NIRAMAYA MEDICAL FOUNDAION AND RESEARCH CENTRE PVT.LTD,,PUNE vs. INCOME-TAX OFFICER, WARD - 2(4),, PUNE

ORDER

Per S.S.Godara, JM:

Heard both the parties. Case file perused. 2. The assessee proposes the following substantive grounds in this instant appeal. “1. The Hon. CIT(A) erred in confirming the AO’s action of reducing the figure of business loss of Rs.4,78,664 u/s 72 of I T Act in place of book loss/depreciation Rs.63,78,468 claimed in the computation of book profit under section 115JB filed with return of A.Y. 2012-13 Niramaya Medical Foundation and Research Centre Pvt. Ltd., (A) income. The appellant plead that its computation of book profit of Rs.16,62,218 u/s 115JB is as per law and ought to be accepted. 2. The appellant craves leave to ad to, alter, amend, modify or withdraw any or all grounds of appeal.”

3. We next comes to the CIT(A)’s detailed discussion affirming the Assessing Officer’s action making section 115JB disallowance / addition of Rs.76,28,309/- as follows: “5. In grounds 4 to 6, the appellant is aggrieved against computation of book profit under 115JB. The Assessing Officer while computing the book profit made following observations in the assessment order. “During the year, net profit as per profit and loss account has been calculated at Rs.80,81,354/-. According to provisions of 115JB of the Act, to arrive book profit, net profit has to be reduced by following components:

1) The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

2) Amount withdrawn from reserve or provisions if credited to profit & loss account.

From the computation of income, it seen that the assessee has other business loss to the tune of Rs. 4,78,664/- & unabsorbed depreciation to the tune of Rs. 1,10,40,710/-. Therefore, according to the provisions of sec. 115JB, Rs. 4,78,664/- is the allowable reduction from the net profit. However, it has reduced Rs. 63,78,468/- from the book profit and arrived book profit at. Rs. 16,62,218/-. The Ld. AR was therefore requested to explain as to why difference amount of Rs. 58,99,084/- may not be added in the book profit.

The Ld. AR vide letter dated 18.03.2015 submitted that the amount reduced from the net profit comprises losses incurred during F.Ys. ending 31.03.2009, 31.03.2008, 31.03.2007, 31.03.2006 & 31.03.2005 which have not been allowed to be carried forward as returns pertaining to the relevant F.Ys. were not filed within due time as per provisions of sec. 139(1) of the Act.

A.Y. 2012-13 Niramaya Medical Foundation and Research Centre Pvt. Ltd., (A)

The submission of the assessee is considered but not accepted. As per provisions of sec, 115JB(4) which reads as under:

“Every company to which this section applies, shall furnish a report in the prescribed form from an account as defined in the Explanation below subsection (2) of sec 288, certifying that the book profit has been computed in accordance With the provisions of this section along with the return of income filed under sub-section (1) of sec. 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142” From the provisions of this section, it is clear that for computation of book profit, every company has to adhere to provisions of sec. 139(1) of the Act. If failed to do so, carry forward of losses for the years for which there is violation of provisions of sec. 139(1) will not be allowed.” 5.1 The appellant on the other hand filed written argument stating as under: The AO erred in reducing the figure of business loss of Rs.4,76,664 under section 72 of the IT Act, 1961 from book profit u/s 115JB in ,place of the business loss I depreciation of Rs, 63,78,466 as per books of account as claimed by the assessee. 4.1 The assessee had furnished computation of book profit u/s 115JB with the return of income working out book profits of Rs. 16,62,218. In its Profit & Loss Account, the assessee had losses of Rs.173,13,312, comprising of business loss of Rs. 109,34,844 and depreciation Rs.63,78,468, The assessee accordingly adjusted depreciation of Rs.63,78,468 being the lower of loss brought forward or depreciation as per books of accounts under sub clause (iii) of Explanation 1 to Section 115JB. 4.2 The AO however in the asst order has reduced business loss of Rs.478,664 as per statement of carried forward losses u/s 72 of the IT Act while computing book profit Ws 115JB of the Asst Order. The AO has referred to section 115JB(4) and has concluded that it is clear for computation of book profit, every company has to adhere to the provisions of section 139(1) of the IT Act failing which carry forward of losses will not be allowed. 4.3 We submit that the AO has confused the issue. Section 115JB(4) stipulates that the assessee shall furnish the Auditors Report in Form 29B alongwith the return of income filed u/s 139(1) or in response to notice u/s 142(1). This has no relevance to the adjustment of loss/depreciation as per accounts Le. under the A.Y. 2012-13 Niramaya Medical Foundation and Research Centre Pvt. Ltd., (A)

Companies Act which is the adjustment available u/s 115JB for computation of book profit. 4.4 As explained above, the provisions of section 115 JB is a fiction created under the Income Tax Act to apply in certain cases, wherein in the case of a company whose total income as computed under the regular provisions is less than 30% of the book profits computed under the section, the total income chargeable to tax will be 30% of the book profit. For the purposes of section 115JB book profit will be the net profit as per Profit & Loss Account prepared in accordance with the provisions of Schedule VI , Companies Act 1956, after adjustments specified u/s 115JB. 4.5 We submit that the AO has erred in adjusting the business loss of Rs.4,78,664 u/s 72 of the IT Act 1961 from book profit u/s 115JB in place of depreciation of Rs.63,78,468 as per books of accounts as claimed by the assessee. 5.0 We plead for appropriate directions to the AO. 5.0 Ground of Appeal No 5: The AO erred in holding that losses for years where return of income was not filed within the time u/s 739(1) of the IT. Act, 1967 were not to be reduced from computation of book profit u/s 115J8. 5.1 The AO has erred in introducing in the computation of book profit u/s 115JB set off of losses under the Income Tax Act by misunderstanding /misapplying the provisions of section 115J6(4). 5.2 We plead for appropriate directions to the AO. 6.0 Ground of Appeal No 6: The AO erred in working out book profit u/s 115JB at Rs. 76,28,309 in the Asst Order. The appellant pleads that its computation of book profit of Rs. 16,62,218 under Section 115JB is as per law and ought to be accepted. 5.2 I have gone through the facts of the issue as mentioned by the Assessing Officer in the assessment order as well as arguments taken on behalf of the appellant. The major point of dispute is with regard to ascertaining the figure of brought forward business losses. As per the provision of sec. 115JB of the I T Act, for arriving at the figure of book profit, the net profit has to be reduced by following, besides other items: "(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation - For the purpose of this clause, - a) the loss shall not include depreciation;

A.Y. 2012-13 Niramaya Medical Foundation and Research Centre Pvt. Ltd., (A) b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or" 5.2.1 The Assessing Officer while following the aforesaid provision restricted the amount of business loss to be set off at Rs. 4,78,664/- as because this was the amount of business loss which was allowed to be carried forward from the preceding years. On the other hand, the appellant has taken a argument that for the purpose of computing book profit u/s 115JB, the appellant is entitled to set off even such business losses which were not allowed to be carried forward as the returns were not filed within the due date as prescribed u/s 139(1) of the I T Act. I do not find any merit in the argument taken on behalf of the appellant. The provision of sec. 115JB is very clear and it clearly says that only the amount of loss brought forward or unabsorbed deprecation whichever is less is to be deducted/reduced from the net profit. Since in the case of the appellant, the appellant was having brought forward business loss of only Rs, 4,78,664/- therefore the Assessing Officer was perfectly justified in allowing deduction to this extent only as no deduction can be allowed on account of a loss which was not allowed to be carried forward. I therefore do not find any reason to interfere with the order of the Assessing Officer. Grounds raised in this regard are accordingly dismissed.

6. Ground of appeal No. 7 says that appellant may be allowed to add, amend, alter or delete any ground of appeal at the time of appellate proceedings. No such option has been exercised by the appellant during the appellate proceedings. Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this should be taken to be dismissed ground of appeal.”

4. Suffice to say, the instant issue of section 115JB computation involves the relevant facts is a narrow compass. The assessee’s endeavour all along is to go by its corresponding figure in the books of accounts coming to Rs.80,81,354/- as against the Revenue’s stand that the same ought to be taken as Rs.4,78,664/- only to the extent of normal business losses. Mr.Desai drew strong support from the Assessing Officer’s computation going by the assessee’s business losses only which goes against the relevant statutory provision under A.Y. 2012-13 Niramaya Medical Foundation and Research Centre Pvt. Ltd., (A) clause (iii) of section 115JB making it clear that the same has to be arrived at going by the relevant figures in the “books of accounts” only. We note in this factual backdrop that the Assessing Officer’s detailed discussion in page of his assessment order denying the impugned relief violates the non-obstante clause in section 115JB which carries over-riding effect overall the normal provisions including that under section 72 of the Act. We thus accept the assessee’s sole substantive grievance and delete the impugned MAT addition of Rs.76,28,309/-. Necessary computation shall follow as per law.

Order pronounced in the open Court on 29th August, 2022.