2008 (11) TMI 438 - AT - Income Tax

MAT - Computation of book profit u/s11 5JB - Aggregate amount of loss brought forward or unabsorbed depreciation - Assessee s claim is that it is the aggregate amount of loss brought forward or unabsorbed depreciation relating to the earlier years which should be considered for the purpose of deducting from the net profit as per profit loss account - revenue is contending that the brought forward losses as well as unabsorbed depreciation in respect of each year is to be separately examined and allowed - CIT(A) restricted the deduction under clause (iii) of Explanation (1) to section 115JB to unabsorbed depreciation as against claimed by the appellant. HELD THAT - When clause ( iii ) of Explanation (1) clearly states that the amount of loss brought forward or unabsorbed depreciation which is less as per books of account is liable to be reduced in our considered opinion there is no authority for falling upon the command of section 72 for holding that the business loss is to be considered on year to year basis and not as an aggregate figure for all years in unison. To put it simply the amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as coming in the books of account irrespective of any rider for a particular number of years. We therefore hold that reference to the provisions of sections 71 to 73 for arriving at the conclusion that section 115JB refers to year-wise consideration of the loss brought forward or unabsorbed depreciation is erroneous. We are of the considered opinion that the lower of the solitary figures of the unabsorbed depreciation or loss brought forward for all the earlier years taken together is to be reduced for the purposes of computing book profit u/s 115JB. As the aggregate amount of unabsorbed depreciation in respect of the four years which is lower than the aggregate of the loss before depreciation. in our considered opinion the assessee had rightly claimed reduction for the lower amount. We therefore accept the assessee s contention on this point. In the result the appeal is allowed.

Summary

Issues Involved:
1. Restriction of deduction under clause (iii) of Explanation (1) to section 115JB.
2. Computation of book profit under section 115JB.
3. Consideration of brought forward loss and unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Restriction of Deduction under Clause (iii) of Explanation (1) to Section 115JB:
The primary issue in this appeal is the restriction of the deduction claimed by the assessee under clause (iii) of Explanation (1) to section 115JB. The assessee claimed a deduction of Rs. 1,51,15,393 for unabsorbed depreciation, but the Commissioner of Income-tax (Appeals) restricted it to Rs. 1,06,61,828. The Assessing Officer did not allow the deduction for unabsorbed depreciation amounting to Rs. 44,53,565 for the assessment year 2001-02, arguing that the book profit before depreciation was positive, resulting in no set-off for that year.

2. Computation of Book Profit under Section 115JB:
The computation of book profit under section 115JB involves starting with the net profit as per the profit and loss account and making adjustments as per clauses (a) to (h) and (i) to (vii) of Explanation (1). The contention revolves around whether the deduction for unabsorbed depreciation and brought forward loss should be considered as a composite figure for all years or on a year-to-year basis. The assessee argued for a composite figure, while the revenue contended for a year-wise consideration.

3. Consideration of Brought Forward Loss and Unabsorbed Depreciation:
Clause (iii) of Explanation (1) to section 115JB(2) specifies reducing the "amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account." The term "loss" is defined as excluding depreciation. The authorities below interpreted this clause to mean year-wise consideration, disallowing the deduction for the assessment year 2001-02 due to a positive book profit before depreciation. The Tribunal, however, concluded that the clause refers to a composite figure for all years, not year-wise figures.

Tribunal's Reasoning and Judgment:
The Tribunal emphasized the plain language of the provision, noting the use of the singular "amount" rather than "amounts," indicating a composite figure for all years. The Tribunal also highlighted the absence of any reference to year-wise consideration in the clause. The Tribunal rejected the authorities' reliance on sections 71 to 73 and section 72(3), which limit the carry forward of business losses to eight years, stating that section 115JB does not impose such a restriction. The Tribunal concluded that the lower of the aggregate figures of unabsorbed depreciation or brought forward loss for all years should be considered.

Conclusion:
The Tribunal allowed the appeal, accepting the assessee's contention that the deduction should be based on the aggregate figure of Rs. 1,51,15,393 for unabsorbed depreciation, as it was lower than the aggregate brought forward loss of Rs. 2,40,75,717. The appeal was thus allowed in favor of the assessee.