2025 (11) TMI 1767 - AT - Income Tax

Appeal dismissed, set off of book losses and unabsorbed depreciation allowed under s.115JB Explanation 1 clause 2(iii)

ITAT Chennai dismissed the Revenue's appeal and upheld the order of CIT(A) allowing the assessee to set off brought forward book losses/unabsorbed ... Computing book profits u/s. 115JB - MAT provisions u/s 115JB do not explicitly prescribe the method of set of losses - whether the loss as per the books of accounts once reduced from books profits in earlier years would not be available for reduction in the subsequent years and the losses would continue to remain in the books of accounts till they are wiped out by profit derived by the assessee - HELD THAT:- We have also noted that Hon’ble Karnataka High Court in the case of Bangalore International Airport [2022 (9) TMI 1539 - KARNATAKA HIGH COURT] has decided the issue in assessee’s favour holding that “ Clause 2(iii) of Explanation 1 (i) of section 115JB makes it clear that the amount of loss brought forward or unabsorbed depreciation which ever is less as per the books of accounts must be permitted to be set off. The CIT(A)2 and the ITAT3 placing reliance on CBDT4 Circular No. 495 dated September 22, 1987, have rightly held that the cumulative brought forward losses or unabsorbed depreciation should be considered for set off. In view of unambiguous language employed in the statute, no exception can be taken with ITAT's order confirming the CIT(A)'s order holding hat the assessee is entitled to claim set off. So far as the actual amount is concerned, the ITAT has remitted the matter to the Assessing Officer. However, on principle, the ITAT has rightly held that the assessee is entitled to claim set off”. The impugned decision of Hon’ble Karnataka High Court has become the law of the land in as much as the SLP of the Revenue stands dismissed. We have noted that the Ld.CIT(A) has followed the said decision while giving relief to the assessee. The case laws relied upon by the Revenue have been considered and found to be distinguished on true facts. Further, we have also noted that the order of an Hon’ble Karnataka High Court (supra) of, even a non-jurisdictional high court, in the scheme of judicial discipline, occupies a higher persuasive value. Accordingly, we are of the considered view that there is no case for any intervention to the order of the CIT(A) at this stage. Accordingly, we uphold the decision of the CIT(A) and dismiss all grounds of appeal raised by the Revenue. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 39 days in filing the appeal by the Revenue deserved to be condoned. 1.2 Under Section 115JB, whether cumulative brought forward loss or unabsorbed depreciation as per books, once reduced from book profits in earlier years, ceases to be available for reduction in subsequent years. 1.3 Proper interpretation of clause (iii) of Explanation 1 to Section 115JB(2) regarding reduction of 'loss brought forward or unabsorbed depreciation, whichever is less as per books of account' while computing book profit, and whether the Assessing Officer correctly denied set-off on the ground that such losses had already been adjusted in earlier years. 1.4 Effect and persuasive value of the decision of a non-jurisdictional High Court, upheld by dismissal of SLP by the Supreme Court, in construing Section 115JB. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Condonation of delay in filing appeal Interpretation and reasoning 2.1.1 The Tribunal noted a delay of 39 days in filing the appeal. The Revenue explained, by affidavit, that the delay arose due to time consumed in preparation of a scrutiny report and obtaining comments from the Transfer Pricing Officer, asserting that the delay was neither wilful nor wanton and assuring future compliance. 2.1.2 The Tribunal found the reasons adequate, and also recorded that the assessee did not seriously object to condonation. Conclusions 2.1.3 The delay of 39 days in filing the appeal was condoned and the appeal was heard on merits. 2.2 Availability of brought forward loss/unabsorbed depreciation under Section 115JB where earlier years' book profits have been reduced Legal framework (as discussed) 2.2.1 The Tribunal referred to Explanation 1 to Section 115JB(2), particularly clause (iii), which permits reduction from book profit of 'the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account', along with the Explanation thereto that: (a) 'loss' shall not include depreciation; and (b) the clause does not apply if the amount of loss brought forward or unabsorbed depreciation is nil. 2.2.2 The Tribunal noted that Section 115JB does not prescribe a mechanism for 'set-off' of brought forward loss or unabsorbed depreciation in the manner provided under sections dealing with normal computation (e.g., sections 71B, 72, 73, 73A, 74, 74A). It only provides the quantum to be reduced from book profits each year. Interpretation and reasoning 2.2.3 The Assessing Officer had denied reduction of Rs. 23,79,08,002/- while computing book profit under Section 115JB on the ground that these losses or unabsorbed depreciation had already been 'adjusted' in earlier years (AYs 2013-14 to 2015-16), and hence were not available in AY 2018-19. 2.2.4 The assessee contended that for each year, the lower of (i) total brought forward loss (excluding depreciation) as per books, and (ii) total unabsorbed depreciation as per books, must be considered for reduction, and that such losses do not vanish from the books merely because, for MAT purposes, some amount was reduced from book profits in earlier assessment years; they continue till wiped out by subsequent book profits. 2.2.5 The Tribunal accepted that Section 115JB provides only a computation mechanism for determining the quantum to be reduced from book profits, and does not convert that quantum into a 'set off' which extinguishes the underlying book loss or unabsorbed depreciation. Hence, so long as there are cumulative book losses and unabsorbed depreciation reflected in the books, the lower of the two is to be reduced each year in accordance with clause (iii) of Explanation 1. 2.2.6 The Tribunal noted and relied upon the ratio of the Karnataka High Court in Bangalore International Airport Ltd, which held that clause 2(iii) of Explanation 1 to Section 115JB mandates that the amount of brought forward loss or unabsorbed depreciation, whichever is less as per books, must be permitted to be set off, and that cumulative brought forward losses or unabsorbed depreciation should be considered for this purpose. 2.2.7 The Tribunal also referred to the Kolkata Bench decision in Binani Industries Ltd and the Delhi Bench decision in GO Airlines (India) Ltd, which held that cash loss and depreciation loss once adjusted/reduced from book profits under Section 115JB do not vanish from the books until wiped out by subsequent profits; every year, the least of cash loss and depreciation loss as per books has to be freshly computed and reviewed for reduction from book profits. 2.2.8 The Tribunal observed that, notwithstanding the Assessing Officer's claim to have followed Binani Industries, the actual reworking of MAT by the Assessing Officer was contrary to the principle laid down therein, since he effectively treated earlier reductions as permanently exhausting the unabsorbed depreciation, resulting in a nil figure for the year under appeal. 2.2.9 The Tribunal considered the Revenue's reliance on earlier Tribunal and AAR rulings (including Lakshmi Machine Works and Rashtriya Ispat Nigam Ltd), but found them distinguishable on facts and not overriding the clear ratio of the Karnataka High Court and the subsequent Tribunal decisions following that reasoning. Conclusions 2.2.10 The Tribunal held that brought forward loss or unabsorbed depreciation, as per books, does not cease to exist for MAT purposes merely because reductions were made from book profits in earlier years; the losses continue in the books of account until wiped out by profits. 2.2.11 For each assessment year, including the year under consideration, the cumulative figures in the books must be examined and the lower of the book loss (excluding depreciation) or unabsorbed depreciation must be reduced from book profits in terms of clause (iii) of Explanation 1 to Section 115JB(2). 2.2.12 The Assessing Officer's approach of treating the earlier MAT reductions as fully exhausting the unabsorbed depreciation, and thereby determining the amount available for reduction as nil, was held to be contrary to Section 115JB and the binding/ persuasive judicial guidance. 2.2.13 Accordingly, the order of the Commissioner (Appeals) allowing the assessee's claim for reduction of the relevant cumulative balance of unabsorbed depreciation (and thus deleting the addition of Rs. 23,79,08,002/-) under Section 115JB was upheld. 2.3 Persuasive value of non-jurisdictional High Court decisions and effect of dismissal of SLP Interpretation and reasoning 2.3.1 The Tribunal noted that the Karnataka High Court's judgment in Bangalore International Airport Ltd, construing clause (iii) of Explanation 1 to Section 115JB(2) and permitting cumulative brought forward losses/unabsorbed depreciation as per books to be set off, directly covered the controversy in favour of the assessee. 2.3.2 The Tribunal observed that the Special Leave Petition filed by the Revenue against this judgment had been dismissed by the Supreme Court, and therefore the High Court's interpretation has attained finality and becomes law of the land on the issue. 2.3.3 Even though the Karnataka High Court is a non-jurisdictional High Court for the Tribunal concerned, the Tribunal held that, in the scheme of judicial discipline, such a decision carries high persuasive value and should be followed where there is no contrary binding jurisdictional High Court or Supreme Court ruling. Conclusions 2.3.4 The Tribunal, in respectful compliance with the Karnataka High Court judgment in Bangalore International Airport Ltd (as affirmed by dismissal of SLP), followed its ratio, declined to accept the Revenue's contrary contentions, and found no ground to interfere with the order of the Commissioner (Appeals). 2.3.5 All grounds raised by the Revenue in the appeal were dismissed.