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Income Tax Appellate Tribunal, “C ”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in ITA No.6727/Mum/2013 for A.Y.2007-08 preferred by the order against the revision order of the ld. Commissioner of Income Tax-7, Mumbai u/s.263 of the Act dated 13/09/2013 for the A.Y.2007-08.
The only effective issue to be decided in this appeal is as to whether the ld. Administrative CIT was justified in invoking revisionary jurisdiction u/s.263 of the Act in the facts and circumstances of the case.
2 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd
The brief facts of this appeal are that the return of income for the A.Y.2007-08 was filed by the assessee on 31/10/2007 declaring loss of Rs.11,81,58,788/- under normal provisions of the Act and book profit of Rs.9,34,95,939/- u/s. 115JB of the Act. The case was selected for scrutiny. The scrutiny assessment was completed u/s.143(3) r.w.s. 144C(13) of the Act on 21/10/2011 assessing loss at Rs.10,50,86,086/- under normal provisions of the Act and book profit of Rs.10,65,68,701/- u/s.115JB of the Act. This assessment was framed pursuant to the directions of the ld. Dispute Resolution Panel-II Mumbai (ld. DRP). In the said assessment, the ld. AO had adjusted the brought forward loss as per books of accounts of the assessee at Rs.6,77,29,000/- and determined the book profit of the assessee at Rs.10,65,68,701/-. Later this assessment was sought to be revised by the ld. Administrative CIT on the ground that there were errors in the adjustment of brought forward losses with the book profits while computing the income u/s.115 JB of the Act. The assessee furnished the entire details of cash loss as well as depreciation loss as per its books of accounts for all the earlier years and the manner in which the same was sought to be set off by it while filing the return of income against the book profits u/s.115JB of the Act. The assessee pleaded with the ld. CIT that the ld. AO had consciously applied his mind after verification of the facts with regard to availability of business loss and depreciation loss as per books of accounts for various years and accordingly, had adjusted the least of the same while computing book profits u/s.115JB of the Act. Hence, it was pleaded that there was no error in the order of the ld. AO warranting revision u/s.263 of the Act. It was also pleaded before the ld. CIT that, in any case, the ld. AO had indeed taken a possible view with regard to the manner in which the brought forward loss and depreciation loss as per books of accounts
3 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd need to be adjusted for computing Book profits u/s.115JB of the Act. Hence, the same cannot be the subject matter of revision u/s.263 of the Act by the ld. CIT merely, because the ld. CIT is of the view that the manner of set off of losses should be done in a different way.
3.1. The assessee also explained before the ld. CIT with regard to the merits of the issue as under:-
“1. During the year under consideration the Company's net profit before tax as per its books of accounts was Rs. 16.38;24.939/-, From this, inter-alia a sum of Rs.6,.77,29,000/-. being the lower of brought forward business loss and unabsorbed depreciation, was reduced to arrive at the figure of "book profits' u/s. 115J8 of the income-tax Act. 1961. A copy of the working arriving at the figure of Rs. 6,77,29,000/- is forwarded herewith- refer "Appendix - A ". 2. The method of computation of brought forward business loss and unabsorbed depreciation adopted by the assessee has been a subject matter of dispute in the earlier years. 3. The method adopted by the assessee has been accepted by the Income-Tax Appellate Tribunal vide its Order dated 16 March 2011 passed for the Assessment Year 2004-05. A copy of the said Order is attached herewith - refer "Appendix- B". 4. The same method has been consistently followed by the assessee even in the subsequent years including the Assessment Year 2007-08. 5. Hence the brought forward loss of Rs 6,77,29,000/- has been correctly reduced from the 'book profits' for the year under consideration. 6. Here we would like to draw your Honour's attention to the fact that for the purposes of quantification of income tax liability u/s. 115JB. although the reduction form current year's profits to be made is the lesser of book deprecation or book loss brought forward from earlier years, yet for the purposes of quantification of carry forward of unabsorbed book loss and book depredation to the next assessment year, the assessee has the option to reduce from the current year’s profit, either the book loss or the book depreciation, irrespective of which one is lower.
4 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd 7. In the instant case, the assessee company has been arriving at the amount of brought forward book loss and depreciation by reducing/setting off the profit of the year against the brought book loss and unabsorbed depreciation proportionately. 8. As stated earlier and as will be evident from the computation forwarded herewith the method adopted by the assessee for quantification and/ or carry forword of brought forward book loss/ unabsorbed book depreciation has been followed by it consistently and the method so adopted has been accepted too by the Income-tax Appellate Tribunal vide its Order dated 16 March 2011 passed for the Assessment Year 2004-05. 9. Accordingly, in terms of the working of brought forward book loss and unabsorbed depreciation forwarded herewith, an amount of Rs. 6,77,29,000/- being lower of the brought forward book loss and unabsorbed depreciation is available for set off to the assessee and the same is has been rightly granted by the Assessing Officer in terms of the Assessment Order passed for the year.”
