No deduction u/s 115JB if brought forward loss or unabsorbed depreciation becomes Nil

By | October 11, 2016

If either the loss brought forward or unabsorbed depreciation is nil, then the assessee is not allowable any deduction under this clause for computing the book profit under section 115JB.

IN THE ITAT PANAJI BENCH

Indian Furniture Products Ltd.

v.

Assistant Commissioner of Income-tax, Circle-2, Goa

N.S. SAINI, ACCOUNTANT MEMBER
AND GEORGE MATHAN, JUDICIAL MEMBER

IT APPEAL NO.292 (PAN.) OF 2014
[ASSESSMENT YEAR 2008-09]

AUGUST  2, 2016

Nataraj S., DR for the Respondent.

ORDER

N.S. Saini, Accountant Member – This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals), Panaji, dated 15/05/2014.

2. This appeal of the assessee was decided by the Tribunal vide its order dated 09/02/2015 passed in ITA No. 292/PNJ/2014 in the Assessment Year 2008-09.

3. The assessee aggrieved by this order, filed appeal before the High Court of Bombay at Goa being Tax Appeal No. 50/2015. The Hon’ble High Court vide its order dated 06/06/2016 observed as under:—

“5. Upon hearing the learned counsel appearing for the parties and taking note of the contentions raised by the respective parties, we find that there is no specific mention in the impugned order the manner of calculation of the amounts in terms of the explanation to Section 115JB(2) of the Income Tax Act. Without going into the merits of the rival contentions, we find it appropriate to quash and set aside the impugned order of the ITAT and remand the matter to the learned Tribunal to re- examine the matter only on this limited aspect after hearing the parties in accordance with law.”

Hence, this appeal was fixed for hearing today.

4. Brief facts of the case are that the Assessing Officer observed that on perusal of the case records of the assessee company for Assessment Year 2008-09, it is revealed that the company is having book profit of Rs. 1,59,28,201/-, but the tax liability under section 115JB of the Income Tax Act was not worked out. He further observed that the Authorized Representative of the assessee during the course of assessment proceedings was asked to submit working of tax liability under section 115JB of the Income Tax Act. The Authorized Representative of the assessee appeared and stated that the same has already been filed along with the return of income filed earlier.

5. The Assessing Officer observing that as computation of income under section 115JB of the Act was not found on record. Accordingly, the computation of tax liability under section MAT is worked out as under:—

Profit as per P & L account 1,59,28,201
Less : B/f losses 71,12,338
Book profit 88,15,863
Tax thereon @ 10% 8,81,586
Add : Surcharge @ 10% 88,158
Add : Education Cess @ 3% 29,092
Tax 9,98,836

6. Being aggrieved against this order, the assessee filed appeal before the Commissioner of Income Tax (Appeals), who confirmed the action of the Assessing Officer by observing as under:-

“6. During the course of appellate proceedings, the learned AR of the appellant filed written submission, contents of which are reproduced as under:

We, the appellants beg to submit as below:

(A) Ground No. 1: Disallowance of an amount of Rs. 159,28,201/- brought forward losses for MAT purpose-u/s 155JB (2) (iii).
(1) An amount of Rs. 88,15,863/- (i.e. Rs. 159,28,201/- which is our claim less Rs. 71,12,338/- (allowed by the Lr AO) has been disallowed by the Lr A.O. on the grounds that the workings of tax liability u/s 115JB of the IT Act were not found in the file.
(2) That your appellants has claimed Rs. 159,28,201/- which is carry forward business loss as offset out of the book profits of Rs. 159,28,201/-. The details are enclosed in Annexure I.
(3) The Lr AO failed to consider the submissions made vide our letter dated 15/10/2012 (Attached as Annexure II) seeking clarification on the basis of which the Lr AO has claimed that your appellants are entitled for set off Rs. 71,12,338/- only and not Rs. 159,28,201/-.
(4) That the Lr AO did not provide the details requested by the assessee at the time of hearing taken place on 15t October 2012 nor subsequent opportunity provided in total disregard to principles of natural justice, to explain our position on the said issue. It is very clear from the impugned order of the Lr AO that only one hearing has been conducted on 15th October 2012 even though the order has been passed on 28th March 2013.
(5) That the conclusions arrived at by the Lr AO in the impugned Assessment order are hypothetical and not logical.
(6) That your appellant to substantiate the arguments take support from the following judgements.
(1) Kelvinator India (320 ITR 561 SC) Wherein the Honourable Supreme Court held that the Assessing Officer has power to re-assess and not to re-view-attached as Annexure—III.
(2) Hynoup Food and Oil Industries Ltd. v. ACIT307 ITR 115 Wherein Honourable High Court of Gujarat held that the successor A.O. cannot issue notice u/s 148 on the basis of reasons recorded by predecessor-attached as Annexure-IV.
(B) Your appellant craves permission to submit any other documents, if required, in support of our submissions at a later stage.

We hope that your Honour will find our submissions and the enclosures in order and will grant us full relief as prayed.

7. I have gone through the reassessment order and the submission of the appellant. I can see that the A.O. has followed all the procedures for reopening the case u/s 147 correctly and, as discussed by me in the appellate order passed for A.Yr.2007- 08, in the case of the appellant. I do not find any infirmity in the order of the A.O. and these technical grounds, raised by the appellant, challenging the reopening of assessment are dismissed accordingly. On merits, apart from working the MAT liability u/s 115JB, the A.O., in his assessment order, has also mentioned the computation of total income under normal provisions of the Act and position of losses and unabsorbed depreciation allowed to be carried forward. In his written submission, the learned A.R. has not been able to bring about any mistake in the computation done by the A.O. In view of this fact, the computation done by the A.O. is confirmed and appeal of the appellant is dismissed.”

7. The hearing of the appeal was fixed on 27/07/2016 and notice for hearing was sent on 24/06/2016 by registered post with acknowledgment due, which was served on the assessee on 25/06/2016 which is evidenced by the acknowledgment card of the post office placed on record. None appeared on behalf of the assessee, when the case was called for hearing and neither any adjournment application was filed.

8. The Bench was of the view that the details of the working of brought forward loss and unabsorbed depreciation was required from the records of the Assessing Officer for deciding the issue of determination of book profit and accordingly, Departmental Representative was directed to obtain the same from the Assessing Officer and the appeal was fixed for hearing on 02/08/2016. Today also, when the case was called for hearing none was present on behalf of the assessee and neither any adjournment application was filed. Departmental Representative has filed a letter dated 28/07/2016 from the Asst. Commissioner of Income Tax, Circle-2(1), Panaji, wherein the Assessing Officer has detailed the working of brought forward business loss and unabsorbed depreciation which is as under:-

A.Y. Business loss Unabsorbed depreciation
2003-04 NIL Rs. 1,03,04,528/-
2004-05 NIL Rs. 2,82,29.764/-
2005-06 NIL Rs. 2,10,45,760/-
2006-07 NIL NIL
2007-08 NIL Rs. 93,96,103/-
2008-09 NIL NIL

9. We find that the Assessing Officer in the assessment order has observed that profit as per profit & loss account was Rs. 1,59,28,201/-. According to the Assessing Officer as per his letter dated 28/07/2016, as per provision of clause (iii) of Explanation-1 to section 115JB, no business loss or unabsorbed depreciation is to be reduced from net profit to arrive at book profit for Assessment Years other than 2003-04, which had already been adjusted at Rs. 71,12,338/-. Therefore, he reduced Rs. 71,12,338/- from Rs. 1,5928,201/- and arrived at book profit of Rs. 88,15,863/-. Thereafter, the Assessing Officer stated that from Assessment Year 2004-05 to 2008-09, Explanation (b) to clause (iii) comes into picture and according to which the loss shall not include depreciation and that the provisions of this clause shall not apply if either the amount of loss brought forward or unabsorbed depreciation is NIL. Therefore, he did not allow any deduction for unabsorbed depreciation of earlier years while computing the book profit for the Assessment Year 2008-09.

10. We find that the provisions of section 115JB, Explanation 1, clause (iii) were amended by the Finance Act, 2002 with retrospective effect from 01/04/2001. Prior to the amendment, it read as under:—

“(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, the loss shall not include depreciation; or”

After amendment, the said clause reads as under:—

“(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”

11. A bare reading of the above two explanations before amendment and after amendment goes to show that if either the loss brought forward or unabsorbed depreciation is nil, then the assessee is not allowable any deduction under this clause for computing the book profit under section 115JB. Hence, we find no infirmity in the orders of the lower authorities. Accordingly the order of the Commissioner of Income Tax (Appeals) is confirmed and the ground of appeal of the assessee is dismissed.

12. In the result, the ground of appeal of the assessee is dismissed.

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