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ACIT, Cir. 5, Ahmedabad Versus N.K. Industries

2016 (5) TMI 703 - ITAT AHMEDABAD

MAT applicability - CIT(A) directing the AO to give benefit of unabsorbed depreciation and recomputed the book profits as per the provisions of section 115JB - Held that:- The aggregate of business loss or depreciation, whichever lower is to be considered for reduction out of the book profit. See Amline Textiles P.Ltd. Vs. ITO [2008 (11) TMI 438 - ITAT MUMBAI ] - ITA.No.2131/Ahd/2012, CO No.196/Ahd/2012, ITA.No.2132/Ahd/2012, CO No.197/Ahd/2012 - Dated:- 7-4-2016 - SHRI RAJPAL YADAV, JUDICIAL ME .....

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ground no.2 is the substantial ground of appeal, which is identical for both the years. This projects grievance of the Revenue as under: ii) The ld.CIT(A) has erred in law and on facts in directing the AO to give benefit of unabsorbed depreciation of ₹ 26,47,30,860/- for the A.Y.2006-07 and 2007-08 and recomputed the book profits as per the provisions of section 115JB of the Income Tax Act. 3. The ld.counsel for the assessee, at the very ought submitted that the issue in dispute is square .....

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ed its return of income on 30.12.2006 declaring NIL income after setting off of unabsorbed depreciation of ₹ 1,40,49,297/- against the current year profit under normal provisions and loss of ₹ 21,12,16,663/- against the book profit of ₹ 13,07,83,251/- under section 115JB of the Act. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) was issued and served upon the assessee. The ld.AO took note of loss suffered by the assessee starting .....

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2) refers to the year-wise consideration of the amounts brought forward loss or unabsorbed depreciation for the purpose of deduction from the net profit, as per the profit & loss account, or its aggregate amount of loss brought forward or unabsorbed depreciation as one composite figure. There is no dispute with regard to the proposition that Explanation (1)(h) clause (iii) of 115 JB contemplates exclusion of brought forward business loss or depreciation, whichever is lower, from the net book .....

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, whichever amount is lower, i.e. either business loss or depreciation, that amount is to be reduced from the book profit. According to the AO, each year has to be considered, whereas, according to the assessee, it is the aggregate amount of loss or brought forward unabsorbed depreciation, whichever lower, is to be reduced. This controversy has been silenced by the ITAT in the case of Amline Textiles Pvt. Ltd. Vs. ITO (supra). The Tribunal has held that it is the aggregate amount of business los .....

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and the tax payable by the assessee on such total income shall be the amount of income-tax @ 10 per cent Expln. 1 provides the mode of computing "book profit" by taking net profit as shown in the P&L a/c as its starting point to be increased by the items mentioned in cls. (a) to (h) debited to the P&L a/c and as reduced by the items specified in cls. (i) to (vii). At this stage it will be apt to consider the relevant part of this section as under : "Explanation 1 : For th .....

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of account. Explanation : 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" 9. On going through the mandate of the above provision it transpires that having increased the amount of net profit as per P&L a/c in accordance with cls. (a) to (h), certain items are to be reduced which, inter alia include the amount of loss brought forwar .....

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st the profit of the relevant previous year as if the provisions of s. 205 of the Companies Act, 1956 are applicable. There was controversy on the interpretation of term loss in cl. (iv) of the Explanation as to whether the loss should be considered as before or after taking into account the amount of depreciation. The Hon ble Supreme Court in the case of Surana Steels (P) Ltd. vs. Dy. CIT (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC) held that the term loss occurring in cl. (b) of first pro .....

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ng has been used in cl. (iii) of Expln. 1 to s. 115JB also, which is under consideration. Hence the judgment of the Hon ble Supreme Court rendered in the case of Surana Steels (P) Ltd. (supra) is not relevant in the context of s. 115JB, which specifically states that the loss shall not include depreciation. The net effect of the position as it now exists is that while computing the amount of loss brought forward, the amount of depreciation is not to be considered. In other words, the loss for th .....

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iple of interpretation on hand, we move on to examine the rival contentions made by the parties as to whether cl. (iii) it refers to consideration of year-wise separate figures of unabsorbed depreciation and loss brought forward or the composite figures. 12. Clause (iii) states that the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account is to be reduced from the net profit. As per the plain language of this provision, it is noted that the word em .....

