M/s. Multibase India Ltd., Nani Daman V. The ACIT.,Valsad Circle, Valsad

ITA 3211/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5987 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3); 115JB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 3211 /AHD/2010 (ASSESSMENT Y EAR: 2006-07) M/S. MULTIBASE INDIA LIMITED, (FORMERLY KNOWN AS M/S. SYNERGY MULTIBASE LTD.) 74/5-6, DAMAN INDUSTRIAL ESTATE, KADAIYA VILLAGE, NANI DAMAN. V/S ACIT, VALSAD CIRCLE, VALSAD. (APPELLANT) (RESPONDENT) PAN: ACDPV4956F APPELLANT BY : SHRI HARDIK VORA A R RESPONDENT BY : SHRI K.C. MATHEWS, SR. D.R. ( )/ ORDER DATE OF HEARING : 17-04-201 4 DATE OF PRONOUNCEMENT : 02 -05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A), VALSAD DATED 27.09.2010 FOR A.Y. 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING AND SELLING OF POLYPROPYLENE COMPOUND S AND OTHER ALLIED ITA NO 3211/ AHD/2010 . A.Y. 2006- 07 2 PRODUCTS. ASSESSEE FILED ITS RETURN OF INCOME FOR A .Y. 06-07 ON 29.12.2006 DECLARING TOTAL LOSS OF RS. 95,40,985/-. THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) READ WITH 147 OF THE AC T VIDE ORDER DATED 30.12.2009 AND THE BOOK PROFIT UNDER SECTION 115JB WAS ASSESSED AT RS. 1,50,66,867/-. AGGRIEVED BY THE ORDER OF A.O, ASSES SEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 27.09 .2010 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY TH E ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED IN CONFIRMING ASSESSMENT OF BOOK PROFITS OF 1,50,66,867/- UNDER SECTION 115J B OF THE ACT BY LEARNED ASSESSING OFFICER AS AGAINS T NIL BOOK PROFIT U/S 115JB COMPUTED BY THE ASSESSEE. 4. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS WITH RESPECT TO COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF T HE ACT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD SHOWN NET PROFIT OF RS. 1,50,66,866/- AND HAD C LAIMED BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION. A.O NOT ED THAT ASSESSEE HAD ALREADY CLAIMED UNABSORBED DEPRECIATION OF RS. 1,68 ,16,794/- WHILE COMPUTING THE TAX AS PER PROVISIONS OF SECTION 115J B OF THE ACT FOR A.Y. 05-06 AND THEREFORE NO BALANCE OF UNABSORBED DEPREC IATION WAS LEFT WITH THE ASSESSEE WHICH COULD BE SET OFF AGAINST THE CUR RENT YEARS BOOK PROFIT. HE ACCORDINGLY RE-WORKED THE PROFIT AS PER PROVISIO NS OF SECTION 115JB. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING A S UNDER:- 8.9 I HAVE CAREFULLY CONSIDERED THE FINDING OF THE AO AND THE SUBMISSIONS MADE BY THE LD. AR. THE AO WHILE COMPLETING THE ASSESSMENT OBSERVED THAT IN TH E A.Y.2005-06 THE APPELLANT HAD SHOWN NET PROFITS OF RS. 3,76,84,545/- AFTER SETTING OFF OF UNABSORBED DEPRECIATION OF RS. 1,67,16,794/- . FURTHER THE APPELLANT FOR THE SAID YEAR SHOWN BOOK PROFIT U /S 115JB OF THE ACT AT RS.2,08,67,751/- AND ACCORDINGLY PAID TAXES OF RS.15,65,081/-. THUS THE AO CONCLUDED THAT THE APPELLANT HAD ALREADY MADE ITA NO 3211/ AHD/2010 . A.Y. 2006- 07 3 CLAIM OF UNABSORBED DEPRECIATION IN THE A.Y. 2005-0 6 AND THEREFORE, NO BALANCE IS LEFT WITH THE ASSESSEE TO ADJUST FURTHER IN THE A.Y.2006-07. IN T HIS CIRCUMSTANCES THE AO DISALLOWED THE ADJUSTMENT OF UNABSORBED DEPRECIATION FOR COMPUTING THE BOOK P ROFITS U/S. 115JB FOR THE A.Y.2006-07. ON THE OTHER HAND THE APPELLANT HAS CONTENDED THAT THE BOO K PROFIT COMPUTED AT NIL BY THE APPELLANT AFTER SETTING OFF OF RS. 1,68,16,794/- IS ORDER AND AS P ER THE LAW. THE APPELLANT FURNISHED THE DETAILS OF CARRY FORWARD POSITION AS UNDER TO BUTTRESS THE ARGUMENTS BEFORE ME. FOR THE YEAR ENDED AMOUNT OF DEPRECIATION AMOUNT OF LOSS/ (PROFIT) BEFORE DEPRECIATION AMOUNT OF LOSS/(PROFIT) AFTER DEPRECIATION AMOUNT OF DEPN. OR LOSS BEFORE DEPN. W/L 31-03=94 0 (290352) (290352) 0 31-03-95 4433885 (3645754) 788131 0 31.0396 4615061 14814896 19429957 4615061 31-03.97 4754380 33757246 38511626 4754380 31.03-98 5010105 10555567 15565672 5010105 31-03-99 5176965 1203295 6380260 1203295 31.03.00 5440301 1233953 6674254 1233953 31.03.01 5568621 (19921042) (14352421) 0 31.03.02 5965917 (16338031) (10372114) 0 31.03.03 6443596 (16872890) (10429294) 0 31.03.04 6581950 (6561686) 20264 (LOSS) 0 31.03.05 6475087 (42459632) (35984545) 0 TOTAL 60465868 : (44524430) 15941438 16816794 FROM THE TABLE ABOVE, IT IS CLEAR THAT F.Y. ENDING ON 31-03-2001/02/03 & 05, THE APPELLANT HAD NORMAL PROFITS AND THE BROUGHT FORWARD LOSS OR DEPRECIATIO N WAS NIL. IN THE YEAR ENDING 31.03.2004, THERE WAS NORMAL LOSS OF RS. 20,264/- ONLY AND THERE WAS NO C ARRY FORWARD UNABSORBED DEPRECIATION. THE CURRENT APPEAL WAS FOR THE ASSESSMENT YEAR 2006-07 THEREBY THE FINANCIAL YEAR BEING 2005-06. IN THE YEAR ENDING 31,03.2005- THE APPELLANT HAD REGULAR PROFIT OF RS. 3,59,84,545/- AFTER SETTING OFF OF ELIGIBLE DEPRECIATION FOR THE YEAR. THAT MEANS, THERE WAS NO CARRY FORWARD BUSINESS LOSS OR DEPRECIATION WHICH NEEDS TO BE TAKEN INTO FOR COMPUTATION OF BOOK PROF IT U/S. 115JB FOR THE ASSESSMENT YEAR 2006-07. WHAT THE APPELLANT PLAYED MISCHIEF WAS THAT FROM THE YEA R 1994 TILL 2005 THE APPELLANT HAD TOTALED/AGGREGATED THE DEPRECIATION, LOSS AND INCOM E AND THE DIFFERENCE BETWEEN THE INCOME AND DEPRECIATION LOSS / BUSINESS LOSS HAS TAKEN FOR CAL CULATION OF BOOK PROFIT U/S. 115JB. THE APPELLANT H AD ALSO RELIED UPON THE - CASE OF FASCEL LTD. VS. INCO ME TAX OFFICER 305 ITR(A.T.) 368 (AHD.) IN SUPPORT OF THE ARGUMENTS PUT FORTH BEFORE ME. AT THE OUT SE T, THE CASE LAW CITED BY THE APPELLANT IS DISTINGUISHABLE ON FACTS AND LAWS. IN THAT CASE THE HON'BLE TRIBUNAL HAD HELD THAT 'IN ARRIVING AT THE BOOK PROFIT UNDER SEC. 115JB, THE LOWER OF THE AMOU NT OF BROUGHT FORWARD LOSS OR UNABSORBED ITA NO 3211/ AHD/2010 . A.Y. 2006- 07 4 DEPRECIATION AS APPEARING IN THE BOOKS OF A/C. OF T HE ASSESSEE HAS TO BE REDUCED, IRRESPECTIVE OF THE FACT WHETHER THE SAME IS ALLOWABLE U/S. 79 OF THE ACT OR NOT. 8.10 PROVISO TO SUB-S.(I) OF S, 205 OF THE COMPANI ES ACT IS FOR THE PURPOSE OF DISTRIBUTION OF DIVIDE ND BY A COMPANY WHICH HAD EARLIER INCURRED LOSSES, THE COMPANY IS REQUIRED TO REDUCE THE CURRENT YEAR'S PROFIT BY THE AMOUNT OF LOSS OR AN AMOUNT WHICH IS EQUAL TO THE AMOUNT PROVIDED FOR DEPRECIATION FOR THAT YEAR OR THOSE YEARS WHICHEVER IS LESS: IT IS T HIS VERY CONCEPT, WHICH WAS INCORPORATED IN S. 115J OF THE I.T. ACT UNDER EXPLANATION, WHICH STATES THAT F OR THE PURPOSE OF S. 115 J,. 'BOOK PROFIT' MEANS TH E NET PROFIT AS SHOWN IN THE P & L A/C. FOR THE RELEV ANT PREVIOUS YEAR AND AS REDUCED BY CLS. 1 TO 4, UNDER S. 205 OF COMPANIES ACT THIS METHODOLOGY WAS PRESCRIBED SO THAT THE DIVIDEND DISTRIBUTION DID NOT ERODE CAPITAL OF THE CONCERNED COMPANY AND THE CONCEPT WAS INCORPORATED IN S. 115J FOR THE SAME PURPOSE I.E. THE PAYMENT OF MAT WOULD NOT ADVERSELY AFFECT THE CAPITAL OF THE CONCERNED COMPANY UNDER THIS DEEMING PROVISION. IN THIS CIRCUMSTANCES IT IS NECESSARY TO EXAMINE THE LEGAL POSITION RELATING TO ADJUSTMENT OF BROUGHT FORWARD LOSS OR U NABSORBED DEPRECIATION FOR COMPUTATION OF BOOK PROFITS AS ENVISAGED IN THE PROVISIONS U/S. 115JB R .W. EXPL.(III) OF THE ACT. FROM 1 ST . APRIL 2001 ONWARDS SEC. 115JB IS OPERATIVE AND SEC.115JA WAS O PERATIVE FOR THE PERIOD FROM 1 ST .APRIL 1997 TILL 31 ST . MARCH'2001. UNDER BOTH THESE SECTIONS THE RELEVAN T SUB-CL (III) PERTAINING TO THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION INCLUDES AN EXPLANATION, WHICH STATES THAT THE LOSS SHOWN SHALL NOT INCLUDE DEPRECIATION. FOR THE SAKE OF CON VENIENCE SUB-CL. (III) IS REPRODUCED HEREUNDER; '(III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSO RBED DEPRECIATION, WHICHEVER IS LESS AS PER THE BOOKS OF A/C. EXPLANATION - FOR THE PURPOSE OF THIS CLAUSE- (A) THE LOSS SHALL NOT INCLUDE DEPRECIATIONS; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY, IF THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL. UNDER BOTH SS. 115JA AND 115JB, THE RELEVANT SUB-CL . (III) PERTAINING TO THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION INCLUDES AN EXPL ANATION, WHICH STATES THAT THE LOSS SHOWN SHALL NOT INCLUDE DEPRECIATION. THE EXPLANATION TO SUB-CL . (III) THEREFORE LEAVES NO ROOM FOR DOUBT THAT THE EXPRESSION 'LOSS BROUGHT FORWARD' DOES NOT INCLUDE DEPRECIATION AND THE NET PROFIT OF THE CURRENT YEAR IS TO BE REDUCED BY THE LESSER OF THE TWO AND THE PROV ISIONS OF SUB-CL. (III) SHALL NOT APPLY IF THE AMOU NT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS REDUCED TO NIL. THIS VIEW WAS AFFIRMED BY THE HON'BLE AAR IN THE CASE OF RASTRIYA ISPAT NIGAM LT D. IN RE, 285 ITR 1 (AAR). FURTHER FOR THE PURPOSE OF S. 115JB, THE 'BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION ARE REQUIRED TO BE DEPICTED SEPARATELY, INDEPENDENT OF EACH OTHER AND AFTER THE CURRENT YEAR'S PROFIT IS REDUCED BY THE LESSER OF THE TWO FOR THE PURPOSE OF CARRY FORWARD TO THE NEXT YEAR, THE CLOSING BALANCE OF THE IMMEDIATE PRECEDING YEAR WOULD BE THE OPENING BALAN CE FOR THE SUCCEEDING YEAR. THERE CAN BE SEVERAL PARALLEL STREAMS OF ACCOUNTING, EACH OF THEM INDEPE NDENTLY FOLLOWING ITS OWN ACCOUNTING AND LEGAL PARAMETERS PRESCRIBED BY THE RESPECTIVE STATUTES. S EC. 115JB(S) GIVES STATUTORY RECOGNITION TO THIS GENERAL PRINCIPLE BY STATING THAT THE CARRY FORWARD OF DEPRECIATION AND LOSS UNDER THE GENERAL PROVISIONS OF THE ACT (OTHER THAN S. 115JB) WILL BE GOVERNED BY THE RELEVANT SECTIONS OF THE ACT BEING S. 32 FOR DEPRECIATION AND S. 72 FOR CARRY FORWARD AND SET OFF OF LOSS, ETC. THUS, THE PARALLEL STREAMS O F COMPUTATION UNDER THE NORMAL PROVISIONS OF THE ACT AND S. 115JB COMPUTATION OF TAX LIABILITY ARE KEPT SEPARATE AND INDEPENDENT OF EACH OTHER. EACH STREAM , HOWEVER, WHILE BEING SEPARATE FROM THE OTHER PARALLEL STREAM, IS BASED ON A CONTINUITY OF TREATM ENT CARRIED OUT YEAR AFTER YEAR. THE PRINCIPLES GOVERNING COMPUTATION WITHIN A PARTICULAR STREAM AR E STRICTLY ADHERED TO IN EVERY SUCCESSIVE YEAR. ON THE SAME PRINCIPLE, S. 115JB COMPUTATION MUST FOLLO W THE LOGIC OF INTERNAL CONSISTENCY AND REGULARITY YEAR AFTER YEAR, UNAFFECTED BY THE PARALLEL COMPUTA TIONS RUNNING UNDER THE COMPANIES ACT AND THE NORMAL PROVISIONS OF THE IT ACT. REDUCTION MADE TO BOOK LOSS OR BOOK DEPRECIATION IN ANY PARTICULAR YEAR UNDER THE MAT PROVISIONS MUST FORM A NECESSARY BASIS FOR COMPUTATION OF 'MAT' LIABILITY FOR THE SUBSEQUENT YEAR, IRRESPECTIVE OF THE TREATMENT GIVE N UNDER THE COMPANIES ACT, OR, FOR THE MATTER, UNDE R THE NORMAL PROVISIONS OF THE IT ACT. THE ABOVE INTE RPRETATION IS STRONGLY SUPPORTED BY CIRCULAR NO. 495 DT. 22 ND SEPT., 1987 AS HELD IN THE CASE OF SURYALATHA SPIN NING MILLS LTD. VS. UNION OF INDIA (1997) 223 ITR 713 (AP) 8.11 IN THE CASE OF S.I.J. CHAINS (P) LTD VS. ACIT 100 ITD 379 (ASR.), THE HON'BLE ITAT, AMRITSAR, HEL D THAT 'ASSESSEE'S BUSINESS LOSS BEING NIL, UNABSORBE D DEPRECIATION WAS NOT ALLOWABLE IN COMPUTING THE BOOK PROFITS IN VIEW OF THE SEC. 115JB(2), EXPL. (I II), AS SUBSTITUTED BY FINANCE ACT, 2002 W.E.F. 1 ST APRIL,2001'. IN VIEW OF THIS, I AM CONVINCED THAT T HE AO HAS RIGHTLY OBSERVED THAT THE RECORD OF AY ITA NO 3211/ AHD/2010 . A.Y. 2006- 07 5 2005-06 SHOWS THAT THE APPELLANT HAD SHOWN NET PROF IT OF RS,. 3,76,84,545/- AND AFTER CLAIMING UNABSORBED DEPRECIATION OF RS. 1,67,16,794/-, LEAVI NG NO AMOUNT TO BE CARRIED FORWARD FOR NEXT YEAR . CONSIDERING THE FACTUAL MATRIX OF THE CASE. I DO NO T INCLINED TO INTERFERE IN THE FINDING OF THE AO. I N MY OPINION, THE APPELLANT HAD NOT ONLY FURNISHED THE I NACCURATE PARTICULARS BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT FURTHER PLAYE D MISCHIEF IN THE APPELLATE PROCEEDINGS BY WORKING OUT THE BOOK PROFIT IN SKEWED MANNER. THEREFORE, TH IS GROUND OF APPEAL IS DISMISSED. BEFORE PARTING THE AO IS ADVISED TO EXPLORE INITIATION OF PENALTY U/S. 271(1)(C) OF THE I.T. ACT, 1961 FOR FURNISHING INACCURATE PARTICULARS OF CONCEALED INCOME AS THE A PPELLANT HAS PLAYED MISCHIEF OF CLAIMING WRONG CARRY FORWARD DEPRECIATION BOTH DURING ASSESSMENT P ROCEEDING AND APPELLATE PROCEEDING. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 7. BEFORE US, AT THE OUTSET LD. A.R. SUBMITTED A STATE MENT SHOWING BIFURCATION OF BROUGHT FORWARD LOSSES AND UNABSORBE D DEPRECIATION SET OFF OF LOSSES AND BALANCE OF DEPRECIATION/LOSS AFTER SE TTING OFF OF PROFIT FOR VARIOUS YEARS. FROM THE STATEMENT, HE POINTED AND SUBMITTED THAT THE TOTAL DEPRECIATION AFTER SETTING OFF OF PROFIT WAS RS. 1,06,17,666/- AND THE AMOUNT OF LOSS WAS RS. 53,24,172/-. HE THEREFORE S UBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR LOWER OF THE TWO AND THERE FORE IT WAS ELIGIBLE FOR SETTING OFF RS. 53,24,172/- AND THEREFORE SUBMITTED THAT THE SAME BE ALLOWED. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE CHART SUBMITTED BY THE ASSESSEE CONTAINS FIGURES OF DEPRE CIATION/BROUGHT FORWARD LOSSES OF EARLIER YEARS AND THE SAME NEEDS TO BE EXAMINED FROM THE RECORDS AT THE END OF A.O. HE THEREFORE SUBMITT ED THAT THE MATTER BE REMITTED TO THE FILE OF A.O. FOR HIS EXAMINATION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE LD. A.R. HAS FURNISHED A STATEMENT S HOWING BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION FROM EAR LIER YEARS AND THE WORKING OF AMOUNT THAT CAN BE SET OFF FOR THE PURPO SE OF SECTION 115JB. ITA NO 3211/ AHD/2010 . A.Y. 2006- 07 6 HE ALSO SUBMITTED THE BREAK UP OF DEPRECIATION AND LOSSES TO BE CARRY FORWARD. WE ARE OF THE VIEW THAT THE STATEMENT SUB MITTED BY ASSESSEE NEEDS TO BE EXAMINED FROM THE RECORDS OF ASSESSMENT AND THEREFORE THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF A.O FOR H IS EXAMINATION AND VERIFICATION. WE THEREFORE REMIT THE ISSUE TO THE FILE OF A.O FOR EXAMINING THE STATEMENT SUBMITTED BY ASSESSEE AND T HEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ASSESSEE IS ALSO DIR ECTED TO CO-OPERATE BY PROMPTLY SUBMITTING ALL THE NECESSARY DETAILS CALLE D FOR BY THE A.O. THUS THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 02 - 05 - 2014. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD