Tribunal Overturns Tax Levy: AO Directed to Account for Loss Set-Off and Permit Carry Forward of Losses Under MAT Rules.

The Tribunal ruled in favor of the assessee, a private company, by overturning the CIT(A)'s decision. It directed the AO not to levy tax under MAT provisions after accounting for the set-off of brought forward losses and unabsorbed depreciation from previous years. Furthermore, the AO was instructed to permit the carry forward of business losses and unabsorbed depreciation to succeeding years in accordance with legal provisions. The Tribunal recognized that financial statements differ from books of account and emphasized the importance of considering accumulated losses for set-off against current profits, aligning with the purpose of MAT provisions.

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Issues Involved:
1. Adjustment of lower of unabsorbed depreciation and business loss while calculating book profit under MAT provisions.
2. Carry forward of business loss and unabsorbed depreciation to succeeding years.

Issue 1: Adjustment of Lower of Unabsorbed Depreciation and Business Loss While Calculating Book Profit Under MAT Provisions

The assessee, a private company engaged in ship breaking, reported a net profit of Rs. 63,75,513/- in its financial statements for the relevant year. However, while computing the book profit under section 115JB of the Income Tax Act, the assessee reduced this profit by the lower of the amount of brought forward losses or unabsorbed depreciation amounting to Rs. 1,23,04,414/-. The Assessing Officer (AO) disallowed this reduction, noting that there were no brought forward losses or unabsorbed depreciation shown in the financial statements. The AO observed that losses from previous years (2012-13 and 2011-12) had already been set off against accumulated profits from 2010-11.

The CIT(A) upheld the AO's decision, stating that the entire losses for 2012-13 and 2011-12 had been set off against accumulated profits, and thus, the MAT was payable on Rs. 63,75,513/-. The CIT(A) rejected the assessee's reliance on case laws, noting that the facts were different.

The assessee contended that the AO's calculation was incorrect and that the losses and unabsorbed depreciation should be considered for set off against current profits. It was argued that the financial statements, including the balance sheet and profit and loss account, should not be equated with the term "books of account" as per the Companies Act, 2013. The assessee cited definitions from the Companies Act and case laws, particularly the judgment of the Madras High Court in CIT vs. Taj Borewells, to support their argument that financial statements are not the same as books of account.

The Tribunal agreed with the assessee's argument, noting that financial statements are compilations of various figures and cannot be referred to as books of account. The Tribunal also highlighted that the accumulated profits had already suffered tax under normal computation, and taxing them again under MAT would be contrary to the purpose of MAT provisions. The Tribunal cited the Delhi High Court judgment in CIT vs. Sumi Motherson Innovative Engg. Ltd., which emphasized that losses brought forward should be considered for set off against current profits.

The Tribunal concluded that the assessee had rightly reduced the amount of income for the year under consideration from the brought forward losses/unabsorbed depreciation pertaining to previous years 2012-13 and 2011-12. The Tribunal set aside the CIT(A)'s order and directed the AO not to levy tax under MAT provisions.

Issue 2: Carry Forward of Business Loss and Unabsorbed Depreciation to Succeeding Years

The assessee argued that the AO did not mention the carry forward of undisputed business loss and unabsorbed depreciation to succeeding years in the assessment order. The CIT(A) misunderstood the ground, dismissing it by referring to the AO's findings on MAT calculation.

The Tribunal noted that it had already directed the AO to allow the set off of brought forward losses/unabsorbed depreciation against the current year's income. Consequently, the Tribunal directed the AO to allow the carry forward of these losses and unabsorbed depreciation to future years until exhausted as per the provisions of law.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to:
1. Not levy tax under MAT provisions after considering the set off of brought forward losses/unabsorbed depreciation.
2. Allow the carry forward of business loss and unabsorbed depreciation to succeeding years as per the law.

Order pronounced in the Court on 04/03/2020 at Ahmedabad.

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