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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI PAWAN SING, JM
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.
The above said provision is paramateria with the similar clause in section
115JA of the Act. This clause u/s. 115JA was the subject matter of adjudication by the
Hon’ble High Court of Kearala in the case of CIT vs. Carban & Chemicals India Ltd.
[2011] 196 Taxman 302 (Ker). In the said decision, the Hon’ble High Court was
9 ITA Nos. 29/Mum/2016 & 3683/Mum/2014 Unilever India Export Limited considering the proposition that by virtue of clause (b) of Explanation (iii) to section
115JA deduction is admissible only if the assessee had brought forward business loss as
well as depreciation for the previous year. The Hon’ble High Court had elaborately
considered the said explanation. We may gainfully refer to the Hon’ble High Court
decision as under:
The next question is on the merits of the case where the issue is only a factual one, that is, whether assessee had brought forward business loss as well as depreciation in the end of the previous year. According to the assessee, depreciation is lesser when compared to the brought forward business loss. On this issue, the Tribunal allowed the claim based on assessee's contention that, if FIFO method is applied, assessee is entitled to limit the set off of business loss brought forward up to the year 1993-94 against profit for the financial year 1995-96 on Rs. 7,36,68,187 so that, the balance brought forward business loss is available with them, which will be Rs. 3,40,76,274. It is seen that the Tribunal had accepted the FIFO method furnished by the assessee, the details of which are stated in the Tribunal's order in paragraph 8. However, we do not know how the FIFO method can help the assessee in this case because, it authorizes only setting off profit of the subsequent year against brought forward business loss or depreciation of the earliest years first, then next year's and so on and it does not entitled the assessee to bifurcate the brought forward business loss, partly set off against profit and then to allow part of the carried forward loss again to be retained when there is profit to absorb the full loss. What is referred to in clause (b) of Explanation (iii) to section 115JA is about the brought forward business loss or unabsorbed depreciation available at the end of the previous year. It is for the assessee to first set off the profit against brought forward business loss and then to set off the balance profit, if any, against brought forward depreciation. Admittedly, if the brought forward business loss of Rs. 10,77,44,461 is set off against the profit, then the balance brought forward business loss available will be nil because, the profit available during 1995-96 was Rs. 11,71,61,492. We do not know on what basis the Tribunal allowed the brought forward business loss to be bifurcated with the figure available up to the end of 1994-95 and permitted the assessee to set off only the loss up to that year retaining a balance of Rs. 3,40,00,000 towards balance brought forward business loss. In our view, the FIFO method of setting off applies only when more than one year's brought forward business loss or unabsorbed depreciation are set off against profit available in later years. Since the profit for 1995-96 was such as to absorb the entire brought forward business loss, the whole loss gets set off leaving no carried forward business loss for the next year.
10 ITA Nos. 29/Mum/2016 & 3683/Mum/2014 Unilever India Export Limited 6. Counsel for the assessee submitted that assessee is entitled to set off brought forward business loss and unabsorbed depreciation simultaneously for the succeeding year. We are of the view that when business loss carried forward is set off against profit for the year 1995-96, assessee is not entitled to limit set off of loss brought forward up to 1993-94. It is pertinent to note that even if profit was set off only against brought forward depreciation, then under the head of unabsorbed depreciation, there would have been nothing left entitling the assessee for deduction in terms of clause (b) of Explanation (iii ) of section 115JA(2) of the Act. Since nothing is left after setting off brought forward business loss up to 1994-95 against profit, assessee is not entitled to any relief under clause (b) of Explanation (iii) of section 115JA of the Act.
Now we examine the present case on the touchstone of aforesaid decision. The
method applied by the ld. Commissioner of Income Tax is in consonance with the
method expounded by the Hon’ble High Court above. By taking the exercise in
accordance with the above said ratio, the ld. Commissioner of Income Tax has held that
the unabsorbed depreciation figure emerges at nil. Hence, the ld. Commissioner of
Income Tax has rightly observed that “Consequently, Explanation (b) to Clause(iii) of
Explanation (1) to Section 115JB suggests that the un-absorbed depreciation being Nil,
the provision of said Clause (iii) shall not apply to the assessee. That means, the assessee
shall not be entitled to reduction of the book profit on an account of un-absorbed
depreciation or un-absorbed loss. The above position can be clarified by the following
workings:
In the assessee’s case, the position of loss brought forward (without including
depreciation) and unabsorbed depreciation are as under:
A.Y. Book Loss (A) Book unabsorbed A or B whichever is deprecation (B) less 2003-04 1,15,58,000/- 27,39,000/- 27,39,000/- 2004-05 10,41,24,000/- 29,82,000/- 29,82,000/-
11 ITA Nos. 29/Mum/2016 & 3683/Mum/2014 Unilever India Export Limited 2005-06 7,94,16,000/- 35,01,000/- 35,01,000/- 2006-07 9,35,51,000/- 36,08,000/- 36,08,000/- Total 28,86,49,000 1,28,30,000 1,28,30,000/-
From the above chart it is clear that it was the unabsorbed depreciation of
Rs.1,28,30,000/- which was to be adjusted as per the mandate of law. The assessee had
following profits in the subsequent assessment years:
A.Y. 2007-08 Rs.50,95,000/-
A.Y. 2008-09 Rs.6,37,34,000/-
These profits for the assessment years 2007-08 and 2008-09 have completely
absorbed the unabsorbed carried forward depreciation and there was no unabsorbed
depreciation to be adjusted for the present assessment year, i.e., of Rs.1,28,30,000/- for
A.Y. 2009-10. As per the mandate of law, the provision of this clause was not to comply
if the amount of loss brought forward or unabsorbed depreciation is nil. From the above,
it is evident that the said explanation of section 115JB mandates the above said
computation of loss brought forward or unabsorbed depreciation, whichever is less to be
adjusted. Since as per the computation as above, the unabsorbed deprecation was nil, the
deduction of Rs.23,98,823/- claimed by the assessee has rightly been disallowed by the
ld. Commissioner of Income Tax.
In the background of the aforesaid discussion and precedent, we are of the
considered opinion that the order of the ld. Commissioner of Income Tax is in accordance
with the law as confirmed by the Hon’ble Kerala High Court as above. Since we are
deciding the issue in favour of the Revenue, on the touch stone of the above said Hon’ble
12 ITA Nos. 29/Mum/2016 & 3683/Mum/2014 Unilever India Export Limited Kerala High Court decision, the decision of the ITAT referred by the ld. Counsel of the
assessee loses its significance, as it is the settled law that the decision of the Hon’ble
High Courts takes precedence over that of the ITAT. Hence, we hold that since the
Assessing Officer has not at all considered the above provision of law while allowing the
deduction to the assessee, the assessment was erroneous in so far it was prejudicial to the
interest of revenue. Hence, the ld. Commissioner of Income Tax (Appeals) has rightly
exercised his jurisdiction u/s. 263 of the I. T. Act. Accordingly, we affirm the order of the
ld. Commissioner of Income Tax u/s. 263 of the Act.
ITA No. 29/Mum/2016
In this order, the ld. Commissioner of Income Tax (Appeals) has confirmed the
order of the Assessing Officer in pursuance to the above said order of the ld.
Commissioner of Income Tax (Appeals) u/s. 263 of the I. T. Act. the ld. Commissioner of
Income Tax (Appeals) has also shown working which are in accordance with law. Since
we have already upheld the order of the ld. Commissioner of Income Tax (Appeals) u/s.
263 of the Act, we are of the opinion that the consequential order of the Assessing
Officer confirmed by the ld. Commissioner of Income Tax (Appeals) is also in
accordance with the law as elaborately discussed by us hereinabove. Accordingly, we
confirm the order of the ld. Commissioner of Income Tax (Appeals).
13 ITA Nos. 29/Mum/2016 & 3683/Mum/2014 Unilever India Export Limited 17. In the result, both the appeals by the assessee stand dismissed. प�रणामतः �नधा�रती क� अपील� खा�रज क� जाती है । Order pronounced in the open court on 01.06.2018 Sd/- Sd/- (Pawan Singh) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 01.06.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai