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TMI Blog2013 (11) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... n at Nil, because he has found that depreciation already stood reduced – Rs. 248,007,447/- was allowed as set off to the assessee in computing the book profit of the assessment year 2004-05 was of unabsorbed depreciation only and as the entire unabsorbed depreciation was allowed as deduction in assessment year 2004-05, the carried forward unabsorbed depreciation was NIL in the instant case and consequently, the deduction allowable under clause (iii) of Explanation to section 115JB(2) in the year under consideration comes to NIL – Decided in favor of Revenue. - ITA No.709/Mds/2010 - - - Dated:- 12-2-2013 - N S Saini and S S Godara, JJ. For the Appellant : Dr S Moharana, CIT/DR For the Respondent : Shri S Sridhar, Adv. ORDER:- Per: N S Saini: This is an appeal filed by the Revenue against the order of the CIT(A), Large Taxpayer Unit, Chennai, dated 15.2.2010. 2. Ground Nos.1 4 of the appeal are general in nature and hence, requires no separate adjudication by us. 3. Ground No.2 of the appeal is directed against the order of the CIT(A) in holding that deduction u/s 10A should be allowed without reducing the unabsorbed depreciation and brought forward loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 for assessment years 2005-06 and 2006-07, and submitted that the issue stands covered in favour of the assessee by the said order of the Tribunal. He placed reliance on para Nos. 4 to 7 of the order of the Tribunal. 9. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the assessee, during the year under consideration, filed return of income claiming deduction u/s 10B of the Act amounting to Rs. 2,31,76,141/- without reducing the brought forward losses from earlier years from the eligible undertaking's income. The Assessing Officer recomputed the deduction allowable u/s 10A of the Act and while doing so, he found that after reducing the brought forward losses from earlier years, the eligible income from the eligible undertaking u/s 10A was NIL. Hence, he did not allow any deduction u/s 10A of the Act to the assessee. The assessee filed appeal before the CIT(A) and the CIT(A) allowed appeal of the assessee for the reason that the Special Bench of the Tribunal in the case of Scientific Atlanta India Technologies Pvt. Ltd vs ACIT(supra) had held that deduction u/s 10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions of the Hon'ble Karnataka High Court, we hold that the Commissioner of Income-tax(Appeals) has arrived at a right conclusion. This issue is decided against the Revenue. 12. Respectfully following the above quoted order of the Tribunal, we hold that deduction u/s 10A is allowable to the assessee without setting off of brought forward losses and depreciation and therefore, there is no infirmity in the order of the CIT(A). It is confirmed and the ground of appeal of the Revenue is dismissed. 13. Ground No.3 of the appeal of the Revenue is directed against the order of the CIT(A) in holding that book profit should be computed after allowing deduction of unabsorbed book loss or unabsorbed book depreciation whichever is less as claimed by the assessee and that the CIT(A) has further erred in observing that the assessee has made the claim first time in the year under appeal. 14. The brief facts of the case are that the Assessing Officer observed from the computation of book profit made by the assessee that assessee has reduced an amount of Rs. 114,100,137/- from the current year's book profit as per the provisions of section 115JB(2) of the Act as the unabsorbed book los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 114,100,137 2. Income exempt u/s 10A of the Act 35,263,098 Book profit u/s 115JB NIL In response to the same, the assessee has produced the details of working of the carried forward Lower of Business loss / unabsorbed depreciation for the purpose of computation of the book profit as under for the A.Y 2005-06. Year ended Business Loss Unabsorbed depreciation Total Loss Lower of Depreciation/BL 31.3.2001 0 0 0 0 31.3.2002 147,618,006 0 147,618,006 0 31.3.2003 139,555,569 114,100,137 253,655,706 114,100,137 287,173,575 114,100,137 401,273,712 114,100,137 From the above working, the assessee has emphasized that, it is eligible for the set off of unabsorbed depreciation of Rs. 114,100,137/- which was the lower amount as per the section 115JB of income tax act for the purpose of computation of the book profit of the current year. Further, the assessee has relied on the decision of the Honorable Authority for the Advance in the case of Rashtriya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INTL) has held that in so far as from the net profits of the relevant previous year what is required to be reduced is only brought forward loss or unabsorbed depreciation whichever is less as per books of accounts. Therefore the starting point for computation would be to split the total loss as appearing in the balance sheet between business loss and depreciation loss and to reduce the least of the two. The general principles of accountancy has to be followed to arrive at the balance of brought forward loss and depreciation in the event of the Company making a profit during an accounting year which has to be reduced from the opening balance of that year. This is what the decision of the Hon'ble Authority for Advance Ruling in the case mentioned above has ruled. Doing so, the following situation would emerge. Break-up of Profit Loss Account balance as on 01.04.2003: (amounts in Rs. 000s of rupees) Year ending Business Loss Unabsorbed depreciation Total loss Adjustment 31.3.2001 92381/- 27854/- 120235/- Fully adjusted in 31.3.2004 31.3.2002 303957/- 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out on