IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN TUESDAY, THE 6TH JANUARY 2009 / 16TH POUSHA 1930 ITA.No. 120 of 2007() --------------------- ITA.1280/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- M/S. STEEL AND INDUSTRIAL FORGINGS LTD., ATHANI, MULANGUNNATHUKAVU, TRICHUR, REPRESENTED BY ITS MANAGING DIRECTOR, SRI. K.SHAMSUDDIN. BY ADV. SRI.K.VINOD CHANDRAN RESPONDENT: -------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I (1), TRICHUR. ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 06/01/2009 ALONG WITH ITA No.117/2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & P.N.RAVINDRAN, JJ. ====================================== I.T.A.Nos.117 & 120 of 2007 ====================================== Dated this the 6th day of January 2009 JUDGMENT Ramachandran Nair, J. The two appeals filed by the assessee which is a Government of Kerala undertaking pertain to assessment for the years 1998-1999 and 1999-2000. The total income computed under the provisions of the Income Tax Act for both assessment years was less than 30% of the book profit and therefore the assessment for these years is under Section 115-JA of the Income Tax Act. In the course of computation of book profit for assessment under Section 115-JA, the assessee claimed deduction of unabsorbed depreciation of Rs.42,53,591/- which was lower than the brought forward business loss. In support of their claim, the assessee filed calculation statement, produced as Annexure-B. It is seen that against the income determined for 1995-1996, the assessee claimed set off of carry forward business loss and depreciation together from the assessment years 1985-1986 onwards. After absorbing carry forward business loss and depreciation against the income for the assessment year 1995-1996, the assessee was still left with unabsorbed business loss and depreciation for the assessment year 1996-1997. After setting off the unabsorbed business loss and depreciation against ITA No.120 of 2007 2 the income for 1996-1997, the assessee has worked out the carry forward business loss available for 1997-1998 as Rs.2,51,00,559/-. The deduction claimed in the computation of book profit for the assessment year 1998-1999 is lower between these two figures in terms of explanation-iii to Section 115-JA of the Act. However, the Assessing Officer noticed that the statement of the claim prepared by the assessee was in deviation from the provisions of the Income Tax Act in as much as the carry forward business loss was first set off against the profit. The assessee combined the business loss with the depreciation and set off both together and brought forward a combined figure of loss and again desected it for the purpose of claiming relief for the last assessment year i.e.1997-1998. Consequently the Assessing Officer declined deduction of unabsorbed depreciation claimed for both the years. The appeals in two stages were unsuccessful and the assessee has filed these appeals under Section 260A of the Income Tax Act. 2. We have heard the learned Senior Counsel Sri.Sarangan appearing for the assessee and the learned Senior Standing Counsel Sri.P.K.R.Menon appearing for the respondents. 3. Even though the assessee has raised several questions of law for the decision of this Court, the only issue to be considered is whether the deduction claimed in the computation of book profit should be the lower amount of the brought forward business loss in terms of the provisions ITA No.120 of 2007 3 of the Income Tax Act or whether it is in the way claimed by the assessee under Annexure-B. The learned senior counsel appearing for the assessee has relied on the decision of the Supreme Court in Appollo Tyres v CIT reported in 255 ITR 273 and contended that the assessing officer cannot deviate from the figures available in the books of account of the assessee. The learned senior counsel appearing for the Revenue has relied on the decision of the Supreme Court in Rashtriya Ispat Nigam Ltd., Inre (285 ITR page 1 (AAR) and contended that the officer was right in declining the relief because after setting off the unabsorbed carry forward business loss against the income for preceding year, the assessee was left with no business loss and so much so clause (b) of Explanation to Sub Section (iii) of Section 115 JA (1) has no application. In order to appreciate the contention, we have to refer to the law and provisions contained in Section 115 (JA). The relevant portion of Section 115JA (1) is extracted hereunder. (1) Notwithstanding anything contained in any other......................................... Explanation- For the purposes of this section “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub section (2) as increased by- ITA No.120 of 2007 4 a) the amount of income tax paid or payable, and the provision therefore; or b) the amounts carried to any reserves by whatever name called; or c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or d) the amount by way of provision for losses of subsidiary companies; or e) the amount or amounts of dividends paid or proposed; or f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies: If any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,-- i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account; .................................................................... ................................................................... 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; b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] ................................................................ ............................................................ ITA No.120 of 2007 5 4. From the above, it is clear that the procedure to be followed by the Assessing Officer is computation of total income under the provisions of the Income Tax Act and then compare the same with 30% of the Book Profit based on the books of account prepared by the assessee in terms of Schedule-6 of the Companies Act and if it is found that the total income computed by the officer is less than 30% of the book profit, then the assessing officer has to initiate proceedings for assessment under Section 115-JA of the Act. The explanation to Section 115-JA (1) provides for certain adjustments by way of additions and deductions to the book profit. The additions under clause-f of Explanation to Section 115JA (1) is applicable only if any of the amounts referred to therein is debited to the profit and loss account. After adjusting the book profit with the additions, if any made, deductions are provided under Sub Clause (i) to (ix) to the explanation. The controversy pertains to the deduction from book profit and unabsorbed business loss claimed under sub clause-iii. The assessee's case is that they are entitled to combine unabsorbed depreciation and business loss and set off the same against the profit for earlier years and then carry over the figure to the succeeding years for further setting off in the same manner and then to claim benefit under clause -iii by bifurcating the last figure between brought forward business loss and unabsorbed depreciation. Department's case on the other hand ITA No.120 of 2007 6 is that in terms of Section 72(2) of the Act, carry forward business loss is first set off against the profit and only if there is profit left out, there is scope for adjustment of depreciation against the same and as long as depreciation is not set out for any year after setting off complete business loss, the depreciation will be carried to the next year. In other words, the carry forward depreciation and unabsorbed business loss should be separately taken from income tax assessments completed for the earlier years. We are inclined to uphold the order of the Income Tax Appellate Tribunal for more than one reason. In the first place under the explanation contained in sub clause iii of Section 115JA which is substituted by the Finance Act, 2002 with retrospective effect from 1.4.1997, the loss shall not include depreciation. It is further stated in clause-(b) of the explanation to sub section (iii) that the relief under the sub section shall not be available, if there is no unabsorbed depreciation or brought forward loss. In other words, in order to get the benefit of Section 115JA, the assessee must have brought forward business loss and unabsorbed depreciation and the amount for deduction is the lowest of these two amounts. As pointed out by the assessee's counsel, the amount of loss brought forward or unabsorbed depreciation has to be taken as per books or books of account of the assessee which as defined under Section 2(12A) includes ledgers, day books, cash books, account books and other books whether kept in the written form or as ITA No.120 of 2007 7 print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device. The question to be considered is whether the books of account referred to in sub clause -iii are the only one referred to in the definition or whether it is to be taken from the statement of claim made before the assessing authority for the purpose of previous assessments. It is conceded that the assessee has worked out the figures placed in the previous years' income tax assessments. More over, brought forward business loss and unabsorbed depreciation can only refer to the carry forward business loss and depreciation for setting off against the income for the subsequent years in terms of Section 72 of the Income Tax Act. It is to be noted that Section 72(3) disentitles the assessee from carrying business loss beyond eight assessment years. However, the assessee is entitled to carry forward unabsorbed depreciation for setting off the income for an indefinite period. Section 72(2) provides that first set off shall be carry forward business loss against the profit for an year and set off of depreciation against profit arises only if any profit is left after setting off first the carry forward business loss. In this case, it is the conceded position that if the assessee had set off the brought forward business loss first against profit, the assessee would not have been left with carry forward business loss for setting off against the income for the assessment year 1998- 1999. In other words, the assessee would have only unabsorbed ITA No.120 of 2007 8 depreciation carried forward to the year 1999-2000, if set off was made in terms of the provisions contained in Section 72 of the Act. On the other hand, the assessee made their own claim of carry forward and set off of business loss and depreciation by combining both together which is contrary to the other provisions of the Act and the same is turned down by the Assessing Officer. We, therefore, uphold the finding of the Appellate Tribunal and hold that the brought forward business loss and unabsorbed depreciation referred to in sub clause- iii are carry forward business loss and unabsorbed depreciation as visualised under Section 72 of the Income Tax Act and there is no scope for an assessee making revised computation contrary to the income tax assessments for the preceding years. The question raised is therefore answered in favour of the department and consequently we dismiss the assessee's appeals. C.N.RAMACHANDRAN NAIR, JUDGE P.N.RAVINDRAN, JUDGE css/