2016 (5) TMI 703 - AT - Income Tax

MAT applicability - CIT(A) directing the AO to give benefit of unabsorbed depreciation and recomputed the book profits as per the provisions of section 115JB - Held that - The aggregate of business loss or depreciation, whichever lower is to be considered for reduction out of the book profit. See Amline Textiles P.Ltd. Vs. ITO 2008 (11) TMI 438 - ITAT MUMBAI

Issues Involved:
1. Whether the CIT(A) erred in directing the AO to give the benefit of unabsorbed depreciation for the assessment years 2006-07 and 2007-08 and recompute the book profits as per the provisions of section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Direction to AO for Unabsorbed Depreciation:
The primary issue in the appeal was whether the CIT(A) was correct in directing the AO to give the benefit of unabsorbed depreciation and recompute the book profits as per section 115JB for the assessment years 2006-07 and 2007-08. The Revenue contended that the CIT(A) erred in this direction.

The assessee argued that this issue was already settled in their favor by the ITAT, Mumbai Bench in the case of Amline Textiles P. Ltd. vs. ITO, 27 SOT 152. The Tribunal in that case had held that the aggregate amount of business loss or unabsorbed depreciation, whichever is lower, should be reduced from the book profit.

2. Facts and Computation:
The facts were consistent for both years under appeal. The assessee was engaged in crushing and processing castor seeds and edible oil. They filed returns declaring NIL income after setting off unabsorbed depreciation against current year profit under normal provisions and loss against book profit under section 115JB. The AO scrutinized the case and issued a notice under section 143(2). The AO calculated the amounts available for set-off based on clause (iii) to Explanation 1 appended to section 115JB, which requires the exclusion of the lower of brought forward business loss or unabsorbed depreciation from the net book profit.

3. Tribunal's Interpretation:
The Tribunal clarified that clause (iii) of Explanation-1 to Section 115JB(2) refers to the aggregate amount of loss or unabsorbed depreciation, whichever is lower, rather than a year-wise consideration. This was supported by the ITAT’s decision in Amline Textiles P. Ltd., which emphasized that the term "amount" in the provision indicates a singular, consolidated figure rather than multiple year-wise amounts.

4. CIT(A)’s Observations:
The CIT(A) followed the Tribunal’s decision but noted that for the assessment years 2002-03, 2004-05, and 2005-06, the assessee had no unabsorbed depreciation as it had been adjusted against business profits. Therefore, these years were excluded from the aggregate unabsorbed depreciation. The CIT(A) directed the AO to give the benefit of unabsorbed depreciation amounting to ?26,47,30,860 for the assessment years 2006-07 and 2007-08, consistent with the Tribunal’s decision in Amline Textiles P. Ltd.

5. Assessee’s Cross Objections:
The assessee challenged the CIT(A)’s exclusion of certain years in its cross objections but did not press this issue during the hearing. Consequently, the Tribunal did not address this finding of the CIT(A).

Conclusion:
The Tribunal upheld the CIT(A)’s decision, confirming that the aggregate of business loss or depreciation, whichever is lower, should be considered for reduction from the book profit. The appeals of the Revenue were dismissed, and the cross objections of the assessee were also dismissed.

Final Order:
The appeals of the Revenue were dismissed, and both cross objections of the assessee were also dismissed. The order was pronounced on 7th April 2016 at Ahmedabad.

← Previous Next →