Lower of unabsorbed depreciation and business loss allowed as set off against current book profit

PVR Pictures Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that lower of unabsorbed depreciation and business loss deserved to be set off against the current year books profit in terms of provisions of clause (iii) of Explanation-1 to Section 115JB (2) of the Income Tax Act.

Facts- The assessee reiterated adjustment of carried forward business loss or unabsorbed depreciation whichever is lower, against ‘Book Profit’ for the purposes of Section 115JB of the Act. The CIT(A) observed that the assessee is not entitled to such adjustment in the facts of the case.

Aggrieved by the denial of relief, the assessee preferred appeal before Tribunal. The adjustment of Book profit under by Section 115JB by lower of business loss and unabsorbed depreciation is in issue.

Conclusion- Held that the assessee has correctly considered the figure of unabsorbed depreciation for Financial Year 2010-11 at Rs.22,18,04,962/- in its working which portion has remained unabsorbed against the existing book profits of that year. The CIT(A) in our view, has wrongly considered the entire depreciation allowance of Rs.39,38,03,227/- instead of restricting itself to the unabsorbed component. The figure of Rs.39,38,03,227/- considered by the CIT(A) is total depreciation allowance instead of unabsorbed depreciation and thus the position taken by the CIT(A) is contrary to the phraseology of clause (iii) of Explanation-1 to Section 115JB(2). To reiterate clause (iii) of Explanation-1 to Section 115JB(2) uses the expression ‘unabsorbed depreciation’ which has distinct connotations vis-à-vis total depreciation. We thus find merit in the plea of the assessee in justification of the computation of adjustment available to it against the book profit. In this view of the matter, the claim of the assessee of Rs.93,06,502/- being lower of unabsorbed depreciation and business loss deserves to be set off against the current year book profit in terms of the provisions of clause (iii) of Explanation-1 of Section 115JB(2) of the Act.

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