ACIT , CIRCLE-10 (2), NEW DELHI vs. GUTERMANN INDIA PVT. LTD., NEW DELHI

PER SHAMIM YAHYA, ACCOUNTANT MEMBER :

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(AO has erred in holding that clause (iii) of Explanation (1) of section 115JB(2) refers to aggregate amount of loss brought forward or unabsorbed depreciation as one composite figure and not to year-wise consideration of the amounts of brought forward loss or unabsorbed depreciation for the purpose of computing the amount liable to be reduced from net profit as per profit & loss account.

1.a Whether the Ld. CIT(A) has erred in ignoring the well-established principle of interpretation that, a court/adjudicating authority, in construing a statute, should give weight to the interpretation placed upon it, at the time of its enactment, by those whose duty it has been to construe, execute & apply it, and therefore, the methodology of computing the quantum of brought forward loss or unabsorbed depreciation, as explained specifically in Finance Act 1987 (vide CBDT Circular 495 dated 22.09.1987) would govern the said computation.”

per section 115JB of the Income-tax Act, 1961 (for short 'the Act'), it was observed that an amount of Rs.18,58,59,067/- being loss brought forward or unabsorbed depreciation, whichever is less is taken as deduction form the book profit. AO was not in agreement with the aforesaid method. As

per assessee, the computation has to be made between brought forward loss or unabsorbed depreciation on accumulated basis as per the losses or unabsorbed depreciation outstanding as on the start of the year. The AO in support of its finding relied upon the Circular No.495 dated 22.09.1987 and the decision of the Authority for Advance Ruling in the case of Rashtriya Ispat Nigam Ltd. (2006) 285 ITR (AAR) and the Cochin Bench of ITAT in the case of Steel Industrial Forgings Ltd. vs. ACIT (2008) 19 SOT 128.

“6.1.4 On the other hand, the appellant relied upon the following decisions as pronounced by different Benches of ITAT, wherein it has 3 ITA No.1706/Del./2019 been clearly held that for the purpose of computing the amount of deduction the comparison of brought forward loss and unabsorbed depreciation has to be made on accumulated basis. The judgments relied upon by the appellant are as under: � Amline Textiles (P) Ltd. v. ITO 27 SOT 152 � Central India Polyesters Ltd. v. CIT to 212/Nag/2013 � ACIT v. Arvind Mills Ltd. (ITA No. 3440/AHD/2010) 6.1.5 In view of the aforesaid decisions of the Hon'ble ITAT and in view of the principles laid down by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Limited 88 ITR 192, in the presence of two views, the view in favour of the appellant should be considered.”

“6.1.6 Thus, considering the judgments relied upon by the appellant, I hold that the disallowance made by the AO is bad in law and the deduction of brought forward loss or unabsorbed depreciation, whichever is less for the purpose of computation of book profit has to be considered on accumulated basis and not on year to year basis comparison. The ground of appeal is thus accepted.”

7. Ld. DR for the Revenue relied upon the decision of Cochin Bench of ITAT in the case of Steel Industrial Forgings Ltd. (supra) as relied upon by the AO.

“5. The aforesaid issue, in our respectful submission, is covered by the decisions of various benches in the Tribunal in the following manner: - The leading decision dealing with the aforesaid proposition is the decision of the Mumbai Bench of Tribunal in the case of Imlin "….

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 5 ITA No.1706/Del./2019 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 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.

CBDT circular by the ld. DR for the Revenue, ld. Counsel of the assessee submitted that both the aforesaid decision of Cochin Bench and CBDT circular dealt with interpretation of section 115J, which contained a materially differ provision with regard to the reduction of loss or unabsorbed depreciation as per clause (iv) contained in Explanation to that section.