M/S. PURITY FLEX PACK LTD.,PANCHMAHAL vs. THE DCIT,, GODHRA

आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’ BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1493/AHD/2013 �नधा�रण वष�/Asstt. Year: 2008-2009 M/s.Purity Flex Pack Ltd. D.C.I.T, At Vanseti, PO Tajpura, Vs. Civil Lines, Tal. Halol, Near Collector Office, Dist. Panchmahal. Godhra.

PAN: AABCP1859N

(Applicant) (Respondent) : Shri Nirmit Mehta, A.R Assessee by : Revenue by Shri L.P. Jain, D.R सुनवाई क� तार�ख/Date of Hearing : 24/04/2019 घोषणा क� तार�ख /Date of Pronouncement: 14/05/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax,(Appeals)-IV, Baroda [Ld.CIT(A) in short], dated 26/03/2013 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 29/10/2010 relevant to Assessment Year (AY) 2008-09.

The assessee has raised the following grounds of appeal:

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 2

The only effective issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not allowing the benefit of brought forward unabsorbed depreciation of ₹ 1,65,15,093.00 while calculating the income under section 115 JB of the Act.

2.1 The assessee in the year under consideration has computed the profit under section 115 JB of the Act in the manner as detailed below:

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 3

Profit as per companies Act, 1956 Rs.19,39,472/- Less Statutory deduction unabsorbed depreciation as Rs.1,65,15,093/- per certificate FBT Rs. 89,380/- Rs.16,60,443/- Book profit u/s.115JB NIL

2.2 The assessee to justify the adjustment of brought forward unabsorbed depreciation for ₹ 1,65,15,093.00 submitted that there was a loss in its balance sheet as on 31.3.2004 for ₹ 4,86,09,111.00 which was adjusted to the tune of Rs. 4,42,00,000.00 against the reduction of share capital in pursuance to a scheme approved by the Hon’ble Gujarat High Court vide order dated 2nd December 2004.

2.3 The assessee further submitted that the capital reduction of Rs. 442 lakhs was not credited in the profit and loss account. Therefore the impugned loss cannot be treated as adjusted against the capital reduction as discussed above. As such the brought forward losses and unabsorbed depreciation of Rs. 4,86,09,111.00 as on 31.3.2004 can only be adjusted against the profit of the company. As such the reduction in the capital does not represent the income/ profit of the company.

2.4 However the AO disagreed with the submission of the assessee by observing that there was no brought forward loss/ unabsorbed depreciation in the books of accounts. Therefore no adjustment for the amount of unabsorbed depreciation as provided in explanation 1 to section 115 JB of the Act can be provided while computing the profit for the year under consideration. Accordingly, the AO worked out the tax liability under MAT at the rate of 10% amounting to Rs. 1,93,947.00 only.

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 4

The aggrieved assessee preferred an appeal to the learned CIT (A)

Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 5

of brought forward losses and unabsorbed appreciation was appearing.

6.1 It is an undisputed fact that the unabsorbed depreciation was not adjusted against the income/profit of the company. The assessee till 31st March 2004 has shown the brought forward losses and unabsorbed depreciation amounting to Rs. 4,86,09,111.00 only. Subsequently, the assessee in the scheme approved by the Hon’ble Gujarat High Court has set off such brought forward losses and unabsorbed depreciation against the share capital reduction. After that, the assessee was not paying the tax either under the normal computation of income or MAT till the financial year 2006-07 because the entire taxable income was wiped out against the brought forward loss and unabsorbed depreciation. As such the assessee has adjusted the amount of unabsorbed depreciation being lower than the brought forward loss while working out the income under MAT till the financial year 2006-07.

6.2 The assessee again in the year under consideration adjusted the amount of unabsorbed depreciation amounting to Rs. 1,65,15,093.00 being lower than the brought forward loss while working out the income under MAT. But the same was disallowed by the authorities below on the ground that the

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 6

impugned amount of unabsorbed depreciation was not reflecting in the financial statements.

6.3 Now the issue arises whether the assessee is entitled to the set off of the unabsorbed depreciation, which already adjusted against the reduction of share capital, against the business profit of the current year.

6.4 At the outset, we note that in the identical facts and circumstances, The Tribunal in the case of Surat Textile Ltd VS CIT reported in 70 taxmann.com 158 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced as under:

“10. We have duly considered rival contentions and gone through the record carefully. In our opinion, the controversy required to be silenced at the end of the Tribunal, is whether restricting credits credited to the profit & loss account against accumulated profit & loss debit balance would mean that the alleged accumulated loss have been absorbed, and not available to the assessee for claiming deduction under clause (iii) of Explanation to section 115JB(2). Section 115JB has a direct bearing on the controversy, therefore, it is imperative upon us to take note of the relevant part of this section, which reads as under: "Section 115JB Special provision for payment of tax by certain companies. (2) [Every assessee,— (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b)** ** ** Explanation [1]. - For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by— (a) to (i)** ** ** if any amount referred to in clauses (a) to (i) is debited to the profit and loss account and as reduced by,

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 7

(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; (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 1713 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses." 11. As observed earlier the assessee's net worth was wiped out due to huge loss and its case was referred to BIFR under the provisions of SICA. The rehabilitation scheme was sanctioned by the Board vide order dated 22.1.2008. The IDBI was appointed as operating agency. After sanction of the scheme, the IDBI would work as monitoring agency on behalf of the Board to oversee the implementation of scheme. Facts to this extent are not in dispute. It is also not in dispute that by virtue of clause (vii) of Explanation to 115JB, the assessee was not under obligation to pay tax on book profit under section 115JB till March, 2008, because, upto this date, its net worth was in negative. Due to this reason, in the Asstt. Year 2008-09, the assessee has claimed deduction of Rs. 21,77,733/- from the book profit under clause (vii) of Explanation appended to section 115JB of the Act. The AO has allowed this deduction in an assessment order passed under section 143(3) r.w.s. 153A of the Income Tax Act. From the Asstt. Year 2009-10, the assessee had expected to come out from the provisions of SICA, because, its net-worth was going to be positive, and therefore, it will not be entitled to exemption under clause (vii) of Explanation to section 115JB of the Income Tax Act. It is also pertinent to mention here that in the Asstt. Year 2009-10, the assessee has reduced the book profit by making an adjustment under section 115JB of the Act at Rs. 6,92,38,861/-. Similar adjustments have been accepted by the AO in an assessment order passed under section 143(3) of the Act. 12. Parties are not disputed about the applicability of Section 115JB. There dispute is only qua quantification of book profit for the purpose of section 115JB. A bare perusal of clause (iii) of Explanation to section 115JB (2) would indicate that this clause authorises an assessee to reduce the amount of book profit by the amount of brought forward loss or depreciation whichever is lower. There is no dispute between the parties qua this interpretation also. Clause (a) of sub-section (2) of section 115JB contemplates that every assessee being a company, other than referred to clause (b) shall for the purpose of this section, prepare its profit & loss account in accordance with the provisions of Part-II and Part-III of Schedule-VI of the Companies Act, 1956. The area of dispute between the parties lies here. In other words, the controversy boils down to the issue whether the restructuring credits are required to be credited to the profit & loss account in terms of Parts-II

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 8

and III of schedule-VI of the Companies Act, which will wipe out or extinguish the debit balance available in the profit & loss account. The case of the AO is that once the assessee has made credits in the profit & loss account by way of restructuring, then, the debit balance would be considered as wipe out from the profit & loss account, and therefore, no loss/unabsorbed depreciation are available for reduction under clause (iii) of Explanation to section 115JB(2). In other words, the accumulated loss has been reduced from the restructuring credits in the profit & loss accounts and can be said that there are no losses as per the books of accounts. The ld. Revenue authorities below have not made reference to Parts-II and III of Schedule-VI to the Companies Act specifically for harbouring such a belief. The ld. AO has not backed his viewpoint on any provisions or rules. He proceeded with layman's angle. As far as reasons given by the ld. CIT(A) are concerned, we will revert to them in the later part of this order, because we have to deal with the stand of the assessee first. 13. Before adverting to the explanation of the assessee, it is pertinent to take note of primary purpose of preparing profit & loss account as contemplated in the initial provisions of Part-II of Schedule-VI, which reads as under: "PART II Requirements as to Profit and Loss Account 1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like manner as they apply to a profit and loss account, but subject to the modification of references as specified in that sub-section. 2. The profit and loss account — (a) shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account; and (b) shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature. 3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account :-. . . . . . . . . . . . . . . . . . . . (xii)(a)** ** ** (b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount." 14. Apart from the above, we have perused the guidance note issued by the Institute of Chartered Accountants of India on the revised Schedule-VI to the Companies Act, 1956. It has been laid down in the guidance note at serial no. 9, page no. 56 that while preparing the statement of profit & loss account, under Part-II of the Schedule VI, company has to

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 9

disclose the items of revenue expenses, other details and profit & loss etc. There is a list of different heads from I to XVI under which details are to be disclosed. It provides that the expression "income" or "revenue" is to be considered as increase in economic benefit during the accounting period in the form of inflows or encashment of assets or decrease of liabilities that result in increase in equities, other than relating to contributions from equity participants. Similarly, expression "expenses" has been defined to mean decrease in economic benefits during the accounting period in the form of outflows, the depletion of assets or increase of liabilities that result in decreases in equities, other than those relating to distributions to equity participants. This guidance note provides that while preparing statement of profit & loss account under Part-II, one has to identify revenue from operations which will include sale of products, sale of services, other operating revenue, less excise duty. The next item is "other income". Under the head "other income", the company has to show interest income, dividend income, net gain/loss on sale of investments, other non-operating income. The next item is share of profit & loss in partnership firm, share of profit/losses in limited liability partnership. Fifth item is "expenses". Under the head "expenses", the company has to show cost of material consumed, purchases of stock-in-trade, change in inventories of goods, work-in-progress, employee benefits expenses, financial costs, depreciation and amortization and other expenses. Under the next two heads, exceptional items or extra-ordinary items are to be reported. Similarly, tax expenses are to be shown. Thus, emphasis of the assessee was that primary purpose of preparing the Profit and Loss Account is properly served, if a Company ensures, as far as possible, not to account to the credit of the Profit and Loss Account anything which is not concerned with the result of the working of the Company during the period covered by the Profit and Loss Account. 15. A perusal of the various heads, under which information are to be reported by the assessee under Part-II of Schedule-VI would indicate that companies are not required to account anything which cannot be regarded an income or profit/gain. As far as exceptional or extra-ordinary items are concerned, they are non-recurring items, which are likely to distort true income of the company during the period covered by the profit & loss account. Part-II of the Schedule-VI provides presentation of such extra-ordinary items by way of a separate disclosure. The case of the assessee is that if by way of any mistake or for some other reasons, if any part, which is not operating income of the assessee, is accounted in the profit & loss account, then, those provisions do not require that these items must be accounted in the profit and loss for the purpose of section 115JB. In other words, the case of the assessee is that Part-II of the Schedule, nowhere contemplates that anything recorded on transaction of exceptional nature is to be debited or credited to the profit & loss account. In order to buttress this standpoint, Shri J.P. Shah, ld. counsel for the assessee drew our attention towards AS-9 which provides the method of revenue recognition. 16. We have made analysis of Guidance Note issued by Institute of Chartered Accountants of India on Schedule-VI, provisions of Part-II of Schedule-VI and AS-9. At the cost of repetition, we would refer clause (3) of Part-II. "3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account."

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 10

This clause contemplates that the profit & loss would show various items, relating to income and expenditure, as also appended in the Guidance Note. These items were to be arranged in seriatim against whom information should be disclosed in particular. Thus profit & loss account is to contain the income and expenditure of a company in respect of accounting period covered. There cannot be any question for including capital surplus which cannot be regarded as income. At this stage, we would like to refer the order of the ITAT, Jaipur Bench, (as relied upon by the ld. counsel for the assessee) in the case of ACIT v. Shree Cement Ltd. [IT Appeal No. 635 (JP) of 2010] and others. In this case, the assessee has received capital subsidy. The assessee excluded capital receipts from profit & loss account. The AO has included it for the purpose of section 115JB. The Tribunal observed as under:— "13.2 Our above view also finds support from the decision of Hon'ble Apex Court in the case of Padmaraje R. Kadambande v. CIT (1992) 195 ITR 877 (SC), wherein it has been held by the Apex Court that Capital Receipts are not income within the definition of Sec 2(24) of the Act and hence are not at all chargeable under the I.T. Act. A receipt which is neither 'Profit' nor 'Income' and which does not have any element thereof embedded therein, cannot be part of 'profit' as per Profit & Loss account prepared in terms of Part II of schedule VI to Companies Act." 17. In para-4 on page no. 4 of this order, we have noticed the accounting treatment given by the assessee in the F.Y. ending on 31.3.2008 in consequence of rehabilitation scheme under the head "Effect of Rehabilitation Scheme." Apart from the seven items disclosed by the assessee, it has appended Note Nos. 7 & 9 of Schedule-II to the Annual account. At the cost of repetition, we would like to note the items disclosed by the assessee on this note. They read as under: '(Rs. in lacs) (i) Reduction of share capital (ii) Securities Premium Account - Adjustment of loss (iii) Capital Reserve Account - Adjustment of loss (iv) Capital Redemption Reserve Account - Adjustment of loss (v) Secured loans - Balance waived (vi) Share forfeiture account - Unpaid allotment monies and call in arrears written off Total 7,39,570 equity shares on which call money and allotment-money were in arrear, forfeited and the amount of Rs. 3.95 lakhs due after giving effect to the reduction in shares capital has been written off to the Profit and Loss Account. 9. The Company is registered as a sick company; with the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The Hon'ble Board, has sanctioned a rehabilitation scheme

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 11

resting with its order dated 22nd January, 2008 envisaging various relief and concessions ("Rehabilitation Scheme") Further, the sanctioned Rehabilitation Scheme inter alia provides for restructuring of debts through One Time Settlement (OTS) with the secured lenders, write down (reduction) of the existing equity capital u/s 18(2(f) of SICA, by 90%, issue of fresh equity share capital on a preferential basis in favour of the promoters and fresh infusion of funds by the promoters as "additional working capital and soft loan for revival of the Company. In accordance with the One Time Settlement (OTS) terms, the Company has paid off Rs. 40,83 crores to "the secured lenders towards the aggregate liability (principal and interest) amounting, to Rs. 81.77 crores. As per the approved Rehabilitation Scheme, the dues of secured creditors have been completely settled and the secured creditors have waived-off the aggregate: balance Rs. 40.94 crores on principal, interest, penal interest and other charges upon repayment bf OTS amount. The promoters have contributed Rs. 3.67 crores towards additional working capital. In accordance with the rehabilitation scheme the Company has issued 15,50,00,000 fresh equity shares of Re.1/- each fully paid up on a preferential basis in favour of the promoter groups for an amount aggregating to Rs. 15.50 crores. In addition, the promoters of the Company have brought in Rs. 29.00 crores by way of a soft loan to the Company. The soft loan from the promoters is interest-free and subordinated to banks/financial institutional loans and shall, not be withdrawn till the end of the Scheme period. The effects of Rehabilitation Scheme, in terms of write-down in Share Capital, utilization of reserves and waiver of dues by secured creditors are as disclosed in the Profit & Loss account under "Effect Rehabilitation Scheme'. 18. A perusal of the above would indicate that not a single item of alleged restructuring credit was of income nature. If that be so, then, how the loss can be set-off against such credits. The loss or debit balance of company can be set-off against the income. The income, on other words, means profit/gains of the business or profession. We have noticed the definition of income given in Part-II of the Schedule-VI. It contemplates that the income is increase in economic benefits during the accounting period in the form of inflows or enhancement of assets, decreases of liability that result in increase in equity, other than those relating to contributions from equity participants. This definition also excludes those equities which came from the contribution of the equity participants. In other words, if the value of equity enhances by virtue of inflows or decrease of liabilities, only that components is to be considered as income. If the value of equity increases by virtue of fresh capital contribution from the equity participants, then that would not be treated as income. The items in the restructuring credit came from the reserve, capital contribution of the equity participants etc. Therefore, there was no element of income involved in the alleged restructuring credit. In such situation, the loss cannot be set-off in the accounts, which are to be prepared as per Parts-II and III of the Schedule-VI. This aspect has been considered by the ITAT, Madras in the case of Prithvi Softech Ltd., in ITA No. 797/Mds/2010. Copy of this order has been placed on page nos. 1 to 14 of the case compilation. The company has business loss as well as unabsorbed depreciation in F.Y. 2000-01 to 2003-04. It has claimed set-off of losses as deduction, while computing the

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 12

book profit as per the clause (3) of Explanation to Section 115JB(2). The facts on the basis of which this claim was disallowed by the AO was that as per scheme of amalgamation approved by the shareholder and the Hon'ble Madras High Court, the company reduced the paid-up capital, which is not represented by the assets, because the company had incurred losses in earlier years. Accordingly, the company has transferred the entire balance of profit and loss account amounting to Rs. 3,58,75,731/- to paid-up equity capital account. The amount credited to profit & loss account is not income of the year and only represented reduction of paid-up capital. The ld. Revenue Authorities have rejected the claim of the assessee on the ground that since the assessee has set-off its debit balance against the alleged paid-up capital transferred to the profit & loss account. In subsequent years, it is not to be examined, the manner and purpose in which the said earlier business loss/depreciation had been adjusted by the assessee against its capital asset. When the dispute travelled to the Tribunal, the Tribunal has allowed the claim of the assessee, and discussion made by the Tribunal reads as under: '7. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. We find that in the instant case, the original assessment was completed u/s 143(3) on 28.12.2007 wherein book profit u/s 115JB was computed at NIL after allowing set-off of brought forward loss or depreciation of Rs. 1,13,01,457/-. The said order of assessment was revised by the ld. CIT vide impugned order passed u/s 263 of the Act. The ld. CIT was of the opinion that there was no amount which could be allowed as deduction under clause (iii) of Explanation to section 115JB(2) of the Act as there was no loss balance in the profit and loss account. It is not in dispute in the instant case that the assessee company suffered loss continuously since F.Y. 2000-01 till the immediately preceding previous year. However, the assessee adjusted the figure of accumulated loss of Rs. 3,58,75,731/- with the paid-up capital and balance in profit and loss account was not reflecting any loss. The assessee submitted year-wise position as under before the ld. CIT which was not controverted by the ld. CIT or by the ld. D.R: F.Y. Business loss Unabsorbed depreciation 2000-01 6,516,294 5,038,745 2001-02 8,616,502 4,568,920 2002-03 8,300,582 4,658,373 2003-04 2,971,925

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 13

brought forward' and phrase 'debit balance in profit and loss account' are two different and does not convey the same meaning. The above position becomes evident when one looks into the example given by the CBDT in its Circular No. 495 dated 22.9.1987. A reading of para 36.3 and 36.5 thereof shows that by virtue of the said clause, "brought forward losses" or "unabsorbed depreciation", whichever is less, could be reduced in arriving at books profits. It requires working out separate amount of losses and unabsorbed depreciation in each year from the books of account and their set-off, if any, against subsequent year's book profit for determining the amount to be carried forward or the amount remaining unabsorbed. The loss or unabsorbed depreciation is to be determined with reference to books of account in contra- distinction to the loss of unabsorbed depreciation arrived at from normal computation of total income under sections 72 to 74A of the Act or u/s 32 of the Act. Herein, it may be noted that phrase used is 'books of account' and not 'profit and loss account' or 'balance sheet'. 'Profit and loss account, balance sheet and books of account' are different and distinct terms and in a given circumstance, may not carry the same meaning. Though 'profit and loss account' and 'balance sheet' are normally drawn up from the books of account and the amount reflected therein agree with the balance sheet as per books of account, but books of account also contain many details and break up of balances which are disclosed in a summarized manner in the profit and loss account and balance sheet and hence, a figure which may be available as per books of account may not always be necessarily apparently visible from either the profit and loss account or balance sheet. The said clause (iii) cannot be read to mean that if the loss suffered in a year and unabsorbed depreciation of that year are not kept separately and shown distinctly in the balance sheet, then no deduction for the said loss or depreciation can be allowed in the succeeding years in computing the book profit. There is no such further legal requirement that the loss should appear in the balance sheet of the succeeding year also and hence such requirement cannot be imposed by any authority. In our considered opinion, the loss or unabsorbed depreciation of one year can be set-off against the profit of the subsequent year only and till such set-off, the amounts are carried forward to the subsequent year, or in other words, are brought forward in the subsequent year from earlier year and are available for set-off as per provisions of clause (iii) of section 115JB(2) of the Act. In the instant case, it is observed that the assessee has suffered loss continuously in the last four years. No material has been brought on record that such loss was set-off against any profit of the subsequent year in determining the book profit of the assessee company after the year in which such loss was suffered. Thus in our considered opinion, such loss was available for set-off during the year under consideration for determining the book profit as per provisions of clause (iii) of section 115JB(2) of the Act. In view of the above, in our considered opinion, there was no error in the order of the assessment as passed by the Assessing Officer insofar as it allowed deduction of Rs. 1,13,01,457/- as per the provisions of section 115JB(2) of the Act in determining the book profit of the year under consideration. Our above view also finds support from the decision of the Hon'ble Delhi High Court in the case of CIT v. Sumi Motherson Innovative Engineering Ltd. [2010] 195 Taxman 353 [Del].' 19. Now let us deal with the reasoning given by the ld. CIT(A). The first reason assigned by the ld. CIT(A) is that the assessee has claimed maintenance of separate ledger for giving effect the credits in the rehabilitation scheme. But according to the ld. CIT(A) auditors have not given any such finding nor provided that two sets of profit & loss account are

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 14

being maintained. Therefore, according to the ld. counsel for the assessee, once the assessee has accounted the alleged restructuring credits in the accounts and set-off the losses, then, in subsequent period, it cannot claim reduction of such loss under clause (iii) of Explanation to Section 115JB(2). With regard to this objection, we are of the view that SICA has no overriding effect on the Companies Act. The assessee in its computation of income has claimed reduction of unabsorbed depreciation from the book profit as per clause (iii) of Explanation to Section 115JB(2). The contention of the assessee, as discussed earlier was that accounts for the purpose of giving effect the scheme of BIFR were not required to be finalized in consonance with Parts-II and III of Schedule-VI. Therefore, even if the assessee has shown the alleged set-off of debit balance against the restructuring credits brought in the accounts, for the purpose of balance sheet and presentation, that does not mean that the assessee has been denuded to say that its accounts for subsequent period would not be prepared on the basis of annual affairs of the company in terms of Part-II and III of Schedule-VI. On other words, the maintenance of accounts under Parts-II and III of Schedule-VI is an independent exercise which is to be prepared in consequent to the requirement under these provisions. Parts-II and III of Schedule-VI nowhere envisage that the items which are not of income in nature are required to be recognized under the head "income" in the profit & loss account. The simple logic is how an entity or person can be put under a tax liability on its own on capital contribution? If somebody has a reserve and surplus and for the purpose of availing loan or for some other reasons, demonstrate the set-off of liability, would that mean that department would treat that reserve and surplus as income and put the entity under the tax liability? 20. The next reason assigned by the ld. CIT(A) is that in the return of income, the assessee itself admitted that MAT calculation is not as per the books of account. If that be so, then, such a claim is not admissible. In our opinion, this reason is not sustainable, because sub- clause (a) of section 115JB(1) contemplates that book profit ought to have been worked out as per the Part-II and Part-III of Schedule-VI. If that has not been worked out, then, the AO has right to tinker with the computation of book profit and compute it in accordance with Part-II and Part-III of Schedule-VI of the Companies Act. Thus, instead of harping upon the alleged disclosure in the column, one has to find whether the book profit computed by the assessee and claimed along with return is in consonance with Part-II and Part-III of Schedule-VI to the Companies Act. 21. Next reason assigned by the ld. Commissioner is that actual book of accounts show separate ledger accounts in respect of the brought forward loss and unabsorbed depreciation. According to the ld. CIT(A), the adjustment of debit balance in the profit & loss accounts credits in the rehabilitation scheme, ought to have been given full effect by the assessee in the accounts. It is not open for the assessee to opt for inconsistent method of accounting. As observed earlier, the object of levy of tax under section 115JB is that book profit ought to be computed as per Part-II and Part-III of the Schedule-VI. What other accounting treatment has been given by the assessee for the purpose of any other scheme is totally irrelevant, because SICA has no overriding effect on the Companies Act. It could be explained by simple example. Depreciation under the Companies Act can be claimed according to the straight-line method or as per WDV. But for the purpose of computation of income under the Income Tax Act, depreciation is to be worked out as per the WDV. The rate of depreciation under the Income Tax Act is higher than the one prescribed under the Companies Act. Can the ld. Commissioner allege that since you have

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 15

claimed a lower depreciation, according to the straight-line method, while preparing the accounts under Part-II and Part-III of Schedule-6, therefore, you are not entitled for higher rate of depreciation as per WDV method while assessing the income of the assessee under regular provision? All these Acts operate independently in their field. As far as plea of the assessee that principle of consistency ought to be applied is concerned, this plea has been jettisoned by the ld. Commissioner simply for the reason that res judicata is not applicable in the income tax proceedings. But this aspect has been considered by the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) and Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248. In a number of authoritative pronouncements, it has been held that though the principle of res judicata is not strictly applicable in the income tax proceedings, but where the facts running in different assessment years have not changed, then, consistent approach ought to be adopted. The Income Tax Officer is free to take different opinions in different assessment years, but he should have disclosed the reasons why he is taking a different stand in different years. In the present case also, the ld. CIT(A) failed to justify why a different stand has been taken in this assessment year, where in the previous two assessment years, consistently, the AO has allowed reduction of unabsorbed loss/depreciation under clause (iii) of Explanation to section 115JB while calculating the book profit. In the Asstt. Year 2010-11, the AO has granted reduction. The order of the AO was sought to be revised by the ld. Commissioner by exercise of power under section 263 of the Act. However, the conclusions of the ld. Commissioner did not get approval from the Tribunal, and that order has been set aside. The assessment order in Asstt. Year 2010-11 has been restored. Considering all these factors in their setting as a whole, we are of the view that restructuring credits brought by the assessee to the profit & loss account against accumulated profit and loss/debit balance, while giving effect to the scheme sanctioned by the BIFR would not extinguish alleged loss and depreciation from the accounts of the assessee in actual terms. Such loss would be available to the assessee as per the accounts prepared under Parts-II and III of Schedule- VI, and the assessee will be entitled to claim reduction of loss/unabsorbed depreciation, whichever is lower, from the book profit under clause (iii) of Explanation to Section 115JB, while making such computation for the purpose of section 115JB. We allow the appeal of the assessee and set aside the orders of the Revenue authorities on this issue. We direct the ld. AO to grant deduction of unabsorbed depreciation amounting to Rs. 27,36,90,817/- from the book profit under clause (iii) of Explanation to Section 115JB(2) of the Income Tax Act, 1961.

6.5 The Hon’ble Gujarat High Court subsequently confirmed the above order of the Tribunal reported in 79 taxmann.com 209 wherein it was held as under: 9. In view of the above set of facts and circumstances, it cannot be said that the learned Tribunal has committed any error in quashing and setting aside the action of Assessing Officer in disallowing the deduction of alleged accumulated unabsorbed depreciation of earlier years amounting Rs. 27,36,90,817, while computing the book profit of Rs. 27,51,00,602 for the purpose of Section 115JB of the Act on the ground that in the earlier years i.e., AY 2009-2010 in the scrutiny assessment under Section 143 [3] and A.Y 2011-2012 [u/s. 143 (1) assessment],

ITA no.1493/Ahd/2013 Asstt. Year 2008-09 16

such deduction was allowed for the purpose of computing the book profit under Section 115JB of the Act. We see no reason to interfere with the impugned judgment and order passed by the learned Tribunal.

6.6 As the facts of the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same, we reverse the order of the authorities below. Accordingly, we direct the AO to delete the addition/ disallowance made by him. Hence the ground of appeal of the assessee is allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 14/05/2019 at Ahmedabad.

-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 14/05/2019 manish