DCIT, BANGALORE vs. M/S BANGALORE INTERNATIONAL AIRPORT LTD.,, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA No.510/Bang/2014 (Assessment year: 2010-11)

Bangalore International Airport Ltd. Administration Block, BIAL, Devanahalli Bangalore-560 300. … Appellant PAN:AABC8973D Vs. Deputy Commissioner of Income-tax, Circle 11(2), Bangalore. … Respondent AND ITA No.662/Bang/2014 (Assessment year: 2010-11) Deputy Commissioner of Income-tax, Circle 11(2), Bangalore. … Appellant Vs. Bangalore International Airport Ltd. Bangalore-560 300. … Respondent

Revenue by : Shri Sanjay Kumar, CIT(DR) Assessee by : Shri Sampath Raghunathan, Advocate Date of hearing : 27/07/2016 Date of pronouncement : 27/09/2016 O R D E R Per INTURI RAMA RAO, AM :

These are cross-appeals filed by the assessee as well as the revenue directed against the order of the Commissioner of

ITA Nos.510 & 662/Bang/2014 Page 2 of 37 Income-tax-I, Bangalore [CIT(A)] dated 27/01/2014 for the assessment year 2010-11.

The Assessing Officer (AO) denied the claim of the assessee- company to set off of lower of unabsorbed depreciation or book loss whichever is less on the ground that computation of loss brought forward business loss or depreciation whichever is less as per books of account is to be done on an year to year basis and the same cannot be claimed on a cumulative basis.

ITA Nos.510 & 662/Bang/2014 Page 3 of 37 Following this principle, AO disallowed the claim of Rs.36,33,43,000/- u/s 115JB of the Act.

4.1 As regards disallowance of depreciation on tangible assets, the CIT(A) has confirmed the disallowance by holding that no evidence was furnished evidencing incurring of any cost to acquire any such rights.

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4.2 As regards disallowance of expenditure on repairs and maintenance to buildings and repairs and maintenance on machinery, the CIT(A) confirmed the addition on account of repairs to buildings as the assessee-company had failed to furnish details with regard to nature of expenditure incurred whereas in respect of repairs and maintenance on machinery and others, the CIT(A) has allowed to the extent of Rs.17,16,79,432/- and the balance of Rs.1,88,69,560/- was confirmed by him by holding that the assessee-company furnished details of expenditure on repairs and in respect of machinery and others only to the extent of Rs.17,16,79,432/-.

4.3 With regard to set off of lower of brought forward business loss or unabsorbed depreciation against book profits for the purpose of computing tax liability u/s 115JB, the CIT(A) held that lower or loss or depreciation whichever is lower should be considered on cumulative basis for the purpose of set off against book profits while computing tax liability u/s 115JB of the Act. Thus, the appeal was partly allowed by the CIT(A).

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ITA Nos.510 & 662/Bang/2014 Page 6 of 37 8. The background facts to this ground of appeal are as follows: During the course of assessment proceedings, the AO noticed that the assessee-company made foreign exchange gain of Rs.29,83,65,068/-. This amount was, though credited to profit and loss account, was claimed as deduction while computing taxable income under the business head. It was contended by the assessee-company, during the course of assessment proceedings that gain was on account of re-statement of external commercial borrowing which was utilized for capital purpose by the assessee-company. In support of the same, assessee-company had produced sample copies of ECB returns filed before the Reserve Bank of India (RBI) conveying that the commercial borrowings were made only for capital purpose. However, the AO had called upon the assessee-company to file complete details and evidence supporting this contention. It was observed in the assessment order that the assessee-company had failed to do so. Hence, the AO had drawn adverse inference and made addition of Rs.29,83,65,068/-.

ITA Nos.510 & 662/Bang/2014 Page 7 of 37 ITR 451) and after referring to CBDT circular No.5 dated 09/10/1967 held that gain made on account of restatement of external commercial borrowings is on capital account and not liable to tax. The relevant finding of the CIT(A) is as follows:

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ITA Nos.510 & 662/Bang/2014 Page 9 of 37

ITA Nos.510 & 662/Bang/2014 Page 10 of 37 On the other hand, learned authorized representative of the assessee relied on the findings of the CIT(A).

43A. Special provisions consequential to changes in rate of exchange of currency.- Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment— (a) towards the whole or a part of the cost of the asset; or (b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from— (i) the actual cost of the asset as defined in clause (1) of section 43; or

ITA Nos.510 & 662/Bang/2014 Page 11 of 37 (ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub- section (1) of section 35; or (iii) the amount of expenditure of a capital nature referred to in section 35A; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:

Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment.

Explanation 1.—In this section, unless the context otherwise requires,— (a) “rate of exchange” means the rate of exchange determined or recognised by the Central Government for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) “foreign currency” and “Indian currency” have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).

ITA Nos.510 & 662/Bang/2014 Page 12 of 37 Explanation 2.—Where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of this section.

Explanation 3.—Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein.

Originally, provisions of section 43A were introduced in the Act by the Finance Act 1967 w.e.f. 1/4/1967 to provide for adjustment in actual cost of the assets pursuant to change in foreign exchange rates. As a result of insertion of this provision, cost of capital asset on account of exchange fluctuation is required to be adjusted and depreciation is to be allowed with reference to adjusted actual cost. This position was clarified by the CBDT in Circular No.5 dated 09/10/1967 which is as under:

ITA Nos.510 & 662/Bang/2014 Page 13 of 37

11.1 Even the Accounting Standard 11 issued by the Institute of Chartered Accountants also provides for similar adjustment. However, provisions of section 43A were amended by the Finance Act, 2002 w.e.f. 1/3/2003 to provide that this adjustment is required to be made only at the time of making payment. In other words, prior to amendment of section 43A, adjustment was required to be made at the end of every year on account of rate fluctuation. This position was made amply clear by the Hon’ble Supreme Court in the case of CIT vs. Woodward Governor (P) Ltd. (312 ITR 254): 30. Section 43A starts with a non obstante clause. Section 43A(1) overrides the other provisions only as regards cases falling under that sub-section. For instance, in a case where the asset is acquired, or the liability to pay in foreign exchange arises, after the change in the rate of exchange, the said sub-section has no application and the general principles of law must be

ITA Nos.510 & 662/Bang/2014 Page 14 of 37 applied in deciding whether the actual cost is increased or reduced as a result of such change. In other words, section 43A(1) applies only where as a result of change in the rate of exchange there is an increase or reduction in the liability of the assessee in terms of the Indian rupee to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring the asset. Section 43A(1), therefore, has no application unless the asset is acquired and the liability existed, before the change in the rate of exchange takes effect. In such a case, section 43A contemplates recomputation of the cost of the assets for the purposes of depreciation [Sections 32 and 43(1)], and also as regards capital assets for scientific research [section 35(1)(iv )] and also regarding patent rights or copyrights [Section 35A]. 31. As held in Arvind Mills Ltd.’s case (supra) increase or decrease in liability in the repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of the fluctuation in the rate of exchange. Thus, the adjustments in the actual cost are to be made irrespective of the date of actual payment in foreign currency made by the assessee. This position also finds place in the clarification issued by the Ministry of Finance dated 4-1-1967 which inter alia reads as under : "2. The Government agrees that for the purposes of the calculation of depreciation allowance, the cost of capital assets imported before the date of devaluation should be written off to the extent of the full amount of the additional rupee liability incurred on account of devaluation and not what is actually paid from year to year. The proposed legal provision in the matter is intended to be framed on this basis." [Emphasis supplied] 32. One more aspect needs to be mentioned. Section 43(1) defines actual cost for the purpose of grant of depreciation etc. to mean "the actual cost of the assets to the assessee". Till the insertion of the unamended section 43A there was no provision in the Income-tax Act for adjustment of the actual cost which was fixed once and for all, at the time of acquisition of the asset. Accordingly, no adjustment could be made in the actual cost of the assets for purposes of grant of depreciation for any increase/decrease of liability subsequently arising due to exchange fluctuation. Consequently, section 43A was introduced in the Act by Finance Act, 1967 with effect from 1-4-1967 in the above terms to provide for

