TaxTMI 
TaxTMI 
2019 (5) TMI 1757
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....eals) - IV, Baroda erred in fact and in law in confirming the action of the AO in holding that there is no brought forward unabsorbed loss or unabsorbed depreciation and thereby concluding that the appellant is chargeable to tax u/s 1 15JB of the Act. 3. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in not allowing the benefit of brought forward unabsorbed depreciation of Rs. 1,65,15,0937- as per section 115JB(1)(iii). 4. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in holding that there is no brought forward unabsorbed depreciation / unabsorbed business loss for the purpose of set off as per section 1 15JB(l)(iii). 5. The learned Commissioner of Income Tax (Appeals) - IV, Baroda erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Income Tax Act, 1961. 6. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. The only effective issue raised by the assessee is that the learne....
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....brought forward loss/ unabsorbed depreciation against the reduction of share capital cannot be treated as set off against the reduction in the share capital. As such the impugned adjustment is representing the accounting entry and an adjustment in the books of accounts in pursuance to a scheme approved by the Hon'ble Gujarat High Court vide order dated 2nd December 2004. Accordingly, the assessee contended that it has not utilized/setoff such brought forward law and unabsorbed depreciation against the profit of the company. Therefore such accounting/ book adjustment for the brought forward loss and unabsorbed depreciation would not affect its claim under section 32(2) and 115JB of the Act. However, the learned CIT (A) rejected the claim of the assessee by observing that the provision of section 115JB of the Act requires to work out book profit as shown in the audited profit and loss account for the relevant AY. Therefore any past event of the assessee where it has adjusted the brought forward losses and unabsorbed depreciation against the reduction of share capital will have the bearing on the working of book profit under section 115JB of the Act. Accordingly, the learned CIT (A) c....
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....al facts and circumstances, The Tribunal in the case of Surat Textile Ltd VS CIT reported in 70 taxmann.com 158 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced as under: "10. We have duly considered rival contentions and gone through the record carefully. In our opinion, the controversy required to be silenced at the end of the Tribunal, is whether restricting credits credited to the profit & loss account against accumulated profit & loss debit balance would mean that the alleged accumulated loss have been absorbed, and not available to the assessee for claiming deduction under clause (iii) of Explanation to section 115JB(2). Section 115JB has a direct bearing on the controversy, therefore, it is imperative upon us to take note of the relevant part of this section, which reads as under: "Section 115JB Special provision for payment of tax by certain companies. (2) [Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions o....
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....ons of SICA, because, its net-worth was going to be positive, and therefore, it will not be entitled to exemption under clause (vii) of Explanation to section 115JB of the Income Tax Act. It is also pertinent to mention here that in the Asstt. Year 2009-10, the assessee has reduced the book profit by making an adjustment under section 115JB of the Act at Rs. 6,92,38,861/-. Similar adjustments have been accepted by the AO in an assessment order passed under section 143(3) of the Act. 12. Parties are not disputed about the applicability of Section 115JB. There dispute is only qua quantification of book profit for the purpose of section 115JB. A bare perusal of clause (iii) of Explanation to section 115JB (2) would indicate that this clause authorises an assessee to reduce the amount of book profit by the amount of brought forward loss or depreciation whichever is lower. There is no dispute between the parties qua this interpretation also. Clause (a) of sub-section (2) of section 115JB contemplates that every assessee being a company, other than referred to clause (b) shall for the purpose of this section, prepare its profit & loss account in accordance with the prov....
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....t shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account :-. . . . . . . . . . . . . . . . . . . . (xii)(a)** ** ** (b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount." 14. Apart from the above, we have perused the guidance note issued by the Institute of Chartered Accountants of India on the revised Schedule-VI to the Companies Act, 1956. It has been laid down in the guidance note at serial no. 9, page no. 56 that while preparing the statement of profit & loss account, under Part-II of the Schedule VI, company has to disclose the items of revenue expenses, other details and profit & loss etc. There is a list of different heads from I to XVI under which details are to be disclosed. It provides that the expression "income" or "revenue" is to be considered as increase in economic benefit during the accounting period in the form of inflows....
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....easons, if any part, which is not operating income of the assessee, is accounted in the profit & loss account, then, those provisions do not require that these items must be accounted in the profit and loss for the purpose of section 115JB. In other words, the case of the assessee is that Part-II of the Schedule, nowhere contemplates that anything recorded on transaction of exceptional nature is to be debited or credited to the profit & loss account. In order to buttress this standpoint, Shri J.P. Shah, ld. counsel for the assessee drew our attention towards AS-9 which provides the method of revenue recognition. 16. We have made analysis of Guidance Note issued by Institute of Chartered Accountants of India on Schedule-VI, provisions of Part-II of Schedule-VI and AS-9. At the cost of repetition, we would refer clause (3) of Part-II. "3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads ; and in particular, shall disclose the following information in respect of the period covered by the account." This clause contemplates that the profit & loss would sho....
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....re in arrear, forfeited and the amount of Rs. 3.95 lakhs due after giving effect to the reduction in shares capital has been written off to the Profit and Loss Account. 9. The Company is registered as a sick company; with the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The Hon'ble Board, has sanctioned a rehabilitation scheme resting with its order dated 22nd January, 2008 envisaging various relief and concessions ("Rehabilitation Scheme") Further, the sanctioned Rehabilitation Scheme inter alia provides for restructuring of debts through One Time Settlement (OTS) with the secured lenders, write down (reduction) of the existing equity capital u/s 18(2(f) of SICA, by 90%, issue of fresh equity share capital on a preferential basis in favour of the promoters and fresh infusion of funds by the promoters as "additional working capital and soft loan for revival of the Company. In accordance with the One Time Settlement (OTS) terms, the Company has paid off Rs. 40,83 crores to "the secured lenders towards the aggregate liability (principal and interest) amounting, to Rs. 81.77 ....
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....ged restructuring credit. In such situation, the loss cannot be set-off in the accounts, which are to be prepared as per Parts-II and III of the Schedule-VI. This aspect has been considered by the ITAT, Madras in the case of Prithvi Softech Ltd., in ITA No. 797/Mds/2010. Copy of this order has been placed on page nos. 1 to 14 of the case compilation. The company has business loss as well as unabsorbed depreciation in F.Y. 2000-01 to 2003-04. It has claimed set-off of losses as deduction, while computing the book profit as per the clause (3) of Explanation to Section 115JB(2). The facts on the basis of which this claim was disallowed by the AO was that as per scheme of amalgamation approved by the shareholder and the Hon'ble Madras High Court, the company reduced the paid-up capital, which is not represented by the assets, because the company had incurred losses in earlier years. Accordingly, the company has transferred the entire balance of profit and loss account amounting to Rs. 3,58,75,731/- to paid-up equity capital account. The amount credited to profit & loss account is not income of the year and only represented reduction of paid-up capital. The ld. Revenue Authorities h....
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....bed depreciation as per books in the current year is, in our considered opinion, an absurdity. It seems that the ld. CIT is of the opinion that unless there is a debit balance in the profit and loss account, the assessee cannot be allowed the benefit of clause (iii) Explanation to Section 115JB(2). In our considered view, the phrase 'loss brought forward' and phrase 'debit balance in profit and loss account' are two different and does not convey the same meaning. The above position becomes evident when one looks into the example given by the CBDT in its Circular No. 495 dated 22.9.1987. A reading of para 36.3 and 36.5 thereof shows that by virtue of the said clause, "brought forward losses" or "unabsorbed depreciation", whichever is less, could be reduced in arriving at books profits. It requires working out separate amount of losses and unabsorbed depreciation in each year from the books of account and their set-off, if any, against subsequent year's book profit for determining the amount to be carried forward or the amount remaining unabsorbed. The loss or unabsorbed depreciation is to be determined with reference to books of account in contradistinction to th....
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....view of the above, in our considered opinion, there was no error in the order of the assessment as passed by the Assessing Officer insofar as it allowed deduction of Rs. 1,13,01,457/- as per the provisions of section 115JB(2) of the Act in determining the book profit of the year under consideration. Our above view also finds support from the decision of the Hon'ble Delhi High Court in the case of CIT v. Sumi Motherson Innovative Engineering Ltd. [2010] 195 Taxman 353 [Del].' 19. Now let us deal with the reasoning given by the ld. CIT(A). The first reason assigned by the ld. CIT(A) is that the assessee has claimed maintenance of separate ledger for giving effect the credits in the rehabilitation scheme. But according to the ld. CIT(A) auditors have not given any such finding nor provided that two sets of profit & loss account are being maintained. Therefore, according to the ld. counsel for the assessee, once the assessee has accounted the alleged restructuring credits in the accounts and set-off the losses, then, in subsequent period, it cannot claim reduction of such loss under clause (iii) of Explanation to Section 115JB(2). With regard to this objection, we are ....
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....ance with Part-II and Part-III of Schedule-VI to the Companies Act. 21. Next reason assigned by the ld. Commissioner is that actual book of accounts show separate ledger accounts in respect of the brought forward loss and unabsorbed depreciation. According to the ld. CIT(A), the adjustment of debit balance in the profit & loss accounts credits in the rehabilitation scheme, ought to have been given full effect by the assessee in the accounts. It is not open for the assessee to opt for inconsistent method of accounting. As observed earlier, the object of levy of tax under section 115JB is that book profit ought to be computed as per Part-II and Part-III of the Schedule-VI. What other accounting treatment has been given by the assessee for the purpose of any other scheme is totally irrelevant, because SICA has no overriding effect on the Companies Act. It could be explained by simple example. Depreciation under the Companies Act can be claimed according to the straight-line method or as per WDV. But for the purpose of computation of income under the Income Tax Act, depreciation is to be worked out as per the WDV. The rate of depreciation under the Income Tax Act is h....