the basis of the provisions contained in the said section. It was, therefore, argued that when the Legislature in its wisdom has thought it fit to allow the lower of the unabsorbed business losses or unabsorbed depreciation as per books of accounts, the AO is duty bound to take into account such figures as appearing in the audited accounts prepared in accordance with Parts I and 11 of Schedule VI for the relevant previous year and bifurcate the same between business losses and depreciation losses and allow the lower of the two to be reduced from the book profits to arrive at 115JB income. This contention of the appellant appears to be the correct view as it is a settled proposition of law that section 115 JB is a separate code by itself and has to be worked without taking into account the adjustments specified in Explanation 1 of 115JB(2) of the Act and on the basis of the figures as appearing in the audited accounts prepared in accordance with Parts I and II of Schedule VI of the Companies Act, 1956. Reference in this regard may be made to the ruling of AAR in Rastriya Ispat Nigam Ltd (supra) wherein the Hon'ble AAR has stated as under: "Section 115JB comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the brought forward losses and business loss being NIL, the Assessing Officer did not allow any deduction to the assessee from the book profits. The Assessing Officer observed that this is as per provisions of section 115JB(2) of the Act. The CIT/DR further submitted that the above action of the Assessing Officer is supported by the decision of the Chennai A' Bench of the Tribunal in the case of M/s Hindustan Powerplus Ltd. vs The Dy. CIT, in I.T.A.Nos.920 to 922/Mds/2005 , consolidated order dated 31.1.2007, wherein the Tribunal has held as under: 10. We have considered the rival submissions carefully and have gone through the relevant material on record. Clause (iii) of Explanation to section 115JA(2) is as under: "(iii) the amount of loss brought forward or unabsorbed Depreciation whichever is less as per books of account." (emphasis supplied) 11. A plain reading of the above provision shows that brought forward losses or un absorbed depreciation has to be reduced as per the books of account. Therefore, there does not seem to be any controversy. If depreciation has been adjusted against the profits of the intermediate year when there were profits, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the figures of book loss or book depreciation brought forward from earlier year or years are concerned, must start with the figures of similar computation made under section 115JB in the immediately preceding year. Starting from any other point, as attempted to by the applicant, would be against the principles of consistency and regularity. Section 115JB does stipulate that computation under the section should start from accounts prepared under the Companies Act for the relevant previous year, but that is only for the purpose of working out net profit under sub-section (2). Further, given the specific provisions of sub-clause (iii) of the Explanation the net profit so arrived at has to be reduced by book loss or book depreciation (whichever is less) of the preceding years as per accounts prepared under the Companies Act and as modified by reduction, if any, made under section 115JB for earlier year or years. If the provisions of s. 115JB treat book loss before depreciation and depreciation claim itself as distinct, then the accounts prepared under the Companies Act must be modified, wherever necessary, to comply with the provisions of section 115JB, for computation of MAT. 20. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] 23. The undisputed facts relating to the above issue are that the assessee suffered losses as per its books of account for the assessment years 2001-02 to 2003-04 and earned income as per books of account in the assessment year 2004-05. The bifurcation of losses as per books for the assessment years 2001-02 to 2003-04 are tabulated as under: Assessment year Total loss Unabsorbed depreciation Cash loss 2001-02 120,235,371 27,854,238 92,381,133 2002-03 410,010,608 106,053,071 303,957,537 2003-04 253,655,706 114,100,137 139,555,569 24. It is not in dispute that in assessment year 2004-05, the book profit of the assessee before allowing deduction under clause (iii) of Explanation to section 115JB was Rs. 371,184,265/- and the assessee was allowed deduction of Rs. 248,007,446/- under clause (iii) for computing the book profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated order dated 31.1.2007 of the Chennai A' Bench of the Tribunal in the case of M/s Hindustan Powerplus Ltd. vs The Dy. CIT, in I.T.A.Nos. 920 to 922/Mds/2005. 26. We find that this Tribunal in the case of M/s Hindustan Powerplus Ltd (supra) has held as under: 10. We have considered the rival submissions carefully and have gone through the relevant material on record. Clause (iii) of Explanation to section 115JA(2) is as under: "(iii) the amount of loss brought forward or unabsorbed Depreciation whichever is less as per books of account." (emphasis supplied) 11. A plain reading of the above provision shows that brought forward losses or un absorbed depreciation has to be reduced as per the books of account. Therefore, there does not seem to be any controversy. If depreciation has been adjusted against the profits of the intermediate year when there were profits, then no fault can be found in the working given by the Assessing Officer, We cannot adopt an interpretation ignoring the specific mandate of the Act. Had the words "as per the books of account" not been there in clause (iii) of Explanation, then perhaps the submission or the ld. counsel of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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