ACIT CIRCLE 1, ERODE V. SKM EGG PRODUCTS EXPORT (I) LTD., ERODE

ITA 1708/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3087 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 30-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 115JB; 195; 113; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO: 1708/CHNY/2019 / ASSESSMENT YEAR : 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1, NO. 15, GANDHIJI ROAD, ERODE 638 001. VS. M/S. SKM EGG PRODUCTS EXPORT (I) LTD., NO. 185, CHENNIMALAI ROAD, ERODE 638 001. [PAN:AACCS 7106G] ( / APPELLANT) ( / RESPONDENT) '( / APPELLANT BY : SHRI. G. JOHNSON, ADDL. CIT +,'( / RESPONDENT BY : SHRI. G. BASKAR, ADVOCATE ( /DATE OF HEARING : 18.03.2021 ( /DATE OF PRONOUNCEMENT : 15.06.2021 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE IN ITA NO. 201/ 17-18 DATED 11.03.2019 FOR THE ASSESSMENT YEAR 2014-15. :-2-: ITA NO: 1708/CHNY/2018 2. M/S. SKM EGG PRODUCTS EXPORT (I) LTD., THE A SSESSEE , IS THE MANUFACTURER AND EXPORTER OF EGG PRODUCTS AND RUNNING POULTRY FA RM. IT FILED ITS E-RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 27.10.201 4 AFTER CLAIMING SET-OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION UNDER THE NORMAL PROVISIONS OF INCOME -TAX COMPUTATION AS WELL AS UNDER MAT PRO VISIONS. WHILE DOING THE ASSESSMENT, THE A O COMPLETELY REJECTED THE ASSES SEES MAT WORKINGS ON THE GROUND THAT THE ASSESSEES BOOK PROFIT DURING THE Y EAR WAS AT RS.9,93,85,557/- AND THAT AS PER BOOKS OF ACCOUNT THERE IS NO BROUG HT FORWARD BUSINESS LOSS / UNABSORBED DEPRECIATION AND THE LOSSES AS PER BOO KS OF AYS 2011-12 &2012-13 GOT ABSORBED AGAINST THE SURPLUS BROUGHT FORWARD FR OM THE EARLIER YEARS AND THUS, IN EFFECT THERE REMAINS NO BROUGHT FORWARD B USINESS LOSS / UNABSORBED DEPRECIATION FOR SETTING OFF AGAINST THE CURRENT AS SESSMENT YEARS BOOK PROFIT AND HENCE THE AO DETERMINED THE INCOME UNDER SEC.115JB AT RS.9,93,85,557/- AND COMPLETED THE ASSESSMENT . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE LD CIT(A) DELETED THE ADDITION, INT ER ALIA, FOR THE FOLLOWING REASONS. I. THE STAND TAKEN BY THE AO THAT UNLESS THERE IS A DEBIT BALANCE IN THE P&L ACCOUNT, THE ASSESSEE CANNOT BE ALLOWED THE BEN EFIT OF CLAUSE (III) EXPLANATION TO SEC.115(JB)(2) IS INCORRECT. II. THE LOSS OR UNABSORBED DEPRECIATION OF ONE YEAR CAN BE SET OFF AGAINST THE PROFIT OF SUBSEQUENT YEAR ONLY AND TILL SUCH SE T OFF, THE AMOUNTS ARE CARRIED FORWARD OR BROUGHT FORWARD IN THE SUBSEQUENT YEAR F ROM EARLIER YEAR AND ARE AVAILABLE FOR SET OFF AS PER PROVISIONS. :-3-: ITA NO: 1708/CHNY/2018 III. IT IS INCORRECT TO PROPOSE TO SET OFF LOSSES O F THE YEAR AGAINST PROFITS OF PRECEDING YEARS. IN THIS REGARD, THE LEARNED CIT (A ) DREW SUPPORT FROM THE FOLLOWING DECISIONS. A. PRITHVI SOFTECH LTD. VS. CIT-ILL, CHENNAI TA N O.797/MDS/2010 B. CIT VS SUMI MOTHERSON INNOVATIVE ENGINEERING LTD . (ITA NO.863 OF 2009, DELHI HC 195 TAXMAN 353). 3. AGGRIEVED AGAINST THE ORDER OF THE LD CIT (A), T HE REVENUE FILED THIS APPEAL WITH FOLLOWING GROUNDS OF APPEAL. 1) THE ORDER OF THE LEARNED CIT(A) IS NOT ACCEPTABL E ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) THE LEARNED CIT(A) HAS ERRED IN ALLOWING BROUGHT FORWARD DEPRECIATION LOSSES TO BE SET OFF AGAINST THE BOOK PROFIT OF RS. 9,93,85,557/- WHILE WORKING OUT INCOME U/S 115JB ( OF THE ACT THEREBY REDUCING THE INCOME U/S 115JB TO NIL. 3) THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THE WORKINGS TABULATED FROM A.Y 1999-2000 ONWARDS UPTO A.Y 2013-14 IN THE ASSESSMENT ORDER WHICH SHOW THAT THERE IS NO BROUGHT FORWARD LOSS OR UNABS ORBED DEPRECIATION AVAILABLE AS PER BOOKS OF ACCOUNTS, AND HENCE THE ASSESSEE IS LIABLE TO PAY TAX UNDER MAT WORKINGS 4) THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THAT IN SECTION 115JB, SINCE NOWHERE IT IS MENTIONED THAT THE LOSS OF A YE AR IS TO BE SET OFF AGAINST THE BOOK PROFIT OF SUBSEQUENT YEAR ONLY AND HENCE IF TH ERE IS SURPLUS UNDER THE HEAD P&L ACCOUNT AT THE BEGINNING OF THE YEAR LOSS IF AN Y OF THAT YEAR WILL GET ABSORBED AGAINST THE BROUGHT FORWARD SURPLUS AND THE RESULTA NT FIGURE GETS CARRIED FORWARD IN THE BOOKS OF ACCOUNT. 5) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CIT (A) MAY BE CANCELLED AND THAT OF THE A.O. RESTORED. :-4-: ITA NO: 1708/CHNY/2018 5. THE CASE WAS HEARD THROUGH VIDEO CONFERENCING. THE LD. DR SUBMITTED THAT AT THE TIME OF PASSING THE ASSESSMENT ORDER IT SELF, THE AO CONSIDERED THE CASE LAWS RELIED ON BY THE LD CIT (A) AND CORRECTLY HELD THAT THEY WERE NOT APPLICABLE TO THE FACTS OF THIS CASE. IT WAS NOTICE D THAT IN THOSE CASES THE BOOK LOSS WAS NOT APPEARING IN THE BALANCE SHEET FOR THE REASONS THAT IT GOT SET-OFF EITHER BY REDUCTION IN THE SHARE CAPITAL OR ADJUSTM ENT AGAINST CERTAIN RESERVES. IN THOSE CASES, THERE WERE BROUGHT FORWARD LOSS/DEP RECIATION WHICH WERE NOT APPARENTLY NOTICED IN THE BALANCE SHEET. HOWEVER, I N THE ASSESSE;S CASE , THE FACTS ARE DIFFERENT AS THERE IS NO ACTUAL BROUGHT F ORWARD LOSS / DEPRECIATION AS PER BOOKS OF ACCOUNT. IN THIS REGARD, THE LD DR INVITED OUR ATTENTION TO THE ASSESSMENT ORDER, WHEREIN THE A O HAS BY A TABULAR FORM HAS DRAWN THE ASSESSEES BOOK PROFIT FROM THE AY 1999-00 TO AY 2 013-14, WHICH IS EXTRACTED AS UNDER FOR CONVENIENCE SAKE : AY DEPRECIATION LOSS BUSINESS LOSS TOTAL PROFIT (+) LOSS(-) PROGRESSIVE FIGURE UPTO 1999 - 00 ( - ) 2,55,69,944 ( - )6,17,63,988 ( - ) 8,73,33,932 ( - ) 8,73,33,932 