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ingular conveys the aim of referring it to one figure. Wherever the legislature desired to use the word "amount" in plural, it specifically used the word "amounts" instead of the "amount" as can be seen from the heading of s. 40- Amounts not deductible . From here we can easily deduce that for the purposes of cl. (iii) of Expln. 1 the unabsorbed depreciation for ail the earlier years is to be clubbed into one amount; and the amount of brought forward loss (before de .....

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the words amount and loss in this clause, the point has been made clear that it is a composite figure each of the unabsorbed depreciation and brought forward loss, that merits consideration. 13. Moving still further we find from the language of this clause that there is no reference to considering the brought forward loss or unabsorbed depreciation on year-to-year basis. There is nothing in the language of section, which could suggest, even remotely, that the legislature intended to consider ye .....

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e amount of loss brought forward or unabsorbed depreciation is to be considered and if in a particular year-as in asst. yr. 2001-02 under consideration-there is no loss before depreciation, then the benefit of unabsorbed depreciation cannot be granted. In forming this opinion, assistance has been taken from the opening words of sub-s. (1) of s. 115JB as well as sub-s. (5) of this section. Sub-s. (1) starts with a non obstante clause : "Notwithstanding anything contained in any other provisi .....

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72 serves as guiding light as per which the benefit of carry forward of business loss is limited to eight years. The case is made out that since the business loss can be carried forward only for eight years, and in the ninth year, the unabsorbed loss of the first year will cease to be available for set off, albeit for second to seventh years, it can still be carried forward, it automatically implies that the amount of loss has to be carried forward on year to year basis for the purposes of s. 11 .....

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to s. 115JB. Reference to "other provisions of this Act" clearly indicates that what is provided in s. 115JB should be religiously followed accordingly and anything over and above that will be subject to the other provisions of the Act. By no stretch of imagination can it be construed as substituting the other provisions of the Act in place of what is specifically made available in this section, insofar as the computation of book profit is concerned, the entire mechanism for its calcu .....

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) of Expln. 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 s. 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. 16. There is one more reason for not approving the view taken by the authorities below. Sec. 72(3) restricts the period .....

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d loss is to be discarded after the expiry of eight years from the year in which it was first computed. Even if loss is brought forward from 50 years back, that has also to be reckoned. To put it simply the amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as corning in the books of account irrespective of any rider for a particular number of years. We, therefore, hold that reference to the provisions of ss. 71 to 73 for arriving at the conclusion t .....

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hence no deduction is permissible for this year. A bare perusal of this provision brings out the intention of the legislature in not allowing the reduction of the subject-matter of cl. (iii) for the purposes of computing book profit , if the amount of unabsorbed depreciation of brought forward loss is nil. In other words it has been provided that the reduction is not to be permitted if one of these two figures namely, loss brought forward or unabsorbed depreciation, is nil. To put it simply if .....

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part of the order we have held that if there is loss brought forward and unabsorbed depreciation for more than one year, then one combined figure each of unabsorbed depreciation and brought forward loss for such years is to be determined for consideration. Adverting to the facts of our case, we find that none of the figures of unabsorbed depreciation or brought forward loss is nil, hence this part of the Explanation is not relevant for our purpose. 18. In view of the foregoing discussion we are .....

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imed reduction for the lower amount of ₹ 1.51 crores. We, therefore, accept the assessee s contention on this point. 19. In the result, the appeal is allowed. 5. The ld.CIT() has followed this decision of the Tribunal, but, further observed that in the Asstt.Years 2002-03, 2004-05 and 2005-06, the assessee was not having unabsorbed depreciation, which could be accumulated or aggregated for the purpose of exclusion, because, in these years, business loss was lesser than the depreciation. He .....

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clause-(iii) of explanation 1 to sec.115JB(2) does not provide benefit of aggregate of book depreciation. On the contrary it provides for the amounts of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. In the instant case it is noticed that in the A.Yrs 2002-03, 2004-05 and 2005-06 the appellant has earned a business profit after making provisions of book depreciation. This clearly means that in these years the appellant does not have any unabsorbed de .....

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