3.2. The ld. CIT observed that the issue of set off of loss as per books of accounts for computing the book profits u/s.115 JB of the Act was not before the ld. DRP and hence, the same could be the subject matter of revision u/s.263 of the Act. Accordingly, the objection of the assessee in this regard was dismissed. He also observed that there was no query raised by the ld. AO with regard to set off of brought forward losses as per books of accounts while computing book profits u/s.115JB of the Act and hence, there was no possible view taken by the ld. AO in this regard. The manner of set off of losses by the assessee was submitted before the ld. CIT which is reproduced in page 7 of his order as under:-
(Figures in thousands) F.Y. MAT b/f Business Set off c/f b/f Unabsor Set off c/f Profit business loss business unabsor bed unabsorb loss loss bed dep. deprecia ed tion depreciat ion 1997 1479 0 1479 65 0 65 -98 1998 1479 80803 0 82282 65 44142 0 44207 -99
5 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd 1999 82282 201396 0 44207 267583 0 311790 - 2000 2000 13835 283678 0 6591 283678 311790 7244 304546 -01 2001 277087 0 0 277087 304564 37337 341883 -02 2002 123048 277807 0 55083 277087 341883 0 67965 273918 -03 2003 329331 222004 0 99382 222004 273918 0 122622 151296 -04 2004 334033 122622 0 54893 122622 151296 0 67729 83567 -05 2005 0 67729 0 0 67729 83567 160845 244412 -06 2006 161224 67729 67729 244412 -07
3.3. The ld. CIT rejected the contention of the assessee by observing as under: “The contention of the assessee is that although the reduction to be made from the current year’s profits is the lesser of book depreciation or book loss brought forward from earlier years, yet for the purposes of quantification of carry forward of unabsorbed hook loss and book depreciation to the nest assessment year, the assessee has the option to reduce from the current year's profit, cither the book loss or the buck depreciation on proportionate basis, irrespective of" which one is lower, has basis in la\v and therefore, is rejected. The contention of the assessee that the said method adopted by the assesses has been upheld by ITAT for AY 2004-03 is factually incorrect. Perusal of the said decision indicates that the ITAT has adjudicated on the issue of quantum of business loss or unabsorbed depreciation to be considered for reduction from book profit as per clause (iii) of Explanation] 1 to section 115JB. The assessing officer had rejected the above mentioned method of carry forward adopted by the assessee and worked out the correct position of carry forward business loss and unabsorbed depreciation as per the provisions of the income Tax act,1961. However .for the purpose of clause (iii of Explanation 1) to section 115JB the assessing officer considered the lower of unabsorbed loss and depreciation separately for each year and then made cumulative total of all such lower figure to arrive at the quantum of unabsorbed loss/depreciation for reduction as per clause (iii) of Explanation 1) to section 115 JB.”
6 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd 3.4. The CIT observed in pages 9 & 10 of his order as under:-
“Quite clearly, clause (iii) of Explanation 1 to section 1 15JB envisages adjustment for the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. It is quite clear that the loss depicted in the account books which comprises of business losses and depreciation is required to be for the purposes of clause (iii) of Explanation 1 to section 1 15JB (2). So, however, the manner of determining the individual figures of loss and depreciation is not clearly indicated in section 115JB in as much as the manner in which the losses and depreciation are set off against the profits has not been specifically spelt out. However, an indication which is manifested in section 115JB itself is a safe premise to follow in such a situation. Clause (iii) speaks of adjustment for the lower of brought forward loss or unabsorbed depreciation. Therefore, the Legislature envisaged that while computing book profits for 115JB, reduction be allowed for the lower of carried forward losses or unabsorbed depreciation of the past years. Therefore, the determination of such losses or depreciation in the past years be also made on similar proposition in the absence of any specific provision in the statute. Even in the past years, the losses and depreciation to be carried forward be determined on the similar principles i.e. after setting off of the lower of depreciation or losses” (Underlining provided by us)
3.5. The ld. CIT reworked the figures of brought forward business loss and depreciation loss as per books of accounts for various years as under:- F.Y. MAT b/f Busine Set off c/f b/f Unabso Set off c/f Profit busines ss loss business unabsor rbed unabsorbed s loss loss bed dep. depreci depreciation ation 1997-98 1479 0 1479 65 0 65 1998-99 1479 80803 0 82282 65 44142 0 44207 1999- 82282 201396 0 283678 44207 267583 0 311790 2000 283678 0 2000-01 13835 13835 269843 311790 0 311790 269843 0 2001-02 0 269843 311790 37337 349127 269843 0 2002-03 123048 123048 146795 349127 0 0 349127 2003-04 329331 146795 0 349127 0 146795 0 0 349127
7 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd
0 349127 0 2004-05 334033 0 0 0 0 349127 0 349127 160845 0 2005-06 0 0 0 509972 0 2006-07 161224 0 509972
3.6. Based on the aforesaid table, the ld. CIT finally concluded that the aggregate amount of unabsorbed business loss brought forward to AY 2007-08 is Rs.NIL and the aggregate amount of unabsorbed depreciation brought forward to AY 2007-08 is Rs.50,99,72.000/-. Accordingly, the provision of clause (iii) of Explanation (1) to section 115JB is not applicable as the amount of loss brought forward is Nil. Therefore, assessee is not eligible for any reduction as per clause (iii) of Explanation (1) to section 115JB of the Act. But assessee has claimed reduction of Rs.6,77,29,000/- under clause (iiii) of Explanation(1) to section 115JB for the purpose of computation of book profit. The assessing officer has allowed the above claim of the assessee without verifying the allowability of the same and this action of the Assessing Officer suffers from error within the meaning of Section 263 of the Act. Further as discussed above, the claim of reduction of Rs.6,77,29,000/- for the purpose of computation of book profit is not allowable but the assessing officer has allowed the same, therefore the order is prejudicial to the interest of the revenue. Therefore, it is held that the twin conditions for invocation of jurisdiction u/s. 263 of the Income Tax Act are satisfied. From the foregoing discussion and material on record, it is clear that this is a case where the subject matter of notice u/s.263 of the Income Tax Act, 1961 is not examined by the Assessing Officer though primafacie it required examination. Thus error within the meaning of Section 263 is committed. Lack of enquiry by the Assessing Officer has resulted in
8 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd higher figure of set off for the purpose of book profit and thus, prejudice to the revenue' is caused. Accordingly, the ld. CIT cancelled the assessment order passed by the ld. AO with regard to the limited aspect of set off of brought forward losses while computing book profits u/s.115JB of the Act and directed the ld. AO to determine the said losses afresh as per law after making requisite enquiries.
Aggrieved by this action of ld. CIT, the assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. We find that the only issue i.e. the subject matter of revision proceedings u/s.263 of the Act by the ld. CIT in the instant case is with regard to the manner in which the brought forward loss and depreciation loss as per books of accounts were adjusted while computing the book profits u/s.115JB of the Act. At the outset, we find that the law provided in Section 115JB of the Act merely stipulates that the least of the business loss and depreciation loss as per books of accounts would be reduced while computing book profits u/s.115JB of the Act. The said section specifically stipulates that the business loss mentioned therein does not include depreciation. In the instant case, the assessee had sought to apply the set off of losses on a cumulative basis i.e. the cumulative figure of least of business loss and depreciation loss during the year of set off i.e. during the year in which book profits has been made by the assessee. On this aspect of considering the cumulative figures, there is no dispute. We find that the assessee during the year of set off had sought to adjust the least of business loss or depreciation loss as per books of accounts on a proportionate basis with the business loss as well as with the depreciation loss instead of reducing the least of the
9 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd entire business loss or depreciation loss as per books of accounts. This is the short dispute before us. We find the manner of set off of brought forward losses as per books of accounts either on year to year basis or on cumulative basis or on proportionate basis has not been spelt out anywhere in the provisions Section 115JB of the Act. Only the courts have interpreted the manner of set off of losses and had accordingly held that the same had to be done based on the least of accumulated figure of business loss or depreciation loss as per books of accounts. The fact of manner of set off of losses not being specified in provisions of Section 115JB of the Act is also accepted by the revenue in the written submissions filed before us dated 24/04/2017 which is also placed on record. We find that Clause (iii) of Explanation 1 to Section 115JB of the Act merely provides for determination of the amount which is required to be reduced in arriving at the book profits of the year i.e. least of cash loss or depreciation loss as per books of accounts. We find that once that said amount is determined, the Section does not lay down any particular method as to how and from which figure does the said amount have to be reduced in order to arrive at the amount of unutilised depreciation and business loss to be carried forward to the next year. Hence, the contention of the assessee that the lower amount so determined in accordance with the Clause(iii) has to be reduced proportionately from both brought forward business loss as well as in terms of depreciation as per books of accounts in order to determine the amounts of unutilised business loss and depreciation to be carried forward to the next year, has lot of substance. If lower of the brought forward business loss and depreciation loss as per books of accounts is taken without apportionment on a proportionate basis, then one loss would ever remain in tabulation without getting set off. This is the basic essence of proportionality theory adopted by the assessee, which in our considered opinion, is rational and logical. We find that the Hon’ble Delhi High Court in the case of CIT vs Eli
