2018 (7) TMI 1724 - AT - Income Tax

Revision u/s 263 - limiting the claim of the assessee for reduction in book profit as computed under section 115JB by the amount of loss brought forward or unabsorbed depreciation whichever is less, as per books of account to ₹ 18,43,991/- as against the claim of the assessee for ₹ 55,01,780/- - rectification of mistake u/s 154 - Held that - Without going into arithmetical accuracy of working of carry forward of set off losses etc., we are of the clear view that the methodology adopted by the assessee to prioritise set off of unabsorbed loss regardless of unabsorbed depreciation being lower is not in tune with the aim and object of Clause (iii) to Explanation 1 of Section 115JB of the Act. The decision rendered in the case of Eli Lilly 2011 (3) TMI 267 - DELHI HIGH COURT relied upon by assessee does not provide answer to the controversy in issue. The Hon ble Delhi High Court merely found that mistake, if any, is not in the nature of apparently mistake and thus not susceptible to rectification under s.154 of the Act. The issue raised by the assessee is therefore decided in negative on principle. Assessee has simultaneously pointed out certain factual errors such as quantum of carry forward loss of ₹ 3,00,78,787/- as on 01.04.2010 as per the method adopted by the AO as against the loss at ₹ 2,12,22,430/- as per the books of accounts of the assessee. We do not propose to go into arithmetical accuracy of quantum of carry forward and restrict ourselves to adjudicate the issue on the first principles. The factual aspects are thus remanded back to the file of the AO for determination of quantification of set off as per the aforesaid principle after giving proper opportunity to the assessee in this regard. Therefore, the issue is remanded back to the file of the AO for limited purposes of applying the principles narrated above and for re-determination of quantum of unabsorbed loss/depreciation available for set off in current year and succeeding year. - Decided against assessee

Summary

Issues Involved:
1. Methodology of calculating book profit under Section 115JB of the Income Tax Act.
2. Correctness of the set-off of brought forward business loss and unabsorbed depreciation.
3. Interpretation of Explanation (1)(iii) to Section 115JB of the Income Tax Act.
4. Factual discrepancies in the quantification of carry forward losses.

Detailed Analysis:

1. Methodology of Calculating Book Profit under Section 115JB:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals), which upheld the Assessing Officer's (AO) method of calculating book profit under Section 115JB. The AO observed that the assessee incorrectly calculated the eligible amount of set-off for brought forward losses and unabsorbed depreciation, leading to a higher book profit assessment. The AO determined the book profit at ?44,94,813/- instead of ?9,06,945/- as shown by the assessee.

2. Correctness of the Set-off of Brought Forward Business Loss and Unabsorbed Depreciation:
The assessee challenged the AO's computation, arguing that the Income Tax Act does not prescribe a specific methodology for setting off brought forward losses and unabsorbed depreciation. The assessee used the FIFO method, first adjusting brought forward losses and then unabsorbed depreciation against book profits consistently on a year-to-year basis. The AO, however, recomputed the book profit, leading to a higher figure, which was upheld by the CIT(A).

3. Interpretation of Explanation (1)(iii) to Section 115JB:
The core issue was the interpretation of Explanation (1)(iii) to Section 115JB, which allows a deduction of the lower of brought forward losses or unabsorbed depreciation as per books of account. The assessee contended that they should be allowed to reduce the net profits by either brought forward losses or unabsorbed depreciation, whichever they chose, provided it was the lower amount. The Tribunal, however, disagreed, stating that the reduction should be from the same category (either loss or depreciation) and not interchangeably. The Tribunal emphasized that the methodology adopted by the assessee was not in line with the statutory provisions, which require the lower of the two (unabsorbed loss or unabsorbed depreciation) to be deducted from the book profits.

4. Factual Discrepancies in the Quantification of Carry Forward Losses:
The assessee pointed out factual errors in the AO's computation, such as the discrepancy in the carry forward loss figures. The Tribunal did not delve into the arithmetical accuracy but remanded the issue back to the AO for re-determination of the quantum of unabsorbed loss and depreciation available for set-off, following the principles laid out in the judgment.

Conclusion:
The Tribunal upheld the AO's methodology and interpretation of Explanation (1)(iii) to Section 115JB, dismissing the assessee's appeal. The issue of factual discrepancies in the quantification of carry forward losses was remanded back to the AO for re-determination. The Tribunal emphasized that the reduction from book profits must adhere strictly to the statutory provisions, ensuring the lower of unabsorbed loss or depreciation is deducted, and not interchangeably as per the assessee's preference.