The computation of book profit under section 115JB is a complicated and vexed issue with diverse interpretations possible on various issues. These issues need to be clarified to reduce litigation before the appellate authorities, which is one of the aims of the Government.

The issues in question are as under:

i. Meaning of the terms “loss brought forward or unabsorbed depreciation” and “as per books of accounts – i.e. whether the intention is to prepare a separate computation for the purposes of computing brought forward losses, as explained in Circular 495 (dated 22 September 1987) which was in the context of section 115J of the Act.

ii. The point of time at which loss or unabsorbed depreciation should be considered– whether at the end of the previous year or at the end of the relevant previous year in which the loss or unabsorbed depreciation arose?

iii. Is book loss of a year to be set-off against profits of earlier years?

iv. If book loss of a year is set-off against reserves, will it be available for set-off?

v. Is the book loss of an amalgamating entity eligible for set-off by the amalgamated entity?

vi. Whether the brought forward loss and unabsorbed depreciation is to be aggregated separately first and then these aggregates are to be compared to determine which one is lower?


Most of the above questions are directly or indirectly answered by Circular 495. It should be clarified that the said Circular should be applicable to section 115JB as well.

For issues which are not covered by the said Circular, clarifications should be made to  explain the legislative intent.

Source- ICAI Pre- Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021