2013 (7) TMI 1246 - AT - Income Tax

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question in this appeal was the correct method for computing book profits under section 115JB of the Income Tax Act, 1961, specifically regarding the adjustment of brought forward losses or unabsorbed depreciation, whichever is lower, as per clause (iii) of the Explanation to sub-section (2) of section 115JB.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 115JB of the Income Tax Act, 1961, pertains to the computation of book profits for the purpose of determining the minimum alternate tax (MAT) liability of companies. Clause (iii) of the Explanation to sub-section (2) specifies that the net profit as shown in the profit and loss account should be reduced by the amount of loss brought forward or unabsorbed depreciation, whichever is less.

The Tribunal relied on the precedent set by the Mumbai Bench in M/s Amline Textiles (P) Ltd. Vs ITO, which held that the cumulative effect of unabsorbed depreciation and business loss from year to year should be considered, and whichever is lower in the year of set-off is to be adopted for computing the deduction available under clause (iii).

Court's Interpretation and Reasoning

The Tribunal had previously set aside the order of the CIT(Appeals) and directed the Assessing Officer to recompute the amount of loss brought forward or unabsorbed depreciation deductible under clause (iii) of the Explanation to sub-section (2) of section 115JB. The Tribunal emphasized that the lower of the unabsorbed depreciation or business loss should be considered for each of the past years to determine the figure of unabsorbed or business loss, whichever is lower. If either of the two figures was 'nil', then only a 'nil' amount should be carried forward for that year.

Key Evidence and Findings

The assessee's method involved calculating the amount eligible for set-off against book profits by totaling the unabsorbed depreciation for certain assessment years and comparing it with the unabsorbed book losses. The Assessing Officer, however, ignored unabsorbed depreciation for years where the business loss was 'nil', leading to a different computation.

Application of Law to Facts

The Tribunal found that the Assessing Officer had correctly applied the law by considering the lower of the unabsorbed depreciation or business loss for each year. The Tribunal upheld the Assessing Officer's computation, which allowed an adjustment of Rs.6,09,21,376/- as unabsorbed depreciation brought forward from preceding years against book profits determined for the year under consideration under section 115JB.

Treatment of Competing Arguments

The assessee argued that the cumulative unabsorbed depreciation and business loss should be considered, as supported by the Mumbai Bench's decision in M/s Amline Textiles (P) Ltd. However, the Tribunal dismissed this plea, stating that the current proceedings were limited to verifying compliance with the Tribunal's previous directions and not to reconsider the issue based on subsequent decisions.

Conclusions

The Tribunal concluded that the Assessing Officer's method of computation, which was in line with the Tribunal's previous directions, was correct. The Tribunal reversed the CIT(Appeals)'s order and upheld the Assessing Officer's computation of book profits for the assessment year under section 115JB.

SIGNIFICANT HOLDINGS

The Tribunal held: "We, therefore hold that in order to segregate the loss declared by the assessee comprising of loss brought forward and unabsorbed depreciation for the purposes of calculating Book profits u/s 115JB, the same is to be carried out in a manner as laid down in clause (iii) of Explanation 2, subsection 2 of Section 115JB itself for each of the past years."

The core principle established is that the computation of book profits under section 115JB should consider the lower of unabsorbed depreciation or business loss for each past year, and if either is 'nil', then 'nil' should be carried forward for that year.

The final determination was to allow the appeal of the revenue, thereby upholding the Assessing Officer's computation method and reversing the CIT(Appeals)'s order.