ITA Nos.510 & 662/Bang/2014 Page 15 of 37 adjustment in the actual cost of assets pursuant to change in the foreign currency exchange rates. As a consequence of the insertion of the said section, it became possible to adjust the increase/decrease in liability relating to acquisition of capital assets on account of exchange rate fluctuation, in the actual cost of the assets acquired in foreign currency and for, inter alia, depreciation to be allowed with reference to such increased/decreased cost. This position is also made clear by Circular No. 5-P, dated 9-10-1967 issued by CBDT. One more point needs to be mentioned. Section 43A (unamended) corresponds to para 10 of AS-11 similarly providing for adjustment in the carrying cost of fixed assets acquired in foreign currency, due to foreign exchange fluctuation at each balance sheet date. The relevant para reads as follows : "10. Exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which carried in terms of historical cost, should be adjusted in the carrying amount of the respective fixed assets. The carrying amount of such fixed assets should, to the extent not already so adjusted or otherwise accounted for, also be adjusted to account for any increase or decrease in the liability of the enterprise, as expressed in the reporting currency by applying the closing rate, for making payment towards the whole or a part of the cost of the assets or for repayment of the whole or a part of the monies borrowed by the enterprise from any person, directly or indirectly, in foreign currency specifically for the purpose of acquiring those assets." 33. As stated above, what triggers the adjustment in the actual cost of the assets, in terms of unamended section 43A of the 1961 Act is the change in the rate of exchange subsequent to the acquisition of asset in foreign currency. The section mandates that at any time there is change in the rate of exchange, the same may be given effect to by way of adjustment of the carrying cost of the fixed assets acquired in foreign currency. But for section 43A which corresponds to para 10 of AS-11 such adjustment in the carrying amount of the fixed assets was not possible, particularly in the light of section 43(1). The unamended section 43A nowhere required as condition precedent for making necessary adjustment in the carrying amount of the fixed asset that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation. The words

ITA Nos.510 & 662/Bang/2014 Page 16 of 37 used in the unamended section 43A were "for making payment" and not "on payment" which is now brought in by amendment to section 43A vide Finance Act, 2002. 34. Lastly, we are of the view that amendment of section 43A by the Finance Act, 2002 with effect from 1- 4-2003 is amendatory and not clarificatory. The amendment is in complete substitution of the section as it existed prior thereto. Under the unamended section 43A adjustment to the actual cost took place on the happening of change in the rate of exchange whereas under the amended section 43A the adjustment in the actual cost is made on cash basis. This is indicated by the words "at the time of making payment". In other words, under the unamended section 43A, "actual payment" was not a condition precedent for making necessary adjustment in the carrying cost of the fixed asset acquired in foreign currency, however, under amended section 43A with effect from 1-4-2003 such actual payment of the decreased/enhanced liability is made a condition precedent for making adjustment in the carrying amount of the fixed asset. This indicates a complete structural change brought about in section 43A vide Finance Act, 2002. Therefore, the amended section is amendatory and not clarificatory in nature.

11.2 Thus, the principle enunciated in the above decision is that adjustment on account of foreign exchange rate fluctuation is required to be made to actual cost as at the end of every year prior to amendment of provisions of section 43A i.e. before 1/4/2003. In the present case, the assessment year involved is 2010-11. Therefore, amended provisions of section 43A are applicable. As per the amended provisions of section 43A, adjustment is required to be made in actual cost of the asset for the purpose of allowing depreciation only at the time of actual payment of such ECB borrowings. Therefore, we are of the considered opinion that the CIT(A) was right in holding that gains arising on account of exchange fluctuation are not liable to

ITA Nos.510 & 662/Bang/2014 Page 17 of 37 tax as it is on capital account and is required to be adjusted in the year of actual repayment of loan from the actual cost of asset. To this extent, the direction of the CIT(A) is modified and the grounds of appeal are partly allowed.

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The balance details were not filed and therefore, confirmed the addition of Rs.1,88,63,568/- and also confirmed the addition towards repairs and maintenance and others as no details were filed.

ITA Nos.510 & 662/Bang/2014 Page 19 of 37 On the other hand, learned authorised representative of the assessee submitted that details of expenditure runs into voluminous and furnishing of entire details is cumbersome. The entire expenditure is incurred only towards consumables, machineries etc.

ITA Nos.510 & 662/Bang/2014 Page 20 of 37 book profit, had considered amount of loss or depreciation on cumulative basis as per books of account, whereas the AO was of the view that the amount of loss or depreciation is to be considered on year to year basis in terms of CBDT circular No.495 dated 22/9/1987. Accordingly, the AO disallowed the entire claim of the assessee. However, on appeal before the CIT(A), the CIT(A) following the decision of the Hon’ble ITAT, Bombay in the case of Amline Textiles (P.) Ltd. vs. ITO (27 SOT 152) directed the AO to compute the amount of loss or depreciation on cumulative basis which is given as under:

ITA Nos.510 & 662/Bang/2014 Page 21 of 37 Special provisions for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 77 [2012], is less than 71 [eighteen and one-half per cent] of its book profit, 79{such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten percent. (2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of &Tarts I I and Ill of Schedule VI to the Companies Act, 1956 (1 of 1956) Provided that while preparing the annual accounts including profit and loss account,— i. the accounting policies; ii. the accounting standards adopted for preparing such accounts including profit and loss account; iii. the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,— i. the accounting policies; ii. the accounting standards adopted for preparing such accounts including profit and loss account;

iii. the method and rates adopted for calculating the depreciation,

ITA Nos.510 & 662/Bang/2014 Page 22 of 37 shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation I—For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by— a) the amount of income-tax paid or payable, and the provision therefor; ot b) the amounts carried to any reserves, by whatever name called other than a reserve specified under section 33AC; or c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or d) the amount by way of provision for losses of subsidiary companies; e) or the amount or amounts of dividends paid or proposed ; or f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or g) the amount of depreciation h) the amount of deferred tax and the provision therefor, i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account and as reduced by - (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account:

ITA Nos.510 & 662/Bang/2014 Page 23 of 37 Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to section 115JA, as the case may be; or] (ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or (iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or] (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as 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; or] (iv) to (vi) .. (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 1794 of the Sick Industrial Companies (Special Provisions) Act, 1985(1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 395 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or

ITA Nos.510 & 662/Bang/2014 Page 24 of 37 (viii) the amount of deferred tax, if any such amount is credited to the profits and loss account. Explanation 2.—For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- i. any tax on distributed profits under section 115-0 or on distributed income under section 115R ii. any interest charged under this Act; iii. surcharge, if any, as levied by the Central Acts from time to time; iv. Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and v. Secondary and Higher Education Cess on income- tax, if any, as levied by the Central Acts from time to time.

The said provisions have been considered by the co-ordinate bench of the Tribunal in the case of Amline Textiles (P.) Ltd.vs. ITO (27 SOT 152) and held as follows:

“8. Section 115JB is a special provision for payment of tax by certain companies. Sub-section (1) contains the non obstante clause and provides that where the income-tax payable on the total income of a company as computed under this Act is less than 10 per cent of its book profit, then such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 10 per cent. Explanation (1) provides the mode of computing "book profit" by taking net profit as shown in the profit and loss accounts as its starting point to be increased by the items mentioned in clauses (a) to (h) debited to the profit & loss account and as reduced by the items specified in clauses (i) to (vii). At this stage it will be apt to consider the relevant part of this section as under :— "Explanation (1) - For the purposes of this section, ‘book profit’ means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by - (a)to (g) ******

ITA Nos.510 & 662/Bang/2014 Page 25 of 37 (h)if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by— (i)& (ii) ****** (iii)the amount of loss brought forward or unabsorbed depreciation, whichever is less as 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; or"

ITA Nos.510 & 662/Bang/2014 Page 26 of 37 case of Surana Steels (supra) is not relevant in the context of section 115JB, which specifically states that the loss shall not include depreciation. The net effect of the position as it now exists is that while computing the amount of loss brought forward, the amount of depreciation is not to be considered. In other words, the loss for the purposes of section 115JB has to be computed before depreciation. 11. The basic rule of interpretation of the provisions is the ‘strict rule’, that is, follow what has been expressly stated in the provision and go by the plain language of the section. It is not permissible to import any thing into statutory provision and read what is not explicitly provided. The need for unearthing the real intention arises only when the language of the section is ambiguous, vague or uncertain. With this basic principle of interpretation on hand, we move on to examine the rival contentions made by the parties as to whether clause (iii) it refers to consideration of year-wise separate figures of unabsorbed depreciation and loss brought forward or the composite figures. 12. Clause (iii) states that ‘the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account’ is to be reduced from the net profit. As per the plain language of this provision, it is noted that the word employed in the provision is the "amount" and not the "amounts" of loss brought forward or unabsorbed depreciation, whichever is less. The reference to the "amount of" brought forward loss or unabsorbed depreciation whichever is less shows the intention of the Legislature for considering one consolidated figure of brought forward loss or unabsorbed depreciation for the earlier years in totality and not on year to year basis. The use of the word "amount" in singular conveys the aim of referring it to one figure. Wherever the Legislature desired to use the word "amount" in plural, it specifically used the word "amounts" instead of the "amount" as can be seen from the heading of section 40 - ‘Amounts not deductible’. From here we can easily deduce that for the purposes of clause (iii) of Explanation (1) the unabsorbed depreciation for all the earlier years is to be clubbed into one amount; and the amount of brought forward loss (before depreciation) is also to be taken by summing up all the figures of loss of earlier years, and then the lower of these two amounts is to be reduced from the net profit as shown in the profit & loss account so as to comply with the prescription of clause (iii) of Explanation (1). Similar position is coming up from the pressing into service of the word ‘loss’ in this clause in contradistinction to the word ‘losses’, as has been done in the marginal notes to sections 72, 73, 74, 74A and 75 etc. From here we gather

ITA Nos.510 & 662/Bang/2014 Page 27 of 37 that by using the words ‘amount’ and ‘loss’ in this clause, the point has been made clear that it is a composite figure each of the unabsorbed depreciation and brought forward loss, that merits consideration. 13. Moving still further we find from the language of this clause that there is no reference to considering the brought forward loss or unabsorbed depreciation on year to year basis. There is nothing in the language of section, which could suggest, even remotely, that the Legislature intended to consider year-wise figures. If it had desired like that, then it would have been so stated in unequivocal terms in the provision itself. In the absence of any specific mention in this regard in the clause, we are unable to infer such intendment. Since the language of the section is clear and does not admit of any doubt, we are not persuaded to interpret it in the way, the ld. DR impresses upon us to do. 14. The authorities below have concluded that year-wise determination of the amount of loss brought forward or unabsorbed depreciation is to be considered and if in a particular year - as in assessment year 2001-02 under consideration - there is no loss before depreciation, then the benefit of unabsorbed depreciation cannot be granted. In forming this opinion, assistance has been taken from the opening words of sub-section (1) of section 115JB as well as sub-section (5) of this section. Sub-section (1) starts with a non obstante clause : "Notwithstanding anything contained in any other provisions of this Act, ........" and sub-section (5) states that : "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." It is on the strength of these two sub-sections that the learned CIT(A) has decided that all other provisions of the Act merit consideration in the determination of the book profit under section 115JB and hence the provisions of sections 71 to 73 will also apply and when so applied section 72 serves as guiding light as per which the benefit of carry forward of business loss is limited to eight years. The case is made out that since the business loss can be carried forward only for eight years, and in the ninth year, the unabsorbed loss of the first year will cease to be available for set off, albeit for second to seventh years, it can still be carried forward, it automatically implies that the amount of loss has to be carried forward on year to year basis for the purposes of section 115JB also and hence it cannot be a single figure of loss for all the years. As all the provisions of the Act including section 72 apply by virtue of sub-sections (1) and (5) of section 115JB, it has been opined that the

ITA Nos.510 & 662/Bang/2014 Page 28 of 37 unabsorbed depreciation and unabsorbed business loss are to be maintained year-wise. 15. We are not convinced with this line of thinking for the reason that what is contemplated by sub-sections (1) and (5) is that the other provisions of the Act should be considered as in operation while giving effect to section 115JB. Reference to "other provisions of this Act" clearly indicates that what is provided in section 115JB should be religiously followed accordingly and anything over and above that will be subject to the other provisions of the Act. By no stretch of imagination can it be construed as substituting the other provisions of the Act in place of what is specifically made available in this section, insofar as the computation of book profit is concerned, the entire mechanism for its calculation is clearly set out in Explanation (1). Not only starting point being the net profit as shown in the profit & loss account but also all the amounts which are to be increased as stipulated in clauses (a) to (h) and those which are to be reduced as specified in clauses (i) to (vii) find separate mention in the scheme of the section itself. So the computation of ‘book profit’ is to be done strictly as per this Explanation and no assistance from any other section of the Act can be taken for that purpose. When clause (iii) of Explanation (1) clearly states that ‘the amount of loss brought forward or unabsorbed depreciation, which is less as per books of account’ is liable to be reduced, in our considered opinion, there is no authority for falling upon the command of section 72 for holding that the business loss is to be considered on year to year basis and not as an aggregate figure for all years in unison. 16. There is one more reason for not approving the view taken by the authorities below. Section 72(3) restricts the period to which the loss can be carried forward to not more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. As per this section if there is a brought forward loss which is more than eight years old, that has to be abandoned and only the brought forward loss of less than the prescribed period can be carried forward for set off against the business income. On the contrary there is no prohibition in section 115JB as per which the amount of unabsorbed loss is to be discarded after the expiry of eight years from the year in which it was first computed. Even if loss is brought forward from 50 years back, that has also to be reckoned. To put it simply the amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as coming in the books of account irrespective of any rider for a particular number of years. We, therefore, hold that reference to the provisions of sections 71 to 73 for arriving at the conclusion that

ITA Nos.510 & 662/Bang/2014 Page 29 of 37 section 115JB refers to year-wise consideration of the loss brought forward or unabsorbed depreciation, is erroneous. 17. Now we turn to examine clause (b) of Explanation to clause (iii) of Explanation (1) to section 115JB(2), which provides that ‘the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil’. The ld. CIT(A) has relied on this provision for upholding the action of the Assessing Officer that since the loss before depreciation for assessment year 2001-02 is Nil, hence no deduction is permissible for this year. A bare perusal of this provision brings out the intention of the Legislature in not allowing the reduction of the subject-matter of clause (iii) for the purposes of computing ‘Book profit’, if the amount of unabsorbed depreciation of brought forward loss is Nil. In other words it has been provided that the reduction is not to be permitted if one of these two figures namely, loss brought forward or unabsorbed depreciation, is nil. To put it simply if one of these two figures is Nil, then the other figure will be ignored altogether. The rationale behind this portion of enactment is not to unnecessarily allow the reduction of one, if the other is not there. Since the loss is to be considered before depreciation and if there is brought forward loss only, but no corresponding unabsorbed depreciation or vice versa, then no reduction is to be made of the amount of brought forward loss or unabsorbed depreciation, as the case may be. In the earlier part of the order we have held that if there is loss brought forward and unabsorbed depreciation for more than one year, then one combined figure each of unabsorbed depreciation and brought forward loss for such years is to be determined for consideration. Adverting to the facts of our case, we find that none of the figures of unabsorbed depreciation or brought forward loss is Nil, hence this part of the Explanation is not relevant for our purpose. 18. In view of the foregoing discussion we are of the considered opinion that the lower of the solitary figures of the unabsorbed depreciation or loss brought forward for all the earlier years taken together, is to be reduced for the purposes of computing "book profit" under section 115JB. As the aggregate amount of unabsorbed depreciation in respect of the four years is at Rs. 1,51,15,393 which is lower than the aggregate of the loss before depreciation at Rs. 2,40,75,717, in our considered opinion, the assessee had rightly claimed reduction for the lower amount of Rs. 1.51 crores. We, therefore, accept the assessee’s contention on this point.

ITA Nos.510 & 662/Bang/2014 Page 30 of 37 19. Applying the above legal position to the facts of the present case, as per audited financial statements, for the immediately preceding year i.e. March 2009, there was loss of Rs.150,31,14,000/- which comprised of depreciation loss of Rs.113,14,04,000/- and business loss of Rs.37,17,10,000/- chart showing above loss as furnished by the assessee is placed at page 322 of the paper book which is as under:

The lower of depreciation loss or business loss is required to be set off against book profit determined. In the present case, the amount of unabsorbed depreciation, loss is to be set off against book profit is required determined. In this case, there is unabsorbed depreciation loss of Rs.113,14,04,000/- and business loss of Rs. Rs.37,17,10,000/-, depreciation loss of Rs.37,17,10,000/- lower of the two is required to be set off against book profits. However, the CIT(A), though accepted in principle, contention of the assessee-company that lower of unabsorbed depreciation or business loss calculated on cumulative basis as shown in the immediately preceding financial year can be set off against book profits but adopted the following table which is not borne out of record:

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Since the figures adopted by the CIT(A) are not borne out of record, we remit the issue back to the file of the AO to adopt the correct figure following the principle that unabsorbed depreciation or business loss should be calculated on cumulative basis.

ITA No.510/Bang/2014 (assessee’s appeal): 21. In this appeal, the assessee raised the following grounds of appeal:

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It was further submitted that the amount was incurred to obtain intangible rights in respect of the above. The nature of expenditure was described as under:

ITA Nos.510 & 662/Bang/2014 Page 33 of 37

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The AO denied the claim holding that the amount was incurred for availing legal, technical and management services which does not resulted in acquisition of any right of any nature.

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24.1 It was argued that the above expenditure has resulted in acquisition of commercial right and following the law laid down by the Hon’ble Supreme Court in the case of CIT vs. Smifs Securites Ltd. (2012)24 taxmann.com 222 (SC). Therefore, expenditure qualifies for depreciation.

24.2 On the other hand, learned CIT(DR) placed reliance on the orders of the CIT(A).

ITA Nos.510 & 662/Bang/2014 Page 36 of 37 the assessee, the expenditure was incurred wholly in connection with entering into various agreements. Most of the expenditure was towards availing of professional and legal services during pre-operative period i.e. before commencement of the commercial operation. In our considered opinion, this expenditure is revenue in nature incurred during pre-operative period which qualifies for capitalization among various fixed assets. As a result of this expenditure, it cannot be said that the assessee had acquired any commercial rights. Furthermore, some of the expenditure also related to leasehold rights in land which par takes character of the land which does not qualify for depreciation. We uphold the order of the CIT(A) and dismiss the ground of appeal filed by the assessee-company.

ITA Nos.510 & 662/Bang/2014 Page 37 of 37 section 115JB. Since in the revenue’s appeal, we remitted this issue back to the file of the AO for fresh adjudication, this ground of appeal does not survive.

Order pronounced in the open court on this 27th September, 2016

Sd/- sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 27/09/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)- Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore