ITAT Kolkata allowed the appeal, emphasizing that the effect of brought forward losses or unabsorbed depreciation should be considered as per the books and Sec. 115JB provisions. The Tribunal's decision was based on the principle that losses remain until offset by profits, rejecting the CIT(A)'s reasoning and ordering the deletion of the addition.