2011 (11) TMI 633

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....k or any other such record has been maintained by the assessee which could help in verifying that the total expenditure debited under this head has been incurred wholly and exclusively for the purpose of business. Similarly, the Assessing Officer made an ad hoc disallowance of Rs. 2,00,000/- as non-business expenditure out of telephone expenses of Rs. 16,18,529/- after observing that no separate telephone call register or any other such record has been maintained by the assessee. 4. In appeal, the Commissioner of Income-tax (Appeals) held as under: "The submission has been considered and is found to be partly acceptable. So far as disallowances out of vehicle expenses and telephone expenses are concerned, I find it difficult to find fault with the action of the AO because considering the nature of these facilities, their use for on business purposes cannot be ruled out and therefore, his action of making part disallowances under these heads is held to be justified. However, the disallowances of Rs. 2 lakhs out of telephone expenses of Rs. 16,18,529/- appears to be on a higher side and, therefore, the same is reduced and restricted to Rs. 1 lakh only." Being aggrieved wi....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....to substantiate its claim with any cogent material or evidence. Against this order of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before us. 9. We have carefully considered the rival submissions. We find that this issue stands concluded in favour of the assessee and against the Revenue by the judgment of the Hon'ble Bombay High Court in the assessee's own case (supra), wherein the Hon'ble High Court held as under: "3. As regards the question Nos ii and iii are concerned, the Tribunal relying upon its decision in th case of Kirloskar Pneumatic Co. in ITA No 6/PN/07 for the AY 2003-04 held that even if the expenditure is incurred in the year but the demand is raised and accepted in the subsequent year, then the expenditure would be allowable in the subsequent year. We see no infirmity in the above order passed by ITAT. Accordingly, appeal is dismissed." Respectfully following the aforesaid judgment of the Hon'ble jurisdictional High Court in the assessee's own case, we set aside the order of the Commissioner of Income-tax (Appeals) and the Assessing Officer is directed to delete the disallowance made on this count. This Ground of appe....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ssessee. 11 In appeal before the Commissioner of Income-tax (Appeals), the assessee filed detailed written submissions. However, the Commissioner of Income-tax (Appeals) held that the Assessing Officer was justified in rejecting the assessee's method of adjustment of carried forward book losses and depreciation for MAT purposes. Being aggrieved with this decision of the Commissioner of Income-tax (Appeals), assessee is in further appeal before us. 12 Before us, the learned Counsel for the assessee has submitted that the Assessing Officer has disallowed assessee's methodology for adjustment of carried forward book losses and depreciation for the purposes of computing Minimum Alternative Tax (MAT) under section 115JB of the Act. It is pointed out that there is no specific method prescribed under the statute to adjust carried forward book loss and depreciation as provided for in Clause (iii) of Explanation below section 115JB(2) of the Act. It is submitted that in so far as assessee is concerned, it computed carried forward book losses and depreciation after adjusting the same on First in First out (FIFO) basis against the profits available in the past years. It is pointed out t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lained that the term loss shall not include depreciation and that this clause is not applicable where the amount of loss brought forward or unabsorbed depreciation is nil. In the background of the aforesaid, now we may first examine the computation of book profit made by the assessee in the return of income. The net profit as per Profit & Loss Account adopted by the assessee was Rs. 20,76,31,798/-. While computing the liability under section 115JB, assessee, inter alia, claimed an adjustment of Rs. 35,72,28,867/- in terms of aforesaid clause (iii) of Explanation below 115JB of the Act. In this manner, the book profit for the purposes of 115JB(2) was determined at 'Nil'. The claim of the assessee was based on the hereinafter mentioned workings. As on 1.4.2005, the aggregate of carried forward losses and depreciation after netting of the profits for intermittent years was detailed as under: Financial Year Profit Loss Depreciation 1994-95 3,15,54,669     1995-96 7,03,62,878     1996-97   8,44,03,032 8,97,39,166 1997-98   9,11,09,266 10,58,61,822 1998-99   28,05,39,414 11,57,42,66....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....g lower of the two at Rs. 35,72,28,867/- was considered by the assessee as an adjustment against the net profit permissible in terms of clause (iii) of Explanation 1 below 115J B(2) of the Act. 18. The Assessing Officer, on the other hand, observed that the unabsorbed depreciation as on 1.4.2003 of Rs. 66,85,72,522/- is to be adjusted against the aggregate profits of 10,19,17,557/- for the financial years 1994-95 and 1995-96. Thus, as per him, the unabsorbed depreciation brought forward for AY 2003-04 was only Rs. 56,66,54,975/-. Thereafter, the Assessing Officer applied clause (iii) of Explanation 1 for the assessment year 2003-04 to the instant year, i. e. assessment year 2005-06 in the following manner.: "For A.Y. 2003-04 Net Profits to the audited Profit & Loss A/c. (as per para 3.9 above) Rs. 23,35,25,147/- Less: i) B/f. business loss of Rs. 81,43,70,815/-  (ii) unabsorbed depreciation Rs. 56,66,54,975/- (as per para 3.8 above) whichever is less Rs. 56,66,54,975/- Book Profits/Loss (-) Rs. 33,31,29,828/- Amounts to be carried forward to AY 2004-05   Business loss Rs. 81,43,70,815/- Unabsorbed depreciation  (Rs 56,66,54,975 ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....n the Statute. Even in the past years, the losses and depreciation to be carried forward be determined on the similar principles, i.e. after setting off of the lower of depreciation or losses. Apart from the fact that there is no specific provision in the Statute, we are also guided by the spirit of section 205(1)(b) of the Companies Act, 1956. In terms of section 205(1)(b) also, the surplus is to be determined after reducing lower of the loss or depreciation. Though strictly speaking the rule of section 205(1)(b) of the Companies Act is not applicable, inasmuch as for the purposes of the said section the expression "loss" includes depreciation, whereas for the purposes of section 115JB it is specifically provided that for clause (iii) of Explanation 1 the expression "loss" shall not include depreciation. So, however, we want to emphasis on the basic principle enshrined in section 115JB whereby the lower of loss or depreciation is reducible to arrive at the surplus. Section 115JB(2) itself refers to a Profit & Loss Account prepared in accordance with the provisions of Companies Act, 1956 and therefore, in our view, the proposition in section 205(1)(b) becomes relevant. For the afor....