Income Tax Appellate Tribunal - Ahmedabad
N.K. Industries Ltd.,, Ahmedabad vs Assessee on 7 April, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'C' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.2131/Ahd/2012
With
CO No.196/Ahd/2012
AND
आयकर अपील सं./ ITA.No.2132/Ahd/2012
With
CO No.197/Ahd/2012
नधा रण वष /Asstt. Year: 2006-07 and 2007-08
ACIT, Cir.5 N.K. Industries
th
Ahmedabad. Vs 7 Floor, Popular House
Ashram Road
Ahmedabad.
PAN : AAACN 9376 P
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Revenue by : Smt.Vibha Bhalla, CIT-DR
Assessee by : Shri S.N. Soparkar
ु वाई क तार ख/ Date
सन of Hearing : 06/04/2016
घोषणा क तार ख / Date of Pronouncement: 07/04/2016
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER:
The Revenue is in appeal before us against separate orders of even dated i.e. 23.7.2012 passed by the ld.CIT(A)-XI, Ahmedabad for the Asstt.Years 2006-07 and 2007-08.
ITA No.2131/Ahd/2012 And 3 Others 2On receipt of notice in the Revenue's appeal, the assessee has filed Cross Objections bearing CO No.196 and 197/Ahd/2012 for the respective assessment years.
2. The ground no.2 is the substantial ground of appeal, which is identical for both the years. This projects grievance of the Revenue as under:
"ii) The ld.CIT(A) has erred in law and on facts in directing the AO to give benefit of unabsorbed depreciation of Rs.26,47,30,860/- for the A.Y.2006-07 and 2007-08 and recomputed the book profits as per the provisions of section 115JB of the Income Tax Act.
3. The ld.counsel for the assessee, at the very ought submitted that the issue in dispute is squarely covered in favour of the assessee by the order of the ITAT, Mumbai Bench in the case of Amline Textiles P.Ltd. Vs. ITO, 27 SOT 152. On the other hand, the ld.DR relied upon the order of the AO.
4. The facts on all vital points are common in both the years, therefore, for the sake of reference, we take up the facts from the Asstt.Year 2006-07. Brief facts of the case are that the assessee- company at the relevant time was engaged in crushing and processing castor seeds and edible oil. It has filed its return of income on 30.12.2006 declaring NIL income after setting off of unabsorbed depreciation of Rs.1,40,49,297/- against the current year profit under normal provisions and loss of Rs.21,12,16,663/- against the book profit of Rs.13,07,83,251/- under section 115JB of the Act. The case of the assessee was selected for scrutiny assessment, and notice under section ITA No.2131/Ahd/2012 And 3 Others 3 143(2) was issued and served upon the assessee. The ld.AO took note of loss suffered by the assessee starting from the Asstt.Year 1997-98 upto the Asstt.Year 2005-06. Similarly, he took note of depreciation starting from the Asstt.Year 1997-98 to 2005-06. He, thereafter, worked out the amount, whichever is lower, out of business loss as well as unabsorbed depreciation. The AO has worked the amounts available for set off to the assessee as per clause (iii) to Explanation 1 appended to section 115JB. The issue, which has been agitated before us that, whether clause (iii) of Explanation-1 to Section 115JB(2) refers to the year-wise consideration of the amounts brought forward loss or unabsorbed depreciation for the purpose of deduction from the net profit, as per the profit & loss account, or its aggregate amount of loss brought forward or unabsorbed depreciation as one composite figure. There is no dispute with regard to the proposition that Explanation (1)(h) clause (iii) of 115 JB contemplates exclusion of brought forward business loss or depreciation, whichever is lower, from the net book profit computed by the assessee for the purpose of tax required to be paid as per section 115JB. The AO also not disputed this proposition. In other words, the assessee was entitled to reduce the amount of book profit equivalent to the unabsorbed depreciation or business loss, whichever is lower. The dispute is whether the AO can examine each year brought forward loss or unabsorbed deprecation for reduction or he has to consider a consolidated figure available in the books of accounts, and then, whichever amount is lower, i.e. either business loss or depreciation, that amount is to be reduced from the book profit. According to the AO, each year has to be considered, whereas, according to the assessee, it is the aggregate amount of loss or brought forward unabsorbed ITA No.2131/Ahd/2012 And 3 Others 4 depreciation, whichever lower, is to be reduced. This controversy has been silenced by the ITAT in the case of Amline Textiles Pvt. Ltd. Vs. ITO (supra). The Tribunal has held that it is the aggregate amount of business loss or depreciation whichever is lower, is to be reduced from the book profit. The discussion made by the Tribunal is worth to note. It reads as under:
"8. Sec. 115JB is a special provision for payment of tax by certain companies. Sub-s. (1) contains the non obstante clause and provides that where the income-tax payable on the total income of a company as computed under this Act is less than 10 per cent of its book profit, then such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax @ 10 per cent Expln. 1 provides the mode of computing "book profit" by taking net profit as shown in the P&L a/c as its starting point to be increased by the items mentioned in cls. (a) to (h) debited to the P&L a/c and as reduced by the items specified in cls. (i) to (vii). At this stage it will be apt to consider the relevant part of this section as under :
"Explanation 1 : For the purposes of this section, 'book profit' means the net profit as shown in the P&L a/c for the relevant previous year prepared under sub-s. (2), as increased by--
(a) to (g) .................. ................. ....................
(h) if any amount referred to in cls. (a) to (h) is debited to the P&L a/c, and as reduced by--
(i) and (ii) ................. ................... .................
(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation : For the purposes of this clause,--
(a) the loss shall not include depreciation;ITA No.2131/Ahd/2012 And 3 Others 5
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil, or"
9. On going through the mandate of the above provision it transpires that having increased the amount of net profit as per P&L a/c in accordance with cls. (a) to (h), certain items are to be reduced which, inter alia include the amount of loss brought forward or the unabsorbed depreciation, whichever is less as per the books of account. The term 'loss' has been defined for the purposes of this clause as exclusive of the amount of depreciation.
10. Here it would be relevant to mention that s. 115J, the original predecessor of s. 115JB also has Explanation which provides the mechanism for computing the 'book profit'. Clause (iv) provides for the reduction of the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of s. 205 of the Companies Act, 1956 are applicable. There was controversy on the interpretation of term 'loss' in cl. (iv) of the Explanation as to whether the loss should be considered as before or after taking into account the amount of depreciation. The Hon'ble Supreme Court in the case of Surana Steels (P) Ltd. vs. Dy. CIT (1999) 153 CTR (SC) 193 : (1999) 237 ITR 777 (SC) held that the term 'loss' occurring in cl. (b) of first proviso to s. 205(1) of Companies Act has to be read as amount arrived at after taking into account the depreciation and accordingly the same was to be read and understood in the context of s. 115J also. Resultantly the term "loss" was understood as the amount arrived at after taking into account the depreciation. The legislature made its intention clear by providing in the successor sections that the loss shall not include depreciation, it is so provided in s. 115JA and the similar wording has been used in cl. (iii) of Expln. 1 to s. 115JB also, which is under consideration. Hence the judgment of the Hon'ble Supreme Court rendered in the case of Surana Steels (P) Ltd. (supra) is not relevant in the context of s. 115JB, which specifically states that the loss shall not include depreciation. The net effect of the position as it now exists is that while computing the amount of loss brought forward, the amount of depreciation is not to be considered. In other words, the loss for the purposes of s.
115JB has to be computed before depreciation.
ITA No.2131/Ahd/2012 And 3 Others 611. The basic rule of interpretation of the provisions is the 'strict rule', that is, follow what has been expressly stated in the provision and go by the plain language of the section. It is not permissible to import any thing into statutory provision and read what is not explicitly provided. The need for unearthing the real intention arises only when the language of the section is ambiguous, vague or uncertain. With this basic principle of interpretation on hand, we move on to examine the rival contentions made by the parties as to whether cl. (iii) it refers to consideration of year-wise separate figures of unabsorbed depreciation and loss brought forward or the composite figures.
12. Clause (iii) states that 'the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account' is to be reduced from the net profit. As per the plain language of this provision, it is noted that the word employed in the provision is the "amount" and not the "amounts" of loss brought forward or unabsorbed depreciation, whichever is less. The reference to the "amount of" brought forward loss or unabsorbed depreciation whichever is less shows the intention of the legislature for considering one consolidated figure of brought forward loss or unabsorbed depreciation for the earlier years in totality and not on year-to-year basis. The use of the word "amount" in singular conveys the aim of referring it to one figure. Wherever the legislature desired to use the word "amount" in plural, it specifically used the word "amounts" instead of the "amount" as can be seen from the heading of s. 40--'Amounts not deductible'. From here we can easily deduce that for the purposes of cl. (iii) of Expln. 1 the unabsorbed depreciation for ail the earlier years is to be clubbed into one amount; and the amount of brought forward loss (before depreciation) is also to be taken by summing up all the figures of loss of earlier years, and then the lower of these two amounts is to be reduced from the net profit as shown in the P&L a/c so as to comply with the prescription of cl.
(iii) of Expln. 1. Similar position is coming up from the pressing into service of the word 'loss' in this clause in contradistinction to the word 'losses', as has been done in the marginal notes to ss. 72, 73, 74, 74A and 75, etc. From here we gather that by using the words 'amount' and 'loss' in this clause, the point has been made ITA No.2131/Ahd/2012 And 3 Others 7 clear that it is a composite figure each of the unabsorbed depreciation and brought forward loss, that merits consideration.
13. Moving still further we find from the language of this clause that there is no reference to considering the brought forward loss or unabsorbed depreciation on year-to-year basis. There is nothing in the language of section, which could suggest, even remotely, that the legislature intended to consider year-wise figures. If it had desired like that, then it would have been so stated in unequivocal terms in the provision itself. In the absence of any specific mention in this regard in the clause, we are unable to infer such intendment. Since the language of the section is clear and does not admit of any doubt, we are not persuaded to interpret it in the way, the learned Departmental Representative impresses upon us to do.
14. The authorities below have concluded that year-wise determination of the amount of loss brought forward or unabsorbed depreciation is to be considered and if in a particular year--as in asst. yr. 2001-02 under consideration--there is no loss before depreciation, then the benefit of unabsorbed depreciation cannot be granted. In forming this opinion, assistance has been taken from the opening words of sub-s. (1) of s. 115JB as well as sub-s. (5) of this section. Sub-s. (1) starts with a non obstante clause : "Notwithstanding anything contained in any other provisions of this Act,........" and sub-s. (5) states that : "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section". It is on the strength of these two sub-sections that the learned CIT(A) has decided that all other provisions of the Act merit consideration in the determination of the book profit under s. 115JB and hence the provisions of ss. 71 to 73 will also apply and when so applied s. 72 serves as guiding light as per which the benefit of carry forward of business loss is limited to eight years. The case is made out that since the business loss can be carried forward only for eight years, and in the ninth year, the unabsorbed loss of the first year will cease to be available for set off, albeit for second to seventh years, it can still be carried forward, it automatically implies that the amount of loss has to be carried forward on year to year basis for the purposes of s. 115JB also ITA No.2131/Ahd/2012 And 3 Others 8 and hence it cannot be a single figure of loss for all the years. As all the provisions of the Act including s. 72 apply by virtue of sub- ss. (1) and (5) of s. 115JB, it has been opined that the unabsorbed depreciation and unabsorbed business loss are to be maintained year-wise.
