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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 ..... its and gains of business. Accordingly, the Assessing Officer computed the deduction allowable to the assessee u/s 10A by reducing the brought forward losses from earlier years i.e assessment year 2002-03 - Rs., 8,54,17,213/- and for assessment year 2003-04 - Rs. 4,72,19,553, totaling to Rs. 13,22,53,831/-. In doing so, the total income of the assessee became NIL and hence, the Assessing Officer held that no deduction u/s 10A was allowable to the assessee. 5. On appeal, the CIT(A), following the order of the Special Bench of the Tribunal in the case of Scientific Atlanta India Technologies Pvt. Ltd vs ACIT, in I.T.A.No. 229/Mds/2007, I.T.A.No. 252/Mds/2008 and I.T.A.No. 536/Mds/2007 , consolidated order dated 5.2.2010, wherein it was held that business loss of a non-eligible unit whose income was not eligible for deduction u/s 10A of the Act cannot be set off against profits of the undertaking eligible for deduction u/s 10A for the purposes of determining the allowable deduction u/s 10A of the Act., directed the Assessing Officer to rework the deduction u/s 10A without reducing the unabsorbed depreciation and brought forward losses of the non 10A unit. 6. Being aggrieved against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible undertaking even during the period the assessee was enjoying exemption u/s 10B(4) of the Act. 11. The A.R relied on the decision of the Chennai 'B' Bench of the Tribunal in the case of RR Donnelley India Outsorce Pvt. Ltd vs DCIT(supra), wherein the Tribunal, after considering the decision of the Hon'ble Karnataka High Court in the case of CIT vs Himatasingike Seide (supra) and the recent decision of the Hon'ble Karnataka High Court in the case of CIT & Anr. Vs Yokogawa India Ltd. and Others, [2012] 246 CTR (Kar) 226, has held that deduction u/s 10A of the Act is allowable to the assessee before setting off of brought forward depreciation and losses. The Tribunal has held as under: "4. In the appeals filed by the Revenue, the first ground is that the Commissioner of Income-tax(Appeals) has erred in allowing deduction under sec.10A before setting off of brought forward depreciation and losses. This issue was considered and decided by the Income-tax Appellate Tribunal, Chennai Bench in favour of the assessee, in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd. (129 TTJ 273). 5. The Revenue has referred to a decision of the Karnataka High Court rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unabsorbed book depreciation whichever is less as claimed by the assessee, it is observed that during the AY 2004-05, the assessee has shown book profit of Rs. 371 ,184,265/- and set off the unabsorbed book loss or Unabsorbed book depreciation whichever is less to the extent of Rs.248,007,446/- and paid tax on book profit of Rs. 123,176,819/-. Hence, the assessee has asked to explain why the claim of unabsorbed book loss or Unabsorbed book depreciation whichever is less during the current year to the extent of Rs. 114,100,137/- cannot be disallowed, since the Unabsorbed book depreciation which was the lower amount during the computation of book profit has been completely set off during the AY 2004-05 itself and there is no Unabsorbed book depreciation to set off in the current year. For the better clearance, the working of the book profit by the assessee during the AY 2004-& current year (2005-06) is reproduced as under: Computation of book profit for the AY-2004-05: Year Ended Business Loss Unabsorbed Depreciation Total Loss Lower of Dep/BL 31.3.2001 92,381,133 27,854,238 120,235,371 27,854,238 31.3.2002 303,957,537 106,053,071 410,010,608 106,053,071 31.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated the available book loss & book depreciation, which is not permissible as per the provision of the section 115JB of the income-tax Act. He, therefore, disallowed the claim of the assessee. 15. Being aggrieved, the assessee filed appeal before the CIT(A) and submitted as under: "The last issue in the appeal is the availability of lower of business loss or unabsorbed depreciation as per books of accounts available to be reduced from book profits for the purpose of computation of income liable for tax u/s 115JB. The assessing officer has gone wrong in not taking into account the total loss as per the books of accounts of the epoettetn as on the first day of previous year relevant to the assessment year 2005-06. The break-up of the Profit & Loss account as on 31 st March 2004 is as under:- (Amount in Rs '000s of Rupees) Year ended Business Depreciation Loss Total Loss 31*03*2002/01-04-2002 158015/- 0 158015/- 31-03-2003/01-04-2003 139555/- 114100/- 253655/- Total 297570/- 114100/- 411670/- The least of the business loss or depreciation loss viz., Rs.114,100,000/- has been correctly claimed from the book profits for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving several debit entries, the credit entry appearing thereafter would only wipe out or adjustable against the earliest debit in point of time. It is therefore submitted that the assessing officer's re-computation is fully unjustified." 16. The CIT(A), after considering the submissions, has held as under: "5.1 I have carefully considered the rival submissions and the material on record. I have also gone through the decision of the Hon'ble AAR in Rastriya Ispat Nigam Ltd 285 ITR 1 (AAR) I = (2006-TII-15-ARA-INTL) have also gone through the working given by the appellant as well as the methodology followed in such calculation. I find the only difference between the two different methods followed, one as set out by the A.O in the assessment order and the other as furnished by the appellant, is that while in the former method the Assessing Officer has taken into account the actual amounts allowed in the assessment in various earlier years whereas the appellant works out the same on the basis of the figures as appearing in the books of accounts of the appellant. It was vehemently argued on behalf of the appellant that the provisions of section 115 JB have been held to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that it will be observed from the assessment order that the assessee had claimed deduction of unabsorbed depreciation or business loss in the immediately preceding assessment year 2004-05 while computing deduction u/s 115JB of the Act as evident from the written submission filed by the assessee before the Assessing Officer and which is reproduced in pages 5,6 and 7 of the order. Therefore, he submitted that the observation of the CIT(A) in his order that the assessee has claimed the deduction for the first time was not correct. He further pointed out that it may be seen from the assessment order at page 6 wherein written submission of the assessee is quoted that while computing the book profit for assessment year 2004-05 the total business loss was Rs. 535,894,239/- total of unabsorbed depreciation and lower of depreciation/business low Rs. 248,007,446/-. The assessee deducted Rs. 248,007,446/- from the book profit of Rs. 371,184,265/- and arrived at the book profit subject to MAT at Rs. 123,176,819/-. Thus, the entire unabsorbed depreciation to be carried forward in assessment year 2005-06 had become NIL. In the present year the assessee was having only brought forward b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust follow the logic of internal consistency and regularity year after year, unaffected by the parallel computations running under the Companies Act and the normal provisions of the Income-tax Act. Reduction made to book loss or book depreciation in any particular year under the MAT provisions must form a necessary basis for computation of MAT liability for the subsequent year, irrespective of the treatment given under the Companies Act, or, for that matter, under the normal provisions of the Income-tax Act. The above interpretation is strongly supported by Circular No. 495 dated 22nd September, 1987. Contention that Circular No. 495 having been issued under section 115J would not be applicable to the amended provisions as contained under section 115JB is not sustainable for the simple reason that though provisions for working out the "book profit" as contained in the Explanation have undergone little change, the basic provisions practically remain the same. Insofar as from the net profit of the relevant previous year what is required to be reduced is only brought forward loss or unabsorbed depreciation, whichever is less as per the books of account.- Suryalatha Spinning Mills Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idated loss into loss brought forward and unabsorbed depreciation but cannot avail of the benefit of reduction envisaged under subsection (2) of section 115JB in a manner different from the one prescribed under the Act, so as to be more beneficial to the applicant. It is not open to the applicant to reduce the current year's profit by the loss brought forward or unabsorbed depreciation in a manner more beneficial to the applicant and such adjustment cannot be changed from year to year. The applicant cannot change the method of reducing the current year's profit by the loss brought forward or unabsorbed depreciation from year to year. This would amount to change in the method of accounting for the purposes of s. 115JB, which is not permissible. 21. On the other hand, the A.R supported the order of the CIT(A). 22. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the dispute which requires adjudication by us is about the amount which is deductible under clause(iii) of Explanation to section 115JB(2) of the Act for computing book profit of the year under consideration. The relevant clause (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the assessee, depreciation loss of assessment year 2003-04 and part of cash loss of assessment year 2002-03 and entire cash loss of assessment year 2003-04 remained carried forward. According to the assessee, clause (iii) only provides that what amount will be allowed as set off which is lesser of brought forward losses or unabsorbed depreciation as per books, but does not provide for subsequent years how brought forward losses and brought forward unabsorbed depreciation will be computed. According to the assessee, as per general accounting principles and commercial law, any subsequent profit will be set off against the earlier losses and this normal accounting policy and commercial law has not been disturbed by the provisions of clause (iii). The assessee relied upon the rule in Clayton's case under Negotiable Instruments Act which lays down the proposition that in a customer's account having several debit entries, the credit entry appearing thereafter would only wipe out or adjustable against the earliest debit in point of time. 25. The CIT/DR, on the other hand, relied upon the decision of Authority for Advance Rulings in the case of Rashtriya Ispat Nigam Ltd. IN RE, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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