TMI Blog2020 (6) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... tax again under the provisions of MAT. In holding so we draw support and guidance from case of CIT vs. Sumi Motherson Innovative Engg. Ltd. [ 2010 (10) TMI 33 - DELHI HIGH COURT ]. The amount of losses incurred by the assessee for the previous year s 2012-13 and 2011-12 should be set off against the future income in the manner as specified under section 115 JB of the Act. Thus we hold that the assessee has rightly reduced the amount of income for the year under consideration from the brought forward losses/unabsorbed depreciation pertaining to the previous year s 2012-13 and 2011-12. Accordingly, we are not convinced with the finding of the authorities below. Accordingly we set aside the order of the learned CIT (A) and direct the AO not to levy the tax under the provisions of MAT. Hence the ground of appeal of the assessee is allowed. Business loss and unabsorbed depreciation - Claim not be allowed to be carried forward for set off while determining the profit under the provisions of MAT - HELD THAT:- At the outset we note that we have already directed to the AO to allow the set off of the brought forward losses/unabsorbed depreciation pertaining to the years 2012-13 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s losses while calculating book profit under MAT provision. 3. Briefly stated facts are that the assessee is a private company engaged in the business of ship breaking. The assessee in its financial statements prepared under the companies Act for the year under consideration has shown the amount of profit at ₹ 63,75,513/- only. The assessee further has reduced the same by lower of the amount of brought forward losses/unabsorbed depreciation amounting to ₹ 1,23,04,414/- while working out the tax liability under the provisions of MAT against the profit shown by the assessee in the year under consideration. 3.1 However, the AO found that there was no brought forward losses/unabsorbed depreciation shown by the assessee in its financial statement. As such the AO noticed that the amount of losses incurred by the assessee in the immediately preceding previous years 2012-13 and 2011-12 has already been set off against the accumulated profit shown in the previous year 2010-11. Accordingly, the AO disallowed the claim of the assessee and determined the MAT liability with reducing either of unabsorbed depreciation/ brought forward losses as the case may be. 4. Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred tax liability) while passing the assessment order. The first appellate authority confirmed this action for the reason stated in the body of the order. Ground No.1 of the present appeal is in relation to this issue. 3. On the background of the case, the Appellant submits that it was originally carrying on its ship breaking activities from Plot No.114 of Alang Ship Breaking Yard allotted by Gujarat Maritime Board (GMB) of Government of Gujarat. GMB developed certain new ship breaking plots and e-auctioned the rights therein for the interested parties at the relevant point of time. The Appellant's e-bid for allotment of another plot bearing No.V-9 was accepted and it was thus allotted restricted rights thereon for a period of five years upon making the corresponding contractual payment aggregating to ₹ 15,93,00,000/-(excluding taxes). The Appellant thus carried out ship breaking activities from both these plots after such allotment. 4. The Appellant made the initial payment of ₹ 7,96,50,000/- (excluding taxes) towards the above in F.Y. relevant to A.Y. 2012-13 and claimed the same as deduction in the books of account and in the consequential return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecially in A.Y. 2014- 15, when the book profit was proportionately higher, in view of there being no debit of the above referred deduction of plot development fees, in comparison to the corresponding returned income computed under the normal provisions wherein the deduction of the proportionate plot development fees was claimed by revising the return of income which was as per and in accordance with the undisputed finding of the AO as contained in the assessment order passed for A.Y. 2012-13. 8. In the backdrop of what is stated above, the Appellant places on record that since it had suffered taxation in connection with the profit it earned in the earlier years which had contributed towards accumulation of the corresponding amount under the group of reserves and surplus, the same clearly had nothing to do with the subsequent losses and unabsorbed depreciation suffered which were clearly required to be reckoned for consequential set off against the profit, if any, that may be earned in the years falling thereafter in terms of time. 9. In the context of what is stated above, the Appellant alternatively submits fiat had it synced its books of account with the correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Companies Act 2013 and as further clarified at paragraph 11.2 below. In view of this, it is clear that the balance sheet is only the summarized presentation of the outstanding balances under various heads as on the reporting date and that too, after subjecting these to necessary grouping/ re-grouping/ netting off, etc. Further, this is required to be done by following the specific formats of the schedules as prescribed under the Companies Act. All these provisions as contained in the Companies Act are primarily aimed at making these documents user-friendly and standardized, so that all the stakeholders of the corporate entity - consisting of the shareholders, the bankers, the tax departments, etc. can read and interpret the same harmoniously. In view of this, the term 'balance sheet' per se cannot be equated with the term 'books of account', as used in Clause (iii) of Explanation 1 to section 115JB(2) of the Act. 11.2 In the context of what is stated above, reference may be had to the definitions of the terms 'books of