15. We are not convinced with this line of thinking for the reason that what is contemplated by sub-ss. (1) and (5) is that the other provisions of the Act should be considered as in operation while giving effect to s. 115JB. Reference to "other provisions of this Act" clearly indicates that what is provided in s. 115JB should be religiously followed accordingly and anything over and above that will be subject to the other provisions of the Act. By no stretch of imagination can it be construed as substituting the other provisions of the Act in place of what is specifically made available in this section, insofar as the computation of book profit is concerned, the entire mechanism for its calculation is clearly set out in Expln. 1. Not only starting point being the net profit as shown in the P&L a/c but also all the amounts which are to be increased as stipulated in cls. (a) to (h) and those which are to be reduced as specified in cls. (i) to (vii) find separate mention in the scheme of the section itself. So the computation of 'book profit' is to be done strictly as per this Explanation and no assistance from any other section of the Act can be taken for that purpose. When cl. (iii) of Expln. 1 clearly states that 'the amount of loss brought forward or unabsorbed depreciation, which is less as per books of account' is liable to be reduced, in our considered opinion, there is no authority for falling upon the command of s. 72 for holding that the business loss is to be considered on year-to-year basis and not as an aggregate figure for all years in unison.
16. There is one more reason for not approving the view taken by the authorities below. Sec. 72(3) restricts the period to which the loss can be carried forward to not more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. As per this section if there is a brought forward loss which is more than eight years old, that has to be abandoned and only the brought forward loss of less than the prescribed period can be carried forward for set off against the business income. On the contrary there is no prohibition in s.
ITA No.2131/Ahd/2012 And 3 Others 9115JB as per which the amount of unabsorbed loss is to be discarded after the expiry of eight years from the year in which it was first computed. Even if loss is brought forward from 50 years back, that has also to be reckoned. To put it simply the amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as corning in the books of account irrespective of any rider for a particular number of years. We, therefore, hold that reference to the provisions of ss. 71 to 73 for arriving at the conclusion that s. 115JB refers to year-wise consideration of the loss brought forward or unabsorbed depreciation, is erroneous.
17. Now we turn to examine cl. (b) of Explanation to cl. (iii) of Expln. 1 to s. 115JB(2), which provides that 'the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil'. The learned CIT(A) has relied on this provision for upholding the action of the AO that since the loss before depreciation for asst. yr. 2001-02 is nil, hence no deduction is permissible for this year. A bare perusal of this provision brings out the intention of the legislature in not allowing the reduction of the subject-matter of cl. (iii) for the purposes of computing 'book profit', if the amount of unabsorbed depreciation of brought forward loss is nil. In other words it has been provided that the reduction is not to be permitted if one of these two figures namely, loss brought forward or unabsorbed depreciation, is nil. To put it simply if one of these two figures is nil, then the other figure will be ignored altogether. The rationale behind this portion of enactment is not to unnecessarily allow the reduction of one, if the other is not there. Since the loss is to be considered before depreciation and if there is brought forward loss only, but no corresponding unabsorbed depreciation or vice versa, then no reduction is to be made of the amount of brought forward loss or unabsorbed depreciation, as the case may be. In the earlier part of the order we have held that if there is loss brought forward and unabsorbed depreciation for more than one year, then one combined figure each of unabsorbed depreciation and brought forward loss for such years is to be determined for consideration. Adverting to the facts of our case, we find that none of the figures of unabsorbed depreciation or brought forward loss is nil, hence this part of the Explanation is not relevant for our purpose.
ITA No.2131/Ahd/2012 And 3 Others 1018. In view of the foregoing discussion we are of the considered opinion that the lower of the solitary figures of the unabsorbed depreciation or loss brought forward for all the earlier years taken together, is to be reduced for the purposes of computing "book profit" under s. 115JB. As the aggregate amount of unabsorbed depreciation in respect of the four years is at Rs. 1,51,15,393 which is lower than the aggregate of the loss before depreciation at Rs. 2,40,75,717, in our considered opinion, the assessee had rightly claimed reduction for the lower amount of Rs. 1.51 crores. We, therefore, accept the assessee's contention on this point.
19. In the result, the appeal is allowed."
5. The ld.CIT() has followed this decision of the Tribunal, but, further observed that in the Asstt.Years 2002-03, 2004-05 and 2005-06, the assessee was not having unabsorbed depreciation, which could be accumulated or aggregated for the purpose of exclusion, because, in these years, business loss was lesser than the depreciation. He excluded these three amounts by observing as under:
"3.7 Perusal of the working of unabsorbed depreciation as computed by the appellant and reproduced in para no.3.3 of this order, the appellant had computed the eligible unabsorbed depreciation at Rs.32,65,78,659/- to be set off against book profits for the purposes of 115JB computation. This is nothing but the aggregate of book depreciation for the A.Yrs 97-98 to 2005-06. In my considered view, this working is also erroneous. Provisions of clause-(iii) of explanation 1 to sec.115JB(2) does not provide benefit of aggregate of book depreciation. On the contrary it provides for the amounts of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. In the instant case it is noticed that in the A.Yrs 2002-03, 2004-05 and 2005-06 the appellant has earned a business profit after making provisions of book depreciation. This clearly means that in these years the appellant does not have any unabsorbed depreciation as the same has already been adjusted against the business profit of that year. In this regard it will be pertinent to mention that the ITA No.2131/Ahd/2012 And 3 Others 11 Hon'ble ITAT in the case of Amline Textiles Pvt. Ltd. (supra) has not discussed such situation and the Hon'ble ITAT has not prescribed the computation of unabsorbed depreciation/cash loss in such situation. In my considered view the appellant's case is not covered by the ratio of Amline Textiles Pvt. Ltd. to this extent. In view of above I hold that the. appellant is not having unabsorbed depreciation for the A.Yrs 2002-03, 2004-05 and 2005-06. If the unabsorbed depreciation for these three years is taken out from the aggregate of unabsorbed book depreciation as worked out by the appellant, the eligible unabsorbed depreciation to be set off against the book profits for the computation of profits u/s.115JB will be Rs.26,47,30,860/- [32,65,78,659 - 2,51,36,262 - 1,95,43,321 1,71,68,216]. The A.O. is directed to give benefit of unabsorbed depreciation of Rs. 26,47,30,860/-,for the A.Y.2006-07 & 2007-08 and recomputed the book profits as per the provisions of sec.115JB of the I.T.Act for these years. This will be strictly conformity with the ratio of Amline Textile Pvt.Ltd. Vs. ITO, 27 SOT 152 (Mum.). The ratio of this case has been consistently followed by the Hon'ble Ahmedabad ITAT also.
4. As a result the appeal is partly allowed."
6. The assessee has challenged this part of the CIT(A)'s order in its CO. But at the time of hearing, the ld.counsel for the assessee did not press the CO, therefore, we do not deem it necessary to deal this finding of the CIT(A). The rest of the finding of the CIT(A) is in line with the Tribunal's order passed in the Amline Textiles P.Ltd.(supra). The ld.First Appellate Authority has rightly placed reliance upon the order of the ITAT and has rightly held that the aggregate of business loss or depreciation, whichever lower is to be considered for reduction out of the book profit. In view of the above discussion, we do not find any merit in the appeals of the Revenue - both are dismissed.
ITA No.2131/Ahd/2012 And 3 Others 12Similarly, the assessee did not press COs., therefore, both the COs. are also dismissed.
7. In the result, the appeals of the Revenue are dismissed and both the COs. of the assessee are also dismissed.
Order pronounced in the Court on 7th April, 2016 at Ahmedabad.
Sd/- Sd/- (N.K. BILLAIYA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER