2008 (9) TMI 407 - AT - Income Tax

Summary

Issues involved: Interpretation of provisions u/s 115JB for computation of taxable income, distinction between carried forward loss and unabsorbed depreciation, applicability of MAT provisions in case of no dividend declaration.

Summary:

Issue 1: Computation of taxable income u/s 115JB
- The appeal was filed by the Revenue against the order of the CIT(A)-II, Kochi for the assessment year 2004-05 u/s 143(3) of the IT Act, 1961.
- The AO disallowed the deduction of unabsorbed depreciation for the purpose of computing taxable income under s. 115JB, allowing only the deduction of carried forward business loss.
- The CIT(A) accepted the contention of the assessee that no liability to pay tax exists under MAT provisions if there is no case for declaring dividend as per company law.

Issue 2: Distinction between carried forward loss and unabsorbed depreciation
- The AO held that under s. 115JB, only the lesser amount of either carried forward loss or unabsorbed depreciation can be deducted, not both.
- The CIT(A) agreed with the assessee's argument that the concept of unabsorbed depreciation in the Companies Act is not relevant for interpreting s. 115JB.
- The Revenue contended that the law clearly states that only loss brought forward or unabsorbed depreciation, whichever is less, should be considered for computation of book profit under s. 115JB.

Issue 3: Applicability of MAT provisions in case of no dividend declaration
- The assessing authority is not required to consider whether the company is in a position to declare dividend under company law when applying MAT provisions.
- The CIT(A) erred in allowing the claim of the assessee for deduction of both carried forward loss and unabsorbed depreciation, contrary to the express provisions of s. 115JB.
- The Tribunal set aside the CIT(A)'s order and restored the AO's decision to allow deduction of only the lesser amount of carried forward loss.

In conclusion, the appeal filed by the Revenue was allowed, emphasizing the strict application of the provisions of s. 115JB for computation of taxable income and disallowing the deduction of both carried forward loss and unabsorbed depreciation.