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TMI Blog2007 (3) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 115JA. He further submitted that the assessee has reduced Rs. 42,53,591 from the book profit as per the provisions of section 115JA(2)(iii) of the Act. It is further argued that the book profit is to be computed as per the provisions of the Companies Act, more particularly the profit and loss account is to be prepared as per the provisions of Part-II and Part-III of the Schedule-VI to the Companies Act, 1956. It is submitted that as per clause (iii) to section 115JA, the amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account is to be reduced. He further argued that subsequently Explanation to clause (iii) was added which may be with a view to get over the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 1 as in that case, the Hon'ble Supreme Court held that the loss for commercial purposes, and accountancy parlance will include depreciation. It is further argued that in assessee's case there are profits as per books of account for the financial years 1995-96 and 1996-97, but there are losses including depreciation carried forward from the financial years 1985-86 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed before us. We have also carefully considered the principles laid down in the precedent relied on by the ld. senior counsel. The controversy before us is in respect of the computation of the book profit. Section 115JA is brought on the statute book by the Finance (No. 2) Act of 1996 with effect from 1-4-1997. The main legislative intent in bringing section 115JA on the statute book has been explained by the CBDT in Circular No. 762 dated 6-2-1998. The concept of Minimum Alternative Tax (MAT) was introduced earlier also when section 115J was on the statute book. The main legislative object under section 115JA as explained by the CBDT in the said Circular is that the number of zero tax companies and companies paying marginal tax have grown. In the study it was revealed that in spite of the fact that companies have substantial book profit and were paying handsome dividend, no tax was paid by them to the exchequer. Section 115JA is the replica of the earlier section 115J with certain modifications. As per the provisions of section 115JA(2) specific method or procedure of computation of book profit is given. It is indeed clear from the provisions of said sub-section that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich as provided in sub-section (2) of section 115JA profit and loss account is prepared. There is no dispute that the method as well as rate of depreciation may differ under the Companies Act as well as under the Income-tax Act. 8. In this case, as per the paper book filed by the assessee, it seen that the assessee company is consistently incurring loss from the assessment year 1986-87 till assessment year 1995-96. The assessee has also filed the copies of the audited statement of accounts for the financial years 1994-95, 1995-96 and 1996-97. On the perusal of the profit and loss account as well as balance sheet, it is seen that the assessee is independently working out the profit before depreciation and net profit after providing the depreciation. It is true that under the Companies Act, no specific definition is given in respect of the losses and depreciation. The reason given for disallowing the claim of the assessee by the CIT (Appeals) is that the assessee has not clearly mentioned about the unabsorbed depreciation and brought forward losses in the annual report itself, nor claimed the deduction. In our opinion, the said observation of the CIT (Appeals) is not at all correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act only. When the net profit is determined under the normal provisions of the Act, the Legislature has separately considered the treatment and priority to be given to brought forward loss and depreciation by incorporating sub-section (3) to section 115JA. 10. We would like to refer to the Circular of the CBDT No. 495 dated 22-9-1987 reported at (1987) 168 ITR (St.) 87 (page 111) paragraph 36.5 wherein considering the earlier provisions of section 115J, the CBDT has clarified how priority should be given for deducting the brought forward loss and depreciation. Though the said Circular was issued in the context of section 115J, in our opinion, as section 115J is analogous to section 115JA, the same should be relied on for determining the method in respect of priority of the brought forward loss or depreciation. In the said circular method and priority in respect of brought forward loss and depreciation are shown with example which is as under :- "36.5 The following examples illustrate how the amended provisions relating to the new section will be applied :- NEW COMPANIES Book profit for the purposes Profit under the of the Companies Act, 1956 Income-tax Act Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet, but at the same time, accumulated loss brought forward by the assessee is comprised of the element of depreciation also, it should not be a bar for the assessee-company to claim the deduction under clause (iii) to section 115JA(2) of the Act. This view is further supported as clause (iii) which has undergone amendment by the Finance Act, 2002 with retrospective effect wherein it is clarified that loss shall not include depreciation. It means that it is not necessary that the assessee must show the loss and depreciation independently. The assessee has filed a chart before us which is placed at page 34 of the paper book in ITA No. 1279(Coch.)/2005 in which the assessee has given the break-up of the year-wise accumulated loss. In our opinion, as per the Circular issued by the CBDT being Circular No. 495 dated 22-9-1987, the assessee-company should work out the figures of depreciation and loss from the assessment year 1986-87 (financial year 1985-86) and after following the method prescribed as per the Circular No. 495 whichever is least either loss or depreciation, the same should be reduced for working out book profit in assessment years 1998-99 and 1999-2000. How ..... X X X X Extracts X X X X X X X X Extracts X X X X
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