2012 (9) TMI 390 - AT - Income Tax

Computation of income u/s 115JB - assessee is trying to compute the brought forward losses under the normal Income-tax Act provisions and not under the Companies Act - Held that - Clause-3 of Explanation to sec. 115JB(2) specifically provides that lower of the amount of loss brought forward or unabsorbed depreciation is to be reduced from the book profit and it is the amount, as per the books of account which to be reduced and not the amount as per the Income-tax Act records, which has been computed under the provisions of the Act - appeal filed by the assessee is dismissed.

Issues Involved:
1. Computation of income under Section 115JB of the Income-tax Act.
2. Treatment of brought forward losses and unabsorbed depreciation.
3. Applicability of Section 10A deduction in the computation of book profits.
4. Interpretation of legal provisions and judicial precedents.

Detailed Analysis:

1. Computation of Income under Section 115JB of the Income-tax Act:
The core issue revolves around the computation of income under Section 115JB of the Income-tax Act, 1961. The assessee filed its return declaring an income of Rs. 3,26,76,628/-, computed under Section 115JB by taking the net profit as per the profit and loss account at Rs. 21,14,42,000/-. The Assessing Officer (AO) observed that the assessee attached a note to the audit report explaining adjustments for inadmissible as well as admissible deductions and setting off brought forward losses. However, the AO, relying on the Supreme Court decisions in Apollo Tyres Ltd. v. CIT and Malayala Manorama Co. Ltd. v. CIT, held that the AO has no leeway to adjust the 'net profit' declared in the books of account. Thus, the net profit as shown in the profit and loss account was treated as the book profits for the computation of income under Section 115JB.

2. Treatment of Brought Forward Losses and Unabsorbed Depreciation:
The AO noted that the assessee's profit and loss account showed a brought forward loss of Rs. 209.30 lakhs, which was entirely unabsorbed depreciation with no element of 'brought forward business loss.' The AO held that since the brought forward business loss was 'Nil,' no amount of brought forward loss or unabsorbed depreciation could be allowed. The CIT(A) confirmed this view, leading to the assessee's second appeal.

3. Applicability of Section 10A Deduction in the Computation of Book Profits:
The assessee argued that only the Software Services Division was registered as a Software Technology Park (STP) unit eligible for Section 10A deduction, which was not claimed for the assessment year 2005-06. The assessee contended that the tax payable under regular provisions was higher than the tax determined on book profits under Section 115JB, and thus, the income under regular provisions was declared. The assessee reduced Rs. 8,44,51,767/- as 'loss brought forward or unabsorbed depreciation' from non-STPI units in the computation of book profits under Section 115JB. The assessee argued that the profits or losses of 10A units should be excluded from the computation of book profits under Section 115JB, as they are exempt from MAT.

4. Interpretation of Legal Provisions and Judicial Precedents:
The assessee relied on various judicial precedents and interpretations, arguing that the methodology of computation under Section 115JB should exclude 10A units' profits or losses. The assessee cited decisions like CIT v. Harprasad & Co. (P.) Ltd., G.K Ramamurthy v. Jt. CIT, and others to support the exclusion of 10A units' losses from the computation of book profits. The assessee also invoked the principle that if two interpretations are possible, the one favorable to the assessee should be adopted, as held in CIT v. Vegetable Products Ltd.

Tribunal's Decision:
The Tribunal, after considering the rival contentions and material on record, held that the book profits computed under the Companies Act cannot be adjusted except as provided under the Act. The Tribunal referred to the decision of the Ahmedabad Bench in Fascel Ltd. v. ITO, which held that the amount of loss brought forward or unabsorbed depreciation to be reduced from book profit is as per the books of account, not as per the Income-tax Act records. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the assessee's appeal.

Conclusion:
The appeal filed by the assessee was dismissed, affirming that the computation of book profits under Section 115JB must adhere to the net profit as shown in the profit and loss account prepared under the Companies Act, without adjustments for brought forward losses or unabsorbed depreciation not reflected in the books of account.

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