account' and 'financial statement' as contained in sections section 2(13) and 2(40) of the Companies Act, 2013 respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the losses, credit all the gains. The resulting balance of this account represents the net profits or the net losses for the period under review. The object of a profit and loss account is to ascertain the income of a business and by offsetting the expenses of earning that income, to ascertain met increase (profit) or decrease (loss) in the traders' net worth for the period. The balance-sheet lists the assets and liabilities and equity accounts of the company. It is prepared as on a particular day and the accounts reflect the balances that existed at the close of business on that day. By following the judgment of the Madras High Court cited supra and taking note of the definition of the books or books of account in the Income-tax Act as well as in P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition 2005, and also the meaning of the profit and loss account and balance-sheet, we can safely conclude that the profit and loss account and the balancesheet are not books of account as contemplated under the provisions of the Act. Learned standing counsel for the Revenue has not placed any authority or any case law or any other material or evidence to show that the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 115JB of the Act. 14.3 Similarly, even the judgment of Hon'ble ITAT Mumbai in the case of KFA Corporation Ltd. vs. JCIT delivered in ITA No.5147/Mum-2002, which has been relied upon by the AO, clearly does not have any binding force either, in view of the same having been delivered by a judicial authority sub-ordinate to the High Court and that too, a non-territorial one, and also in view of the same involving the issue of interpretation of the provisions of section 115JA and not section 115JBoftheAct. 15. In so far as Ground No.2 of the present appeal is concerned, it is submitted that despite there being undisputed and documented amounts of unabsorbed business loss and unabsorbed depreciation under the provisions of the Income-tax law which are thus required to be carried forward under the express provisions of the Act, the AO inadvertently remained silent about allowing the same to be carried forward to the succeeding year(s). When this issue was taken in appeal which only required the AO to be directed to verify the correctness of the respective figures before allowing carry forward of the same, the CIT(A) completely misunderstood the ground and dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redited to the profit and loss account, and as reduced by,-]]] [(i) ********** (ii) *********** (iia) ******* (iib) *********** (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books 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] 7.2 From the above provision, it is revealed that the assessee can claim the deduction either of brought forward losses or unabsorbed depreciation whichever is less as per the books of accounts. Admittedly, on making reference to the financial statement, we find that there is no brought forward loss or unabsorbed depreciation despite the fact that there was the loss in the immediate preceding two years amounting to ₹ 5,04,27,204/- (PY 12-13) and ₹ 3,74,46,497/- (PY 11-12) respectively. As such the said losses were set off against the accumulated profit shown by the assessee in the previous year 2010-11. These facts are tabulated as under: Particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balances that existed at the close of business on that day. By following the judgment of the Madras High Court cited supra and taking note of the definition of the books or books of account in the Income-tax Act as well as in P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition 2005, and also the meaning of the profit and loss account and balance-sheet, we can safely conclude that the profit and loss account and the balance-sheet are not books of account as contemplated under the provisions of the Act. Learned standing counsel for the Revenue has not placed any authority or any case law or any other material or evidence to show that the books of account include the profit and loss account and balance-sheet. 7.4 If we see the financial statements of the assessee for individual year separately, then we shall find that there was the loss incurred by the assessee in the previous year 2012-13 and 2011-12 which has been set off against the accumulated profit of the earlier years. Admittedly, the amount of accumulated profit shown by the assessee in the previous year 2010-11 has already suffered the tax under the normal computation of income. Thus, if we levy the tax under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 JB of the Act. Thus we hold that the assessee has rightly reduced the amount of income for the year under consideration from the brought forward losses/unabsorbed depreciation pertaining to the previous year s 2012-13 and 2011-12. Accordingly, we are not convinced with the finding of the authorities below. Accordingly we set aside the order of the learned CIT (A) and direct the AO not to levy the tax under the provisions of MAT. Hence the ground of appeal of the assessee is allowed. 8. The 2ndIssue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by holding that the amount of business loss and unabsorbed depreciation pertaining to the previous year s 2012-13 and 2011-12 will not be allowed to be carried forward for set off while determining the profit under the provisions of MAT. 9. At the outset we note that we have already directed to the AO to allow the set off of the brought forward losses/unabsorbed depreciation pertaining to the years 2012-13 and 2011-12 against the income of the current year vide paragraph number 7 of this order. For the detailed discussion, please refer the relevant paragraph. Accordingly, we direct the A ..... 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