The Amount Which Is Lower Of Unabsorbed Depreciation And Business Loss Will Be Set-Off Against Book Profits: ITAT

The two-member bench of Pradip Kumar Kedia (Accountant Member) And Yogesh Kumar Us (Judicial Member) has held that in accordance with the requirements of paragraph (iii) of Explanation-1 of Section 115JB (2) of the Act, the assessee's claim of Rs.93,06,502/-, which is lower of unabsorbed depreciation and business loss, deserves to be written against the current year book profit.

In this case, the assessee files its Income Tax Return (ITR) under applicable provisions of IT Act, in accordance to which it calculated its book profits as Nil u/s 115JB of IT Act. In course of assessment proceedings, the book profit was re-calculated at Rs. 1.10 cr. and tax liability was calculated on it. The assessee maintained in the first appeal that it is allowed to adjust the book profit by bringing forward loss or depreciation as per books of account, whichever is lower, under clause (iii) of Explanation-1 to Section 115JB (2) of the Act. The Commissioner of Income Tax (Appeals) (CIT(A)) observed against such fact stating that assessee is not entitle to such claim. The CIT(A) contended that it is evident from filings of assessee that for AY 2010-11 the assessee has adjusted business loss before depreciation against book profits for AY 2010-11. For the next A.Y. of 2011-12 the assessee has not set-off the brought forward loss of previous year against the book profits of A.Y. 2011-12. The CIT (A) observed that Explanation 1 to clause (ii) of S. 115JB (2) of IT act does not posit that position of loss or unabsorbed depreciation has to be considered on year-to-year basis. If there is a loss after depreciation but a profit after removing depreciation in a fiscal year, that profit must be aggregated and set off against the carried forward losses, and the consequent loss will be available to the assessee for the next year. The CIT (A) held that assessee is not entitled to claim set-off of accumulated depreciations as the loss of A.Y. 2010-11 will get absorbed in book profits of A.Y. 2011-12 which leads a nil loss in the assessment year under deliberation.

The Tribunal held that CIT (A) has wrongly considered the entire depreciation allowance of Rs. 39.38 cr. instead of limiting it to unabsorbed depreciation for A.Y. 2011-12. Hence, position taken by CIT (A) is against clause (iii) of Explanation-1 to Section 115JB (2) of the IT Act. The Tribunal emphasized the fact that under clause (iii) of Explanation-1 to Section 115JB (2) of the IT Act the connotation of ‘unabsorbed depreciation’ is different from ‘total depreciation’. The tribunal observed that the use of the phrase "unabsorbed depreciation" instead of the word "depreciation" reflects the Legislature's clear intent that if there is some standalone book profit in any previous year, depreciation for that year is modified to the extent of the profit available, and any balance unabsorbed depreciation should be taken only for the application of adjustment under Section 115JB.

In the end, the Tribunal adjudicated that the assertion of assessee of Rs. 93,06,502, being lower of unabsorbed depreciation and business loss deserves to be set off against the book profits for A.Y. 2012-13 in terms of the provisions of clause (iii) of Explanation-1 of Section 115JB (2) of the Act.

Case title: M/s PVR Pictures Ltd. v. Dy. CIT, Circle 19(2), New Delhi.

Citation: I.T.A. No.3843/DEL/2017.

Date: 10.03.2023.

Counsel for Appellant: V.K. Garg and Parveen Kumar.

Counsel for Respondents: Ms. Beenu.

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