10 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd Lilly & Co. India Pvt. Ltd. reported in 334 ITR 186 had occasion to consider the set off of unabsorbed business loss and unabsorbed depreciation as per books of accounts for computing book profits u/s.115JB of the Act which was sought to be corrected by the ld. AO in the proceedings u/s.154 of the Act, i.e. whether the said brought forward loss could be the subject matter of rectification proceedings u/s.154 of the Act was the dispute before the Hon’ble Delhi High Court. After hearing elaborate arguments of both the Counsels and the detailed workings of set off of brought forward business loss and depreciation loss as per books of accounts which is reproduced in para 5 of that order of Hon’ble Delhi High Court, the Hon’ble Delhi High Court ultimately held as under:-
“6. When this is the position and the assessments were done in this manner it could not be stated that there was an error which could be corrected by invoking the provisions of Section 154 of the Act. The assessee had claimed the set off ` 1,39,36,000 in terms of Explanation III (of (2) proviso to Section 164 JA (2) of the Act) as against the brought forward loss as per the books at ` 15,01,82,00/-. Thus, the matter related to the interpretation of the effect which is to be given to the aforesaid provision and, therefore, it was not a mistake which was to be corrected for which jurisdiction under Section 154 of the Act could be exercised, as held by the Apex Court in Apollo Tyres Vs. Commissioner of Income Tax, 255 ITR 273 and T.S. Balaram Income Tax Officer, Company Circle IV, Bombay Vs. M/s Volkart Brothers, 82 ITR 50. 7. We, thus do not find any merits in these appeals. No question of law arises. These appeals are accordingly dismissed.”
5.1. Though the aforesaid decision was rendered in the context of Section 154 of the Act by the Hon’ble Delhi High Court, the analogy drawn thereon could very well be applied to the impugned proceedings u/s.263 of the Act as the underlying principle based on which the Hon’ble Delhi High Court rejected the plea of the revenue was that a possible view has been taken by the ld. AO and the issue in dispute before the
11 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd Hon’ble Delhi High court was a debatable issue and hence, would not fall within the ambit of mistake apparent on record within the meaning u/s.154 of the Act. The same analogy would certainly be applicable to the facts of the impugned appeal before us in section 263 proceedings of the Act also.
5.2. We also find that the Co-ordinate Bench of Chennai Tribunal in the case of Aircel Cellular Ltd vs. ACIT reported in 20 Taxmann.com 232(Chennai) dated 31/03/2010 also had an occasion to consider similar circumstance where set off of brought forward business loss and depreciation loss as per books of accounts was sought to be disturbed by the ld. CIT u/s.263 of the Act. After considering the elaborate submissions, the Chennai Tribunal held that there was no error in the assessment order passed by the ld. AO as per one of the possible views taken by him and accordingly, the ld. CIT could not have validly invoked revision jurisdiction u/s.263 of the Act.
5.3. In the instant case, there is no dispute that the ld AO had specifically dealt with the issue of set off of least of brought forward business loss and depreciation loss as per books of accounts while computing book profits u/s 115JB of the Act in the assessment order by taking a possible view. Hence the same cannot be the subject matter of revision proceedings u/s 263 of the Act by the ld CIT merely because, he is of a different view with regard to the manner of set off of brought forward losses. Reliance in this regard is also placed on the decision of Hon’ble Jurisdictional High Court in the case of Gabriel India Ltd reported in 203 ITR 108 (Bom).
12 ITA No. 6727/Mum/2013 M/s. Owens Corning (India) Pvt. Ltd 5.4. In view of the aforesaid detailed observations in the facts and circumstances of the instant case and respectfully following the aforesaid judicial precedents, we have no hesitation in holding that there was no error in the order of the ld. AO in set off of brought forward business loss and depreciation loss as per books of accounts and hence, the invocation of revisionary jurisdiction u/s.263 of the Act by the ld. CIT deserves to be quashed and is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on this 04/02/2020
Sd/- Sd/- (MAHAVIR SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 04/02/2020 KARUNA, sr.ps Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy// BY ORDER,
(Asstt. Registrar) ITAT, Mumbai