ACIT CIRCLE 1, ERODE vs. SKM EGG PRODUCTS EXPORT (I) LTD., ERODE

आदेश/ O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The Revenue filed this appeal against the order of the Commissioner of

Income Tax (Appeals)-3, Coimbatore in ITA No. 201/17-18 dated 11.03.2019 for

the assessment year 2014-15.

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M/s. SKM EGG Products Export (I) Ltd., the assessee , is the manufacturer 2.

and exporter of egg products and running Poultry Farm. It filed its e-return of

income for the assessment year 2014-15 on 27.10.2014 after claiming set-off of

brought forward losses and unabsorbed depreciation under the normal provisions

of income -tax computation as well as under MAT provisions. While doing the

assessment, the A O completely rejected the assessee’s MAT workings on the

ground that the assessee’s book profit during the year was at Rs.9,93,85,557/-

and that as per books of account there is no brought forward business loss /

unabsorbed depreciation and the losses as per books of AYs 2011-12 &2012-13

got absorbed against the surplus brought forward from the earlier years and

thus, in effect there remains no brought forward business loss / unabsorbed

depreciation for setting off against the current assessment year’s book profit and

hence the AO determined the income under sec.115JB at Rs.9,93,85,557/- and

completed the assessment . Aggrieved, the assessee filed an appeal before the

CIT(A) and the ld CIT(A) deleted the addition, inter alia, for the following

reasons.

i. The stand taken by the AO that unless there is a debit balance in the

P&L account, the assessee cannot be allowed the benefit of Clause (III)

Explanation to Sec.115(JB)(2) is incorrect.

ii. The loss or unabsorbed depreciation of one year can be set off against

the profit of subsequent year only and till such set off, the amounts are carried

forward or brought forward in the subsequent year from earlier year and are

available for set off as per provisions.

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iii. It is incorrect to propose to set off losses of the year against profits of

preceding years. In this regard, the learned CIT (A) drew support from the

following decisions.

a. Prithvi Softech Ltd. vs. CIT-Ill, Chennai — TA No.797/Mds/2010

b. CIT vs Sumi Motherson Innovative Engineering Ltd.

(ITA No.863 of 2009, Delhi HC — 195 Taxman 353).

appeal with following grounds of appeal.

1) The order of the learned CIT(A) is not acceptable on the facts and circumstances of the case. 2) The learned CIT(A) has erred in allowing brought forward depreciation losses to be set off against the Book profit of Rs. 9,93,85,557/- while working out income u/s 115JB ( of the Act thereby reducing the income u/s 115JB to Nil. 3) The learned CIT(A) has erred in not considering the workings tabulated from A.Y 1999-2000 onwards upto A.Y 2013-14 in the assessment order which show that there is no brought forward loss or unabsorbed depreciation available as per books of accounts, and hence the assessee is liable to pay tax under MAT workings 4) The learned CIT(A) has erred in not considering that In Section 115JB, since nowhere it is mentioned that the loss of a year is to be set off against the book profit of subsequent year only and hence If there is surplus under the head P&L Account at the beginning of the year loss if any of that year will get absorbed against the brought forward surplus and the resultant figure gets carried forward in the books of account. 5) For these and other grounds that may be adduced at the time of hearing, the order of the CIT (A) may be cancelled and that of the A.O. restored.

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that at the time of passing the assessment order itself, the AO considered the

case laws relied on by the ld CIT (A) and correctly held that they were not

applicable to the facts of this case. It was noticed that in those cases the Book

Loss was not appearing in the Balance Sheet for the reasons that it got set-off

either by reduction in the Share Capital or adjustment against Certain Reserves.

