2023 (3) TMI 558 - AT - Income Tax

Adjustment in terms of clause (iii) of Explanation-1 to Section 115JB(2) for computation of book profits made by the AO resulting in lower adjustment - adjustment of carried forward business loss or unabsorbed depreciation whichever is lower, against ‘Book Profit’ for the purposes of Section 115JB - HELD THAT:- The assessee has correctly considered the figure of unabsorbed depreciation for Financial Year 2010-11 in its working which portion has remained unabsorbed against the existing book profits of that year.

CIT(A) in our view, has wrongly considered the entire depreciation allowance of Rs.39,38,03,227/- instead of restricting itself to the unabsorbed component. The figure of Rs.39,38,03,227/- considered by the CIT(A) is total depreciation allowance instead of unabsorbed depreciation and thus the position taken by the CIT(A) is contrary to the phraseology of clause (iii) of Explanation-1 to Section 115JB(2). To reiterate clause (iii) of Explanation-1 to Section 115JB(2) uses the expression ‘unabsorbed depreciation’ which has distinct connotations vis-à-vis total depreciation.

We thus find merit in the plea of the assessee in justification of the computation of adjustment available to it against the book profit. In this view of the matter, the claim of the assessee being lower of unabsorbed depreciation and business loss deserves to be set off against the current year book profit in terms of the provisions of clause (iii) of Explanation-1 of Section 115JB(2) of the Act. Appeal of assessee allowed.