TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 1724
X X X X Extracts X X X X
X X X X Extracts X X X X
....eeks relief by way of its claim for reduction of net profits by the amount of Rs. 55,01,780/- (being the lower of loss brought forward or unabsorbed depreciation as per books of account) for the purposes of calculation of book profit under section 115JB of the Act. 3. Briefly stated, in the assessment proceedings pursuant to directions by the Principal CIT under section 263 of the Act, the Assessing Officer observed that the assessee has wrongly calculated the eligible amount of set off towards lower of the brought forward losses and unabsorbed depreciation while computing the book profits under section 115JB of the Act. The Assessing Officer perused a tabulated statement of business loss and depreciation as per books beginning from assessment year 2003-04 as referred to in the assessment order and observed that the assessee is entitled to a lower set off as tabulated and consequentially, the book profit was determined at Rs. 44,94,813/- in place of Rs. 9,06,945/- shown by the assessee in terms of provisions of section 115JB read with Explanation below section 115JB. The methodology towards adjustment and set off of brought forward loss and unabsorbed depreciation while calculatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hod for setting off the losses. While applying this method, the assessee also first adjusted the brought forward business losses and then unabsorbed depreciation against the profit earned in the subsequent assessment years consistently on year to year basis. 6.1 A tabulated statement showing position of brought forward business losses and unabsorbed depreciation after adjustment and set off as made by the assessee company in the books of account on year to year basis was inter alia referred which is reproduced hereunder for ready reference. AY Profit or loss Current year Depreciation Profit after depreciation Brought forward loss Unabsorbed depreciation Book profit Position of carried forward loss Position of unabsorbed depreciation 2007-08 7,398,921 1,517,629 5,881,292 28,234,876 6,748,000 NIL 23,534,309 5,567,275 2008-09 9,367,857 3,168,860 6,198,997 23,534,309 5,567,275 631,722 17,964,906 4,937,682 2009-10 5,880,373 2,020,549 3,859,824 17,964,906 4,937,682 NIL 14,623,670 4,419,093 2010-11 99,522 1,943,433 - 1,843,911 14,623,670 4,419,093 NIL 14,623,670 6,263,004 2011-12 6,338,724 - 6,338,724 14,623,670 6,263,004 NIL ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ified to be lower of two types of unabsorbed items. The Ld. A.R, accordingly exhorted that the methodology consistently followed by the assessee in the matter of adjusting and setting off brought forward business losses and unabsorbed depreciation in the books of account does not call for any disturbance and the assessee should be allowed and be considered eligible for reduction out of unabsorbed loss as per its option to the extent of lower figure between unabsorbed loss and unabsorbed depreciation as per the books of account for the purposes of the calculating book profits under section 115JB of the Act. 7. The Ld. Departmental Representative, on the other hand, relied upon the order of the Assessing Officer and CIT(A) and submitted that the Explanation to section 115JB provides for deduction of the lower of book loss or unabsorbed depreciation as per books and therefore the proposition made on behalf of the assessee that deduction amount is for the purposes of quantification alone is not correct. The Ld. D.R submitted that the Assessing Officer has rightly appreciated the issue in perspective which is in line with the ruling delivered by the authority for advance rulings in AAR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n quoted above would show that Clause (iii) to Explanation 1 to Section 115JB ('Explanation' in short) provides that while computing the book profits for the relevant assessment year for the purposes of Section 115JB, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of accounts, is required to be reduced. 8.3 In this regard, it is firstly the case of the assessee that it is consistently following FIFO method for setting off year-wise brought forwarded losses. Following this method, unabsorbed loss of earlier year, longest outstanding, is first set off against the current year's book profit and thereafter in tandem. Secondly and importantly, while applying the aforesaid method, the assessee had first adjusted the book profit of the current year out of brought forward business losses accumulations in preference to the unabsorbed depreciation (quantified to the extent of the lower of the two) regardless of the fact that amount set off represents unabsorbed depreciation being a lower figure. It is the case of the assessee that this method has been adopted consistently on year to year basis. The AO, on the other hand, has purportedly decline....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctus on the facts of the case and on perusal of Explanation, we do not consider the methodology adopted by the assessee in affirmative. The controversy involves interpretation of Clause (iii) to Explanation 1 to Section 115JB. Clause (iii) (as reproduced the above) requires to be given full effect as per letter as well as in spirit. Apparently, it provides for deduction of lower of unabsorbed loss or unabsorbed depreciation out of book profits. Noticeably, benefit of Explanation to Clause (iii) is not available in the event either unabsorbed loss or unabsorbed depreciation becoming NIL. Thus, in the event where either of the two becomes zero, the assessee will not be entitled for set off against books profits as beneficially provided in Clause (iii) to Explanation 1. The spirit of the clause thus requires to be gauged from this restriction placed statutorily. If the methodology adopted by the assessee is endorsed, it may generally defeat a situation where one of the two i.e. unabsorbed loss and unabsorbed depreciation turning NIL. To give effect to the object of Clause (iii), we are of the view that like should be reduced from like and not differently. This means if the lower of th....