2001 (11) TMI 221 - AT - Income Tax

Tribunal affirms treatment of unabsorbed depreciation in book profit calculation under s. 115J

The Tribunal upheld the CIT(A)'s direction to allow adjustment for unabsorbed brought forward depreciation while computing book profit under s. 115J. It ... - Issues:Department's appeal against the direction to allow depreciation while computing book profit under s. 115J.Analysis:1. The Department raised common grounds in both appeals challenging the direction of the CIT(A) to recompute book profit under s. 115J after allowing depreciation. The AO initially determined book profit without adjusting brought forward unabsorbed depreciation, leading to taxable income calculations.2. The CIT(A) directed the AO to allow unabsorbed brought forward depreciation while recomputing assessable income under s. 115J. The CIT(A) disagreed with the AO's interpretation, citing relevant provisions and case law to support the adjustment of unabsorbed depreciation against book profit.3. The Department contended that only the lesser of unabsorbed depreciation or brought forward loss should be adjusted in book profits under s. 115J. The authorized representative argued that unabsorbed depreciation should be considered as part of the loss, relying on legal precedents.4. The Tribunal analyzed the AO's decision and the CIT(A)'s direction, noting the discrepancy in handling unabsorbed depreciation. Referring to the Surana Steels case, the Tribunal upheld the CIT(A)'s decision to allow adjustment for unabsorbed brought forward depreciation while computing book profit under s. 115J.5. Citing the Sirhind Khanna Transport case and the Surana Steels judgment, the Tribunal emphasized the importance of considering unabsorbed depreciation akin to unabsorbed loss for applying the provisions of s. 115J. Based on legal principles and precedents, the Tribunal dismissed the Department's appeals.This detailed analysis covers the key issues raised in the judgment, providing a comprehensive understanding of the legal reasoning and decisions made by the authorities involved.