2000 - 01 ( - )1,67,85,395 ( - )3,40,53,982 ( - ) 5,04,97,585 ( - )13,78,31,517 2001 - 02 0 0 (+) 44,96,889 ( - )13,33,34,628 2002 - 03 0 0 (+) 3,83,36,352 ( - ) 9,49,98,276 2003 - 04 0 0 (+) 5,07,20,693 ( - ) 4,42,77,583 2004 - 05 0 0 (+) 3,87,53,375 ( - ) 55,24,208 2005 - 06 0 0 (+) 5,07,20,693 (+) 4,51,96,485 2006 - 07 0 0 (+) 9,28,04,663 (+)13,80,01,148 2007 - 08 0 0 (+)10,97,61,692 (+)24,77,62,840 2008 - 09 0 0 (+) 9,23,96,125 (+)34,01,58,965 2009 - 10 0 0 (+)11,94,99,132 (+)45,96,58,097 :-5-: ITA NO: 1708/CHNY/2018 2010 - 11 0 0 (+) 29,57,006 (+)46,26,15,103 2011 - 12 ( - )8,60,69,968 ( - )4,60,27,218 ( - )13,20,97,186 (+)33,05,17,917 2012 - 13 ( - )9,00,73,490 ( - )8,13,99,712 ( - )17,14,73,205 (+)15,90,44,712 2013 - 14 0 0 (+) 1,36,54,239 (+)17,26,98,951 5.1 THE LD DR SUBMITTED THAT AS PER PROVISIONS OF S ECTION 115 JB (2) EXPLANATION 1 CLAUSE (III) , THE AMOUNT OF LOSS BRO UGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCO UNT IS ALLOWABLE AS A DEDUCTION FROM THE BOOK PROFIT. AS PER THE WORKINGS TABULATED SUPRA, THE ASSESSEE HAD INCURRED LOSSES IN THE FIRST TWO YEARS IE IN THE AYS 1999-00 & 2000- 01 , WHICH WERE COMPLETELY SET OFF, IE BOTH THE LOS SES VIZ UNABSORBED BUSINESS AND UNABSORBED DEPRECIATION LOSSES, FROM THE BOOK P ROFITS OF SUBSEQUENT AYS 2001-02 TO AY 2005-06. THEREAFTER, THE ASSESSEE CO MPANY HAS BEEN MAKING CONTINUOUS BOOK PROFITS TILL THE AY 2010-11 AND AS ON THAT YEAR END , IT HAD A BOOK PROFITS OF RS. 46,26,15,103/-. THE ASSESSEE H AD INCURRED BUSINESS LOSS / DEPRECIATION LOSSES AS PER BOOKS IN THE AYS 2011-1 2 & 2012-13 WHICH GOT ABSORBED AGAINST FROM THE SURPLUS BROUGHT FORWARD F ROM THE EARLIER YEARS AND IN THE END OF THE AY 2012-13, THE ASSESSEE HAD BOOK PR OFIT OF RS 15,90,44,712/-. AS PER THE BALANCE SHEET, THE PROFIT AND LOSS ACCOU NT BALANCE AS ON 01.04.2013 IS RS. 11,83,12,100/-. THUS, IN EFFECT THERE REMAI NS NO BROUGHT FORWARD BUSINESS LOSS / UNABSORBED DEPRECIATION AVAILABLE AS PER BOOKS FOR SETTING OFF IN THIS ASSESSMENT YEAR, AND HENCE THE ASSESSEE IS LIABLE T O PAY TAX UNDER MAT WORKINGS ON THE BOOK PROFITS EARNED IN THIS ASSESSM ENT YEAR. FURTHER, THE LD DR SUBMITTED THAT IN SECTION 115JB, NOWHERE IT IS MENT IONED THAT LOSS OF A YEAR IS TO BE SET-OFF AGAINST THE BOOK PROFIT OF THE SUBSEQUEN T YEAR OR YEARS ONLY. IF THERE :-6-: ITA NO: 1708/CHNY/2018 IS A SURPLUS UNDER THE HEAD P& L ACCOUNT AT THE BE GINNING OF A YEAR IN THE BOOKS, THE LOSS, IF ANY, OF THAT YEAR WILL GET ABS ORBED AGAINST THE BROUGHT FORWARD SURPLUS IN THE BOOKS AND THE RESULTANT FIG URE GETS CARRIED FORWARD IN THE BOOKS OF ACCOUNT. THEREFORE, THE LD DR SUBMITTED TH AT THE ORDER OF THE CIT(A) MAY BE CANCELLED AND THAT OF THE A.O. BE RESTORED. 6. PER CONTRA, THE LD A R SUBMITTED THAT THE BO OK PROFIT FOR THE PURPOSE OF MAT IS DIFFERENT FROM THE PROFIT SHOWN IN THE PROFI T AND LOSS ACCOUNT PREPARED AS PER THE COMPANIES ACT. THE BOOK PROFIT IS ARRIVED A T AFTER MAKING SO MANY ADJUSTMENTS AS PROVIDED IN THE STATUTE (INCOME TAX ACT), WHEREAS THE PROFIT AS PER PROFIT AND LOSS ACCOUNT WILL BE WITHOUT ANY SUC H ADJUSTMENTS AND HENCE BOTH CANNOT BE THE SAME. THE LOSSES INCURRED, IF ANY, IT IS MEANT TO BE ONLY CARRIED FORWARD FOR SETTING OFF AGAINST THE PROFITS OF SUB SEQUENT YEARS AND NOT FOR SETTING OFF THE SAID LOSSES AGAINST THE ACCUMULATED PAST RE SERVES. IN OTHER WORDS, THE ACT ENVISAGES ONLY CARRY FORWARD OF LOSSES AND NOT CARRY BACKWARD OF LOSSES. SECTION 115JB OF THE IT ACT USES THE WORDS STATEMEN T OF PROFIT AND LOSS ONLY AND NOWHERE THE TERM BALANCE SHEET IS BEING USED AND AL SO THE TERMS BOOKS OF ACCOUNTS, PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ARE NOT ONE AND THE SAME AND DOES NOT CONVEY THE SAME MEANING AS HELD BY VARIOUS JUDICIAL AUTHORITIES. THE ACT NOWHERE IMPOSES A CONDITION THAT IN ORDER T O CARRY FORWARD THE LOSSES THE RESERVES SHOULD BE IN THE NEGATIVE SIDE AS HEL D BY VARIOUS JUDICIAL AUTHORITIES AND HENCE THE ARGUMENT OF THE ASSESSING OFFICER THA T THE RESERVES OF THE COMPANY HAS A CREDIT BALANCE IS NOT LEGAL. THE LD DR SUPPORTED THE VIEW OF THE :-7-: ITA NO: 1708/CHNY/2018 LD CIT(A) THAT THE LOSS OR UNABSORBED DEPRECIATION OF ONE YEAR CAN BE SET OFF AGAINST THE PROFIT OF SUBSEQUENT YEAR ONLY AND TIL L SUCH SET OFF, THE AMOUNTS ARE CARRIED FORWARD TO SUBSEQUENT YEAR, OR IN OTHER W ORDS ARE BROUGHT FORWARD IN THE SUBSEQUENT YEAR FROM EARLIER YEAR AND OR AVAILA BLE FOR SET OFF OF AS PER PROVISIONS OF CLAUSE (III) OF SEC.115JB(2) OF THE A CT. FURTHER, HE RELIED ON THE DECISIONS IN THE CASE OF GO AIRLINES (INDIA) LTD V S DCIT , ITAT MUMBAI IN ITA NO 3788/MUM/2018 DT 13.01.2021 FOR AY 2014-15 (2021) 1 98 DTR (MUMBAI) (TRIB) 113 AND DCIT VS BINANI INDUSTRIES LTD ( 2017) 82 T AXMANN.COM 320 (KOLKATTA- TRIB). 7. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE FACTS ARE THAT AS PER BOOKS, THE PROFIT AND LOSS ACCOUNT BALANCE AS ON 01.04.2013 IN THE BALANCE SHEET WAS AT RS. 11,83,12 ,100/-, THE ASSESSEES BOOK PROFIT DURING THE YEAR WAS AT RS.9,93,85,557/- AND THE BOOK PROFIT FROM AYS 1999-00 TO AY 2013-14 AS EXTRACTED IN THE TABULAR FORM IN PARA 5, SUPRA , ARE NOT DISPUTED. NOW, WE ARE CONCERNED WITH THE COMPUT ATION OF BOOK PROFITS U/S.115JB OF THE ACT, WHEREIN ONE OF THE ITEMS ELIG IBLE FOR REDUCTION WOULD BE THE LOWER OF BROUGHT FORWARD CASH LOSS OR BROUGHT FORWA RD DEPRECIATION LOSS AS PER BOOKS OF ACCOUNTS. WE FIND THAT WHAT IS CONTEMPLAT ED IN CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT IS THE S IMPLE NUMERICAL FIGURE BEING THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED D EPRECIATION WHICHEVER IS LESS IS TO BE DEDUCTED FROM THE BOOK PROFIT . HENCE , IT IS A SIMPLE DETERMINATION OF NUMERICAL AMOUNT WHICH WOULD BE ELIGIBLE FOR RED UCTION FROM NET PROFIT FOR THE :-8-: ITA NO: 1708/CHNY/2018 PURPOSES OF ARRIVING AT THE BOOK PROFIT U/S.115JB O F THE ACT. THE MOST CRUCIAL EXPRESSION USED IN THE SAID CLAUSE (III) OF EXPLANA TION 1 TO SECTION 115JB OF THE ACT WOULD BE 'AS PER BOOKS OF ACCOUNTS'. IT SIMPLY MEANS THAT SUCH COMPUTATION HAS TO BE MADE 'AS PER BOOKS OF ACCOUNTS' FROM THE YEAR OF INCORPORATION TO THE CURRENT ASSESSMENT YEAR. HENCE, IN THIS CASE FROM AYS 1999-00 TO AY 2013-14 , THE AMOUNT OF LOSS BROUGHT FORWARD OR UN ABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNTS, WHICH WAS NOT COMPLETELY WIPED OUT BY THE PROFITS EARNED TILL THE PREVIOUS ASSESSMEN T YEAR, WOULD CONTINUE TO REMAIN IN THE BALANCE SHEET OF THE ASSESSEE I.E . 'IN THE BOOKS OF ACCOUNTS' AND SUCH AMOUNT WOULD BE ELIGIBLE FOR REDUCTION , WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT , IN ACCORDANCE WITH CLAUSE ( III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT, FOR THIS ASSESSMENT YEAR. IN THIS CASE, THE ASSESSEE HAD INCURRED BUSINESS LOSS / DEPRECIATION LOSSES AS P ER BOOKS IN THE AYS 1999-00 & 2000-01 & AYS 2011-12 & 2012-13 ALONE, WHICH WERE COMPLETELY SET OFF (IE BOTH THE LOSSES VIZ UNABSORBED BUSINESS AND UNA BSORBED DEPRECIATION LOSSES WERE SET OFF) , FROM THE BOOK PROFITS OF THE REMAIN ING ASSESSMENT YEARS TILL THE PREVIOUS ASSESSMENT YEAR 2013-14 AND THE BOOK PR OFIT AS PER THE PROFIT AND LOSS ACCOUNT BALANCE AS ON 01.04.2013 PER THE BALAN CE SHEET IN THE BOOKS OF ACCOUNT WAS AT RS. 11,83,12,100/-. THUS, ON THE AB OVE FACTS, IN EFFECT THERE REMAINS NO BROUGHT FORWARD BUSINESS LOSS / UNABSO RBED DEPRECIATION LOSS AVAILABLE AS PER BOOKS FOR SETTING OFF AGAINST THE BOOK PROFIT OF THIS ASSESSMENT YEAR. THIS DECISION IS ALSO IN ACCORDANC E WITH THE CASE LAW RELIED ON BY THE ASSESSEE VIZ GO AIRLINES (INDIA) LTD VS D CIT , ITAT MUMBAI IN ITA NO :-9-: ITA NO: 1708/CHNY/2018 3788/MUM/2018 DT 13.01.2021 FOR AY 2014-15 (2021) 1 98 DTR (MUMBAI) (TRIB) 113. THEREFORE, WE FIND MERIT IN THE REVENUES SU BMISSIONS AND HENCE ALLOW THE REVENUES APPEAL. 8. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED ON 15 TH JUNE, 2021 AT CHENNAI. SD/- ( . ' ) (DUVVURU RL REDDY) $% /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) % /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 15 TH JUNE, 2021 JPV (+3454 /COPY TO: 1. ' / APPELLANT 2. +,' /RESPONDENT 3. 6 ) ( /CIT(A) 4. 6 /CIT 5. 4+ /DR 6. 9 /GF