INDO NISSIN FOODS PVT LTD ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(1)(1), BANGALORE

The assessee has raised the following concise grounds:- “1. Appellant is engaged in the business of manufacture and sale of instant noodles.

The facts of the case are that the assessee is a Private Limited Company engaged in the business of manufacturing and setting instant noodles. The assessment for the relevant year was completed u/s 143(3) of the Act. As against the returned toss of Rs.10,50,068/-, the AO had made various disallowances and income was finally assessed as Rs.9,11,23,817/-. However, after adjusting the brought forward loss under the normal provisions, the tax payable was determined as nil. For the purpose of MAT computation, the assessee had adjusted a sum of Rs.55,69,139/- towards unabsorbed depreciation and consequently the book profit was determined as nil.

However, the AO had subsequently observed that no brought forward business loss was available to the assessee for the relevant year and therefore it was not entitled to set off the unabsorbed depreciation of Rs.55,69,139/- for computing the book profit u/s 115JB. Accordingly proceedings for rectification of the order were initiated u/s 154 of the Act. Consequently the AO determined the book profit of Rs.55,69,139/- u/s

The CIT(Appeals) confirmed the order of the AO. Against this, the assessee is appeal before us.

The ld. AR submitted that the disallowance of unabsorbed depreciation loss of Rs. 55,69,139 is not a mistake apparent on record u/s. 154 of the Act. It is a matter of legal interpretation. Therefore, the AO was not justified in passing a rectification order.

As per the provisions of section 115JB, brought forward loss from a year is available for set-off and carry forward to the subsequent year. Accordingly, the unabsorbed depreciation loss carried forward from AY 2009-10 amounting to Rs. 1,42,26,745 was available for set-off in AY 2010- 11, out of which Rs. 55,69,139 was set-off during the year and the balance unabsorbed depreciation of Rs. 86,57,606 was carried forward to AY 2011- 12, notwithstanding the capital reduction undertaken by the assessee. This stand of the assessee is based on the ratio of the Sumi Motherson Innovative Engg. Ltd. 1(2010) 195 Taxmann 353 (Delhi)]. The facts of this case are identical to that of the assessee.

In the Sumi Motherson case, as on 1.4.2001, accumulated loss was Rs. 34.67 crores. On close of the year, the loss was reduced to "Nil" due to reduction in capital. It was held that the loss is available is for set-off & carry forward and the scheme of capital reduction is to be ignored. The question of whether the brought forward losses are liquidated or not is of no consequence.

The assessee also relied on Surat Textile Mills Ltd. [2016] 70 taxmann.com 158 (Ahd. Trib.) wherein, it was submitted that, on identical facts of the assessee, it was held in para 21 as follows:- “21. ……. 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.”

It was submitted that the set off of unabsorbed depreciation loss against the book profit in earlier years were as follows:- Particulars Total Brought Unabsorbed Depreciation Forward Loss Business Loss Rs. Rs. Rs. 2005-06 (AY:2006-07) 48,34,69,216 15,48,05,581 63,82,74,797 Less: Adjusted during the year - 2,68,14,794 2,68,14,794 Carried forward to 2006-07 (AY: 07-08) 48,34,69,216 12,79,90,787 61,14,60,003

Thus, the ld. AR submitted that the assessee’s claim to allow unabsorbed depreciation loss of Rs.55,69,139 to be set off against the book profit for FY 2009-10 has to be upheld.

On the other hand, the ld. DR relied on the orders of the lower authorities.

We have heard both the parties and perused the material on record. The only issue in this appeal is with regard to disallowance of unabsorbed depreciation of Rs.55,69,139 while determining the book profits u/s. 115JB(2) of the Act. The AO allowed this claim of the assessee in the order u/s. 143(3) of the Act dated 30.1.2014. However, the AO issued notice u/s. 154 and withdrew the same as according to the AO, the assessee is not entitled to set off unabsorbed depreciation while computing book profits since no brought forward loss was available to the assessee for the relevant year.

Now the contention of the ld. AR is that the assessee had unabsorbed depreciation of Rs.142,26,245 during AY 2010-11, out of this the assessee is entitled to set off Rs.56,69,139 during the year and the balance unabsorbed depreciation of Rs.86,57,606 was to be carried forward to AY 2011-12. For better understanding, we will reproduce the relevant computation below:-

However, as per clause (iii) to Explanation 1 to section 115JB(2) of the Act, the assessee is entitled to set off of unabsorbed depreciation or the

Further the assessee relied on the decision of the Chennai Bench of the Tribunal in the case of Prithvi Softech Limited ITA No. 797/Mds/2010 dated 28.7.2021. In that case also, the assessee was having brought forward business loss for the last 4 years and no material was brought o record that such loss was set off against any profit of subsequent year in determining the book profits of the assessee company after the year in which such loss was suffered. Being so, the Tribunal held that such loss was available for set off during the year for determining the book profit as per the provisions of clause (iii) of section 115JB(2). However, in the present case, the facts are entirely different as the assessee is having no balance of brought forward business loss of earlier year. Being so, the various decisions relied on by the assessee have no application to the facts of the present case. In view of the above, we are in complete agreement with the finding of the CIT(Appeals).

The ld. AR further submitted that there was no mistake apparent on record under the provisions of section 115JB(2) of the Act so as to rectify the assessment order by the AO. As discussed earlier, in the present case

In the result, the appeal by the assessee is dismissed.

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.