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TMI Blog2011 (11) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... that no log book or any other such record has been maintained by the assessee which could help in verifying that the total expenditure debited under this head has been incurred wholly and exclusively for the purpose of business. Similarly, the Assessing Officer made an ad hoc disallowance of ₹ 2,00,000/- as non-business expenditure out of telephone expenses of ₹ 16,18,529/- after observing that no separate telephone call register or any other such record has been maintained by the assessee. 4. In appeal, the Commissioner of Income-tax (Appeals) held as under: The submission has been considered and is found to be partly acceptable. So far as disallowances out of vehicle expenses and telephone expenses are concerned, I find it difficult to find fault with the action of the AO because considering the nature of these facilities, their use for on business purposes cannot be ruled out and therefore, his action of making part disallowances under these heads is held to be justified. However, the disallowances of ₹ 2 lakhs out of telephone expenses of ₹ 16,18,529/- appears to be on a higher side and, therefore, the same is reduced and restricted to ₹ 1 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son that the assessee was not able to substantiate its claim with any cogent material or evidence. Against this order of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before us. 9. We have carefully considered the rival submissions. We find that this issue stands concluded in favour of the assessee and against the Revenue by the judgment of the Hon ble Bombay High Court in the assessee s own case (supra), wherein the Hon ble High Court held as under: 3. As regards the question Nos ii and iii are concerned, the Tribunal relying upon its decision in th case of Kirloskar Pneumatic Co. in ITA No 6/PN/07 for the AY 2003-04 held that even if the expenditure is incurred in the year but the demand is raised and accepted in the subsequent year, then the expenditure would be allowable in the subsequent year. We see no infirmity in the above order passed by ITAT. Accordingly, appeal is dismissed. Respectfully following the aforesaid judgment of the Hon ble jurisdictional High Court in the assessee s own case, we set aside the order of the Commissioner of Income-tax (Appeals) and the Assessing Officer is directed to delete the disallowance made on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35,238/- as against NIL income shown by the assessee. 11 In appeal before the Commissioner of Income-tax (Appeals), the assessee filed detailed written submissions. However, the Commissioner of Income-tax (Appeals) held that the Assessing Officer was justified in rejecting the assessee s method of adjustment of carried forward book losses and depreciation for MAT purposes. Being aggrieved with this decision of the Commissioner of Income-tax (Appeals), assessee is in further appeal before us. 12 Before us, the learned Counsel for the assessee has submitted that the Assessing Officer has disallowed assessee s methodology for adjustment of carried forward book losses and depreciation for the purposes of computing Minimum Alternative Tax (MAT) under section 115JB of the Act. It is pointed out that there is no specific method prescribed under the statute to adjust carried forward book loss and depreciation as provided for in Clause (iii) of Explanation below section 115JB(2) of the Act. It is submitted that in so far as assessee is concerned, it computed carried forward book losses and depreciation after adjusting the same on First in First out (FIFO) basis against the profits ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it is further explained that the term loss shall not include depreciation and that this clause is not applicable where the amount of loss brought forward or unabsorbed depreciation is nil. In the background of the aforesaid, now we may first examine the computation of book profit made by the assessee in the return of income. The net profit as per Profit Loss Account adopted by the assessee was ₹ 20,76,31,798/-. While computing the liability under section 115JB, assessee, inter alia, claimed an adjustment of ₹ 35,72,28,867/- in terms of aforesaid clause (iii) of Explanation below 115JB of the Act. In this manner, the book profit for the purposes of 115JB(2) was determined at Nil . The claim of the assessee was based on the hereinafter mentioned workings. As on 1.4.2005, the aggregate of carried forward losses and depreciation after netting of the profits for intermittent years was detailed as under: Financial Year Profit Loss Depreciation 1994-95 3,15,54,669 1995-96 7,03,62,878 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,48,337 Thus, on the aforesaid basis the break up of the consolidated deficit of ₹ 83,03,45,077/- as on 1.4.2004 claimed was as under: Financial Year Business Loss Unabsorbed depreciation Total losses 1996-97 8,44,03,032 8,97,39,166 17,41,42,198 1997-98 9,11,09,266 10,58,61,822 19,69,71,088 1998-99 16,57,42,307 11,57,42,667 28,14,84,974 34,12,54,605 31,13,43,655 65,25,98,260 Break up of carried forward losses as on 31.3.2004 Financial year Business Loss Unabsorbed depreciation Total Losses 1998-99 11,47,97,107 - 11,47,97,107 1999-00 8,08,79,470 11,94,25,261 20,03,04,731 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (-) ₹ 1,59,74,262/- Amounts to be carried forward to AY 2005-06 Business loss ₹ 81,43,70,815/- Unabsorbed depreciation (Rs 33,31,29,828 31,71,55,566) ₹ 1,59,74,262/- A.Y. 2005-06 Net Profits to the audited Profit Loss A/c. (as per para 3.10 above) ₹ 21,84,09,500/- Less: i) B/f. business loss of ₹ 81,43,70,815/- (ii) unabsorbed depreciation ₹ 1,59,74,262 whichever is less ₹ 1,59,74,262/- Book Profits ₹ 20,24,35,238/- Amounts to be carried forward to AY 06-07 Business loss ₹ 81,43,70,815/- Unabsorbed depreciation (Rs 1,59,74,262 1,59,74,262) Rs NIL 19. In this manner, the Assessing Officer computed book profits for section 115JB at ₹ 20,24,35,238/- as against nil determined by the assessee. We have examined the position set-up by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant. For the aforesaid twin reasons, in our view, in order to determine the losses carried forward and unabsorbed depreciation in the past years also, it would be appropriate to reduce the lower of the two and thereafter, ascertain the amount of losses brought forward and unabsorbed depreciation. 20. Considered in the aforesaid manner, in our view, the methodology adopted by the Assessing Officer has to fail. This is for the reason that he has proceeded to adjust the unabsorbed depreciation as on 31.3.2003, whereas the correct approach would have been to compare and determine the losses in each of the financial years starting from the financial year 1996-97 and determine the loss or depreciation which is required to be carried forward in accordance with the aforesaid discussion. In fact, we find that even the working adopted by the assessee in the return of income also does not correspond to the aforesaid principles. Under these circumstances, we, therefore, deem it fit and proper to set-aside the order of the Commissioner of Income-tax (Appeals) and to remit the matter back to the file of the Assessing Officer, who shall revisit the working of book profit for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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