Sungroup Enterprises (P) Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that as per the MAT provisions of section 115JB of the Income Tax Act the lower of book losses or unabsorbed depreciation can be set off against book profits. Accordingly, order of CIT(A) upheld and appeal of assessee dismissed.

Facts- The assessee is engaged in the business of providing investment advisory/management consultancy services to its clients. The case was selected for scrutiny and assessment u/s. 147 of the Income-tax Act, 1961 read with section 143(3) was completed by the AO on 30.12.2017 assessing the deemed total income at Rs.85,75,056/- u/s 115JB of the Act by making the total adjustment of brought forward losses and unabsorbed depreciation. CIT(A) partly allowed the appeal of the assessee. However, being aggrieved, assessee has preferred the present appeal.

Conclusion- ITAT, Ahmedabad Bench in the case of M/s. Milan Intermediates LLP vs. ITO ITA No.209/Ahd./2018 dated 26.07.2018 and the issue raised before them was relating to determining the quantum of brought forward unabsorbed loss and unabsorbed depreciation eligible for reduction from the profits in the tax computation u/s 115JB and it was held that the tax payer had not option to choose that profits or preceding years would first be adjusted against the brought forward business loss and lastly, against the unabsorbed depreciation. In this regard, it was held that if the lower of two happens to be unabsorbed depreciation, the profit should have been reduced from the unabsorbed depreciation and not from the unabsorbed loss.

Held that CIT (A) has recalculated the allowable loss as unabsorbed depreciation or unabsorbed business loss in his order. After considering the findings of ld. CIT (A) in detail, we find that ld. CIT (A) has rightly applied the provisions of section 115JB and decision of ITAT, Ahmedabad Bench in letter and spirit and the same view was also expressed in the decision in Amline Textiles (P) Ltd.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal has been filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-8, New Delhi dated 20.04.2019 for the Assessment Year 2015-16 raising the following grounds of appeal:-

“1.1 That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) was wrong on facts and in law in confirming the action of the learned assessing officer in issuing notice under section 148 of the Income tax Act. 1961 and in reopening of the assessment.

1.2 That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) erred on facts and in law in holding that the assessee company can’t object to issuance of notice under section 148 of the Act allegedly because the assessee had during assessment proceedings not objected to the proceedings under section 148 and that no objections were raised during assessment proceedings regarding assumption of jurisdiction by the learned assessing officer.

2. That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) erred in law in confirming the action of the learned assessing officer wherein he stated that, in terms of section 115JB of the Act, setting off of current year’s income against losses brought forward or unabsorbed depreciation can’t be done at the choice of the assessee company in a manner more beneficial to it.

3. That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) erred on facts and in law in computing figures of past years book profits / losses / depreciation as required in terms of section 115JB of the Act, at figures as mentioned in page 7 of the appellate order, contrary to the figures as mentioned in respective financial statements of the assessee company.

4. That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) erred on facts and in law in computing the figures of carry forward of unabsorbed business losses and unabsorbed depreciation in terms of section 115JB of the Act as at 31.03.2012 at Rs. 36,67,71,690 and Rs. 1,41,34,586 respectively as mentioned in page 7 of the appellate order as against the figures of Rs.37,94,71,056 and Rs.3,60,85,717 respectively carried forward by the assessee company.

5. That on the facts and in the circumstances of the assessee company’s case the learned Commissioner of Income tax (Appeals) erred in law in not passing a speaking order on the issue of carry forward of MAT Credit in terms of section 115JAA of the Act restricted by the learned assessing officer at Rs.15,86,387 being the amount of tax on total income computed by him in terms of section 115JB excluding the amount of Surcharge and Cess thereon to be paid on the amount of tax of Rs.15,86,387/-.”

2. Grounds No.1.1 & 1.2 are not pressed and Grounds No.2, 3 & 4 are raised on single issue of adjustment of carry forward of business loss/depreciation loss. Ground No.5 is consequential in nature linked with the grounds no.2, 3 & 4.

3. The relevant facts relating to Grounds No.2, 3 & 4 are, assessee filed its return of income on 30.11.2012 for AY 2012-13 declaring total income of Nil. The assessee is engaged in the business of providing investment advisory/management consultancy services to its clients. The case was selected for scrutiny and assessment under section 147 of the Income-tax Act, 1961 (for short ‘the Act’) read with section 143(3) was completed by the AO on 30.12.2017 assessing the deemed total income at Rs.85,75,056/- u/s 115JB of the Act by making the total adjustment of brought forward losses and unabsorbed depreciation.

4. Aggrieved with the proposed addition of Rs.57,20,752/- passed by the AO in reassessment proceedings, assessee filed an appeal before the ld. CIT (A)-8, New Delhi. The main issue raised by the assessee before ld. CIT (A) that as per the provisions of section 115JB of the Act, the lower of book losses or unabsorbed depreciation can be set off. The lower of the two figures has to be arrived at after calculating the profits for each year separately. The assessee has calculated the adjustment of set off of losses u/s 115JB as under :-

5. During assessment proceedings, the AO rejected the same and proceeded to make adjustment to book profit as under :-

6. After considering both method of calculation, ld. CIT (A) observed that assessee started with the approach of aggregating the carry forward of both business losses and unabsorbed depreciation simultaneously from year to year in the initial years when there were losses. He observed that the assessee continued to follow the same method even for the FY 2005-06 when it reported a net profit of Rs.8,72,927/- and on which MAT provisions u/s 115JB were applicable. He observed that there is no doubt that since the aggregate of both the carry forward unabsorbed depreciation was lower, it was to be set off fully against the book profits of this assessment year itself. In the immediately succeeding FY 2006-07, assessee again reported a net profit of Rs.30,92,139/- and on which MAT provisions u/s 115JB once again applicable. Since the aggregate of brought forward unabsorbed depreciation of Rs.16,96,511/-was lower of the two relevant figures, it was to be reduced from the net profit to arrive at the adjusted book profit of Rs.13,96,628/- to be subjected to MAT u/s 115JB in that year. However, the procedure for computing carry forward aggregate balances of business loss and unabsorbed depreciation does not end here. This figure of adjusted book profit of Rs.13,96,628/- is to be set off against the aggregate of brought forward business loss as on 01.04.2006 to arrive at the correct figure of aggregate carried forward business loss as on 31.03.2007 because unless it is so done, the claim of brought forward business loss or unabsorbed depreciation would go on till perpetuity and it is not in consonance with the basic accounting principles and practices to carrying forward of losses in the books of account. With the above observation, ld. CIT (A) relying on the decision of Amline Textiles (P) Ltd. vs. ITO vs. ITO (2009) 27 SOT 0159 (Mum.) and Rashtriya Ispat Nigam Ltd. AAR No.652 of 2004 dated 19.07.2006 reworked the calculation u/s 115JB as under :-

7. And accordingly, he allowed set off of Rs.1,42,77,125/- out of brought forward unabsorbed depreciation should be reduced from the book profit of Rs.142,77,125 for the year under consideration and thus the adjusted book profit for the purpose of MAT u/s 115JB comes to NIL and the addition of Rs.57,20,752/- made to the adjusted book profit under MAT u/s 115JB by the AO is deleted. Accordingly, the appeal filed by the assessee is partly allowed by the ld. CIT (A).

8. Aggrieved against the abovesaid order, assessee is in appeal before us.

9. At the time of hearing, ld. AR of the assessee submitted that the issue under consideration is adjustment of business loss carried forward. He brought to our notice the relevant facts and findings of ld. CIT (A). He submitted that the issue under consideration is covered in favour of the assessee and relied on the following decisions :-

(i) CIT vs. Eli Lilly and Co. India Pvt. Ltd. 334 ITR 186 (Delhi); and

(ii) CIT vs. Sumi Motherson Innovative Engineering Ltd.

10. On the other hand, ld. DR of the Revenue brought to our notice findings of the ld. CIT (A) and submitted that the table contains the adjustment proposed by the ld. CIT (A) is proper and relied on the case laws relied by the ld. IT (A) in his order i.e. Amline Textiles (P) Ltd. vs. ITO (2009) 27 SOT 0152 (Mum.) and Rashtriya Ispat Nigam Ltd. dated 19.07.2006 in AAR No.652 of 2004.

11. Considered the rival submissions and material placed on record. We observed that the issue under consideration is relating to calculation of book profit u/s 115JB as per Explanation 1(iii) i.e. amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account and as per the Explanation 2 of above clause, it is stated that (a) loss shall not include depreciation that means business loss and depreciation has to be segregated; and (b) provision of this clause shall not apply if that brought forward of business loss or unabsorbed loss is nil. In that case there will be nil adjustment to the book profit.

12. We observed that this issue was matter of challenge before ITAT, Ahmedabad Bench in the case of M/s. Milan Intermediates LLP vs. ITO ITA No.209/Ahd./2018 dated 26.07.2018 and the issue raised before them was relating to determining the quantum of brought forward unabsorbed loss and unabsorbed depreciation eligible for reduction from the profits in the tax computation u/s 115JB and it was held that the tax payer had not option to choose that profits or preceding years would first be adjusted against the brought forward business loss and lastly, against the unabsorbed depreciation. In this regard, it was held that if the lower of two happens to be unabsorbed depreciation, the profit should have been reduced from the unabsorbed depreciation and not from the unabsorbed loss.

13. We observed that the ld. CIT (A) has recalculated the allowable loss as unabsorbed depreciation or unabsorbed business loss in his order which was reproduced at page 6 of this order. After considering the findings of ld. CIT (A) in detail, we find that ld. CIT (A) has rightly applied the provisions of section 115JB and decision of ITAT, Ahmedabad Bench in letter and spirit and the same view was also expressed in the decision in Amline Textiles (P) Ltd.

14. On the other hand, ld. AR brought to our notice two decisions of Hon’ble Delhi High Court in the case of Sumi Motherson Innovative Engineering Ltd. (supra) wherein the Hon’ble High Court has decided the issue in which assessee had accumulated book profits to the tune of Rs.34.67 crores and during the year, the assessee had reduced its share capital so as to wipe out the accumulated losses by passing a proper resolution in the Board. Assessee tried to adjust the carry forward of loss while determining the book profit which was denied by the Assessing Officer. In this aspect, Hon’ble Delhi High Court held that the unabsorbed losses have to be considered from the Balance Sheet of previous year i.e. opening carry forward of loss for the current assessment year under consideration. In that process, they held that the loss on the last date of immediately preceding year, which is to be brought forward to the financial year in question, clause (iii) provides for the amount of brought forward. Therefore, the facts and decision given by Hon’ble Delhi High Court is peculiar to its case and the facts in the present case are quite different. The issue under consideration is in case of profit in the current financial year, the abovesaid profit can be adjusted against the carry forward business loss or brought forward unabsorbed depreciation. As per the clause (iii) of Explanation 2 of section 115JB, the loss carry forward of business loss or unabsorbed depreciation whichever is nil, no adjustment can be made in the book profit. In case when the assessee adjust the unabsorbed depreciation or unabsorbed depreciation whichever is lower against the profit declared during the current financial year, the relevant profit has to be adjusted against the business loss or unabsorbed depreciation whichever is lower, as held by ITAT, Ahmedabad Bench in the case of M/s. Milan Intermediates LLP (supra).

15. Coming to the decision of Eli Lilly and Co. India Pvt. Ltd. (supra), Hon’ble Delhi High Court on the issue of rectification u/s 154 of the Act held that the provisions of section 154 cannot be initiated when the assessment is already completed and on a debatable issue. Therefore, this case also is distinguishable to the facts of the present case.

16. Considering the overall facts on record, in our considered view, the findings given in the order of ld. CIT (A) is just and proper. Therefore, we are inclined to dismiss the grounds raised by the assessee.

17. In the result, the appeal filed by the assessee is dismissed.

Order pronounced in the open court on this 12^th day of February, 2025.