In those cases, there were brought forward loss/depreciation which were not

apparently noticed in the Balance Sheet. However, in the assesse;s case , the

facts are different as there is no actual brought forward loss / depreciation as per

books of account. In this regard, the ld DR invited our attention to the

assessment order, wherein the A O has by a tabular form has drawn the

assessee’s book profit from the AY 1999-00 to AY 2013-14, which is extracted as

under for convenience sake :

AY Depreciation Business Loss Total Progressive Loss Profit (+) figure Loss(-) Upto 1999-00 (-) 2,55,69,944 (-)6,17,63,988 (-) 8,73,33,932 (-) 8,73,33,932 2000-01 (-)1,67,85,395 (-)3,40,53,982 (-) 5,04,97,585 (-)13,78,31,517 2001-02 0 0 (+) 44,96,889 (-)13,33,34,628 2002-03 0 0 (+) 3,83,36,352 (-) 9,49,98,276 2003-04 0 0 (+) 5,07,20,693 (-) 4,42,77,583 2004-05 0 0 (+) 3,87,53,375 (-) 55,24,208 2005-06 0 0 (+) 5,07,20,693 (+) 4,51,96,485 2006-07 0 0 (+) 9,28,04,663 (+)13,80,01,148 2007-08 0 0 (+)10,97,61,692 (+)24,77,62,840 2008-09 0 0 (+) 9,23,96,125 (+)34,01,58,965 2009-10 0 0 (+)11,94,99,132 (+)45,96,58,097

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2010-11 0 0 (+) 29,57,006 (+)46,26,15,103 2011-12 (-)8,60,69,968 (-)4,60,27,218 (-)13,20,97,186 (+)33,05,17,917 2012-13 (-)9,00,73,490 (-)8,13,99,712 (-)17,14,73,205 (+)15,90,44,712 2013-14 0 0 (+) 1,36,54,239 (+)17,26,98,951

5.1 The ld DR submitted that as per provisions of section 115 JB (2)

Explanation 1 Clause (iii) , the amount of loss brought forward or unabsorbed

depreciation whichever is less as per books of account is allowable as a

deduction from the book profit. As per the workings tabulated supra, the

assessee had incurred losses in the first two years ie in the AYs 1999-00 & 2000-

01 , which were completely set off, ie both the losses viz unabsorbed business

and unabsorbed depreciation losses, from the book profits of subsequent AYs

2001-02 to AY 2005-06. Thereafter, the assessee company has been making

continuous book profits till the AY 2010-11 and as on that year end , it had a

book profits of Rs. 46,26,15,103/-. The assessee had incurred business loss /

depreciation losses as per books in the AYs 2011-12 & 2012-13 which got

absorbed against from the surplus brought forward from the earlier years and in

the end of the AY 2012-13, the assessee had book profit of Rs 15,90,44,712/-.

As per the Balance sheet, the profit and Loss account balance as on 01.04.2013

is Rs. 11,83,12,100/-. Thus, in effect there remains no brought forward business

loss / unabsorbed depreciation available as per books for setting off in this

assessment year, and hence the assessee is liable to pay tax under MAT

workings on the book profits earned in this assessment year. Further, the ld DR

submitted that in section 115JB, nowhere it is mentioned that loss of a year is to

be set-off against the book profit of the subsequent year or years only. If there

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is a surplus under the head P& L account at the beginning of a year in the

books, the loss, if any, of that year will get absorbed against the brought

forward surplus in the books and the resultant figure gets carried forward in the

books of Account. Therefore, the ld DR submitted that the order of the CIT(A)

may be cancelled and that of the A.O. be restored.

MAT is different from the Profit shown in the Profit and Loss account prepared as

per the Companies Act. The book profit is arrived at after making so many

adjustments as provided in the Statute (Income Tax Act), whereas the profit as

per Profit and Loss account will be without any such adjustments and hence both

cannot be the same. The losses incurred, if any, it is meant to be only carried

forward for setting off against the profits of subsequent years and not for setting

off the said losses against the accumulated past reserves. In other words, the

Act envisages only carry forward of losses and not carry backward of losses.

Section 115JB of the IT Act uses the words statement of profit and loss only and

nowhere the term balance sheet is being used and also the terms books of

accounts, profit and loss account and balance sheet are not one and the same

and does not convey the same meaning as held by various judicial authorities.

The Act nowhere imposes a condition that in order to carry forward the losses

the reserves should be in the negative side as held by various judicial authorities

and hence the argument of the Assessing Officer that the reserves of the

company has a credit balance is not legal. The Ld DR supported the view of the

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ld CIT(A) that the loss or unabsorbed depreciation of one year can be set off

against the profit of subsequent year only and till such set off, the amounts are

carried forward to subsequent year, or in other words are brought forward in

the subsequent year from earlier year and or available for set off of as per

provisions of Clause (III) of Sec.115JB(2) of the Act. Further, he relied on the

decisions in the case of Go Airlines (India) Ltd vs DCIT , ITAT Mumbai in ITA No

3788/Mum/2018 dt 13.01.2021 for Ay 2014-15 (2021) 198 DTR (Mumbai) (Trib)

113 and DCIT vs Binani Industries Ltd ( 2017) 82 taxmann.com 320 (Kolkatta-

Trib).

facts are that as per books, the profit and Loss account balance as on

01.04.2013 in the balance sheet was at Rs. 11,83,12,100/-, the assessee’s book

profit during the year was at Rs.9,93,85,557/- and the book profit from AYs

1999-00 to AY 2013-14 as extracted in the tabular form in para 5, supra , are

not disputed. Now, we are concerned with the computation of book profits

u/s.115JB of the Act, wherein one of the items eligible for reduction would be the

lower of brought forward cash loss or brought forward depreciation loss as per

books of accounts. We find that what is contemplated in Clause (iii) of

Explanation 1 to Section 115JB of the Act is the simple numerical figure being

the amount of loss brought forward or unabsorbed depreciation whichever is

less is to be deducted from the book profit . Hence, it is a simple determination

of numerical amount which would be eligible for reduction from net profit for the

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purposes of arriving at the book profit u/s.115JB of the Act. The most crucial

expression used in the said Clause (iii) of Explanation 1 to Section 115JB of the

Act would be "as per books of accounts". It simply means that such computation

has to be made "as per books of accounts" from the year of incorporation to

the current assessment year. Hence, in this case from AYs 1999-00 to AY

2013-14 , the amount of loss brought forward or unabsorbed depreciation

whichever is less as per books of accounts, which was not completely wiped out

by the profits earned till the previous assessment year, would continue to

remain in the balance sheet of the assessee i.e. "in the books of accounts"

and such amount would be eligible for reduction , while computing book profits

u/s.115JB of the Act , in accordance with Clause (iii) of Explanation 1 to Section

115JB of the Act, for this assessment year. In this case, the assessee had

incurred business loss / depreciation losses as per books in the AYs 1999-00 &

2000-01 & AYs 2011-12 & 2012-13 alone, which were completely set off (ie

both the losses viz unabsorbed business and unabsorbed depreciation losses

were set off) , from the book profits of the remaining assessment years till the

previous assessment year 2013-14 and the book profit as per the profit and

Loss account balance as on 01.04.2013 per the balance sheet in the books of

account was at Rs. 11,83,12,100/-. Thus, on the above facts, in effect there

remains no brought forward business loss / unabsorbed depreciation loss

available as per books for setting off against the book profit of this

assessment year. This decision is also in accordance with the case law relied on

by the assessee viz Go Airlines (India) Ltd vs DCIT , ITAT Mumbai in ITA No

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3788/Mum/2018 dt 13.01.2021 for Ay 2014-15 (2021) 198 DTR (Mumbai) (Trib)

the Revenue’s appeal.

Order pronounced on 15th June, 2021 at Chennai.

Sd/- Sd/- (एस जयरामन) (धु�वु आर.एल रे"डी) (S. JAYARAMAN) (DUVVURU RL REDDY) लेखासद%य/Accountant Member $या�यकसद%य/Judicial Member

चे�नई/Chennai, 1दनांक/Dated: 15th June, 2021 JPV आदेशक(+�त3ल4पअ5े4षत/Copy to: 1. अपीलाथ'/Appellant 2. +,यथ'/Respondent 3. आयकरआयु6त ) अपील(/CIT(A) 4. आयकरआयु6त/CIT 5. 4वभागीय+�त�न�ध/DR 6. गाड9फाईल/GF