Indo Nissin Foods Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 809/BANG/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9247 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: KRISHNAN HARIHARAN
• Keywords: Depreciation; Rectification of order; Unabsorbed depreciation
• Section: 263; 154; 143(3); 195; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.809/Bang/2017 Assessment year: 2010-11 Indo Nissin Foods Pvt. Ltd., 28, Centenary Building, 3 rd Floor, M.G. Road, Bengaluru – 560 001. PAN: AAACI 3503K Vs. The Deputy Commissioner of Income Tax, Circle 3(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Krishnan Hariharan, CA Respondent by : Shri Priyadarshi Mishra, Addl.CIT(DR)(ITAT), Bengaluru. Date of hearing : 08.02.2022 Date of Pronouncement : 08.02.2022 O R D E R Per Chandra Poojari, Accountant Member This appeal by the assessee is against the order of the CIT(Appeals)-3, Bengaluru dated 31.1.2017 for the assessment year 2010-11. 2. The assessee has raised the following concise grounds:- “1. Appellant is engaged in the business of manufacture and sale of instant noodles. ITA No.809/Bang/2017 Page 2 of 10 2. Appellant was incorporated in 1988. From 1988 to FY 2004-05, appellant was in loss. Accumulated loss as on 31st March 2005 was Rs. 63,82,74,797. 3. MAT provisions were first applied in FY 2005-06. Since the unabsorbed depreciation was lesser than the business loss, it was set-off year-on-year. (working kept as page no. 73 of the paperbook) 4. In FY 2008-09, the appellant undertook a capital reduction scheme approved the Hon'ble Karnataka High Court. As a result, accumulated loss of Rs. 52,67,81,833 was reduced to Nil and adjusted against the authorized share capital. 5. For FY 2009-10, depreciation loss of Rs. 55,69,139 was set-off and book profit was Nil. This set-off was accepted by the learned DC Circle 12(3) in the scrutiny assessment. Subsequently, the assessment order was rectified under section 154, disallowing the loss Rs. 55,69,139 which was set-off against the profit resulting in tax demand of Rs. 11,65,245. 6. On appeal, the learned Commissioner of Income- tax (Appeals) - 3, upheld the rectification order disallowing the set-off of Rs. 55,69,139. Appeal to the Hon'ble ITAT was filed on 7th April 2017. 7. The Appellant's case is covered by the ratio of the following decisions: (a) Commissioner of Income-tax-III, New Delhi v. Sumi Motherson Innovative Engg. Ltd. [(2010) 195 Taxman 353 (Delhi)] (para 15, pg. 79 of the paperbook) (b) Surat Textile Mills Ltd. 1(2016) 70 taxmann.com 158 (Ahmedabad - Trib.)] (c) Prithvi Softech Limited ITA No. 797/Mds/2010, Chennai Tribunal ITA No.809/Bang/2017 Page 3 of 10 8. In Sumi Motherson case, as on 1.4.2001, accumulated loss of the Company was Rs. 34.67 crores. At the end of the year, as on 31st March 2002, the loss was reduced to "Nil" due to capital reduction. The Hon'ble Delhi High Court held that the capital reduction scheme does not liquidate the losses and it is available for set-off 86 carry forward. Once the loss referred to in I to section 115JB(2) is determined under MAT events occurring during the year and the remaining losses after set-off can be carried forward to the following years also. In the Appellant's case, on conclusion of Income-tax assessment for FY 2008-09, the learned DC had determined the loss to be carried forward to FY 2009-10 as Rs. 1,42,26,745 in spite of the appellant undertaking the capital reduction scheme during the year. Out of Rs. 1,42,26,745 brought forward to FY 2009-10, Rs. 55,69,139 was set-off against the book-profit based on the Sumi Motherson case. 9. In the Surat Mills case, the assessee was subject to a rehabilitation scheme in FY 2007-08 (AY 2008-09) as per BIFR wherein the credit balances in the accounts - equity share capital, reserves, secured loans etc., were transferred to a rehabilitation account, reducing the loss to Nil. In spite of the transfer to the rehabilitation account in FY 2007-08 and the accumulated losses being Nil, the assessee had deducted the unabsorbed depreciation loss of Rs. 27,36,90,817 year-on-year from AY 2008-09 to AY 2012- 13 (page 83 of the paperbook). The loss adjusted against the book profit was allowed by the Hon'ble Ahmedabad Tribunal and subsequently affirmed by the Gujarat High Court in [(2017) 79 Taxmann.com 209 (Gujarat). 10. In the Prithvi Softech case, the assessee filed return of income for AY 2005¬06 with total income as Nil. The assessment was completed after setting-off of brought forward loss of Rs. 1,13,01,457 incurred between FY 2000- 01 & 2002-03. As the balance in P&L Dr. Account was Nil and no loss was available for set-off, section 263 was invoked and tax was levied on Rs. 1,13,01,457. The losses ITA No.809/Bang/2017 Page 4 of 10 b/f from FY 2000-01 were adjusted against the equity share capital and balance in the P&L Dr. Account was "nil" in FY 2003-04. In spite of the accumulated loss being Nil, Rs. 1,13,01,457 was allowed to be set-off and the section 263 proceedings were set-aside. Following the ratio of Prithvi Softech case, even if the P&L Dr. balance is Nil, the appellant is entitled to set-off the loss remaining and brought forward from earlier years as per the books. 11. Considering the above submissions, it is prayed that the Hon'ble Tribunal allow the unabsorbed depreciation loss of Rs. 55,69,139 to be set-off against the book profit for FY 2009-10 (AY 2010-11).” 3. The facts of the case are that the assessee is a Private Limited Company engaged in the business of manufacturing and setting instant noodles. The assessment for the relevant year was completed u/s 143(3) of the Act. As against the returned toss of Rs.10,50,068/-, the AO had made various disallowances and income was finally assessed as Rs.9,11,23,817/-. However, after adjusting the brought forward loss under the normal provisions, the tax payable was determined as nil. For the purpose of MAT computation, the assessee had adjusted a sum of Rs.55,69,139/- towards unabsorbed depreciation and consequently the book profit was determined as nil. 4. However, the AO had subsequently observed that no brought forward business loss was available to the assessee for the relevant year and therefore it was not entitled to set off the unabsorbed depreciation of Rs.55,69,139/- for computing the book profit u/s 115JB. Accordingly proceedings for rectification of the order were initiated u/s 154 of the Act. Consequently the AO determined the book profit of Rs.55,69,139/- u/s ITA No.809/Bang/2017 Page 5 of 10 115JB and levied tax of Rs.8,60,432/- on the same. Aggrieved, the assessee went in appeal before the CIT(Appeals). 5. The CIT(Appeals) confirmed the order of the AO. Against this, the assessee is appeal before us. 6. The ld. AR submitted that the disallowance of unabsorbed depreciation loss of Rs. 55,69,139 is not a mistake apparent on record u/s. 154 of the Act. It is a matter of legal interpretation. Therefore, the AO was not justified in passing a rectification order. 7. As per the provisions of section 115JB, brought forward loss from a year is available for set-off and carry forward to the subsequent year. Accordingly, the unabsorbed depreciation loss carried forward from AY 2009-10 amounting to Rs. 1,42,26,745 was available for set-off in AY 2010- 11, out of which Rs. 55,69,139 was set-off during the year and the balance unabsorbed depreciation of Rs. 86,57,606 was carried forward to AY 2011- 12, notwithstanding the capital reduction undertaken by the assessee. This stand of the assessee is based on the ratio of the Sumi Motherson Innovative Engg. Ltd. 1(2010) 195 Taxmann 353 (Delhi)]. The facts of this case are identical to that of the assessee. 8. In the Sumi Motherson case, as on 1.4.2001, accumulated loss was Rs. 34.67 crores. On close of the year, the loss was reduced to "Nil" due to reduction in capital. It was held that the loss is available is for set-off & carry forward and the scheme of capital reduction is to be ignored. The question of whether the brought forward losses are liquidated or not is of no consequence. ITA No.809/Bang/2017 Page 6 of 10 9. The assessee also relied on Surat Textile Mills Ltd. [2016] 70 taxmann.com 158 (Ahd. Trib.) wherein, it was submitted that, on identical facts of the assessee, it was held in para 21 as follows:- “21. ....... Considering all these factors in their setting as a whole, we are of the view that restructuring credits brought by the assessee to the profit & loss account against accumulated profit and loss/debit balance, while giving effect to the scheme sanctioned by the BIFR would not extinguish alleged loss and depreciation from the accounts of the assessee in actual terms. Such loss would be available to the assessee as per the accounts prepared under Parts-II and III of Schedule-VI, and the assessee will be entitled to claim reduction of loss/unabsorbed depreciation, whichever is lower, from the book profit under clause (iii) of Explanation to Section 115JB, while making such computation for the purpose of section 115JB.” 10. It was submitted that the set off of unabsorbed depreciation loss against the book profit in earlier years were as follows:- Particulars Brought Forward Business Loss Unabsorbed Depreciation Loss Total Rs. Rs. Rs. 2005-06 (AY:2006-07) 48,34,69,216 15,48,05,581 63,82,74,797 Less: Adjusted during the year - 2,68,14,794 2,68,14,794 Carried forward to 2006-07 (AY: 07-08) 48,34,69,216 12,79,90,787 61,14,60,003 2006-07 (AY: 2007-08) 48,34,69,216 12,79,90,787 61,14,60,003 Less: Adjusted during the year - 5,25,71,072 5,25,71,072 Carried forward to 2007-08 (AY: 08-09) 48,34,69,216 7,54,19,715 55,88,88,931 2007-08 (AY: 2008-09) 48,34,69,216 7,54,19,715 55,88,88,931 Less: Adjusted during the year - 2,28,29,213 2,28,29,213 ITA No.809/Bang/2017 Page 7 of 10 Carried forward to 2008-09 (AY: 09-10) 48,34,69,216 5,25,90,502 53,60,59,718 2008-09 (AY: 2009-10) 48,34,69,216 5,25,90,502 53,60,59,718 Less: Adjusted during the year - 3,83,63,757 3,83,63,757 Carried forward to 2009-10 (AY: 10-11) 48,34,69,216 1,42,26,745 49,76,95,961 11. Thus, the ld. AR submitted that the assessee’s claim to allow unabsorbed depreciation loss of Rs.55,69,139 to be set off against the book profit for FY 2009-10 has to be upheld. 12. On the other hand, the ld. DR relied on the orders of the lower authorities. 13. We have heard both the parties and perused the material on record. The only issue in this appeal is with regard to disallowance of unabsorbed depreciation of Rs.55,69,139 while determining the book profits u/s. 115JB(2) of the Act. The AO allowed this claim of the assessee in the order u/s. 143(3) of the Act dated 30.1.2014. However, the AO issued notice u/s. 154 and withdrew the same as according to the AO, the assessee is not entitled to set off unabsorbed depreciation while computing book profits since no brought forward loss was available to the assessee for the relevant year. 14. Now the contention of the ld. AR is that the assessee had unabsorbed depreciation of Rs.142,26,245 during AY 2010-11, out of this the assessee is entitled to set off Rs.56,69,139 during the year and the balance unabsorbed depreciation of Rs.86,57,606 was to be carried forward to AY 2011-12. For better understanding, we will reproduce the relevant computation below:- ITA No.809/Bang/2017 Page 8 of 10 15. However, as per clause (iii) to Explanation 1 to section 115JB(2) of the Act, the assessee is entitled to set off of unabsorbed depreciation or the ITA No.809/Bang/2017 Page 9 of 10 brought forward business loss, whichever is least. In the present case, there was no brought forward losses which was already written off against the share capital. As per the order of the High Court of Karnataka, the accumulated losses in the balance sheet was Nil as on 31.3.2009 which is also seen from the 1 st col. last figure of the statement reproduced above. Contrary to this, the ld. AR submitted that even if the brought forward business loss as per the balance sheet is Nil, under MAT computation, the computation need not be the same as reflected in the balance sheet and placed reliance on the judgment in the case of Sumi Motherson Innovative Engg. Ltd. [(2010) 195 Taxman 353 (Delhi)]. In our opinion, the above judgment cannot be applied to the assessee’s case, as in the present case the assessee is having no brought forward loss. 16. Further the assessee relied on the decision of the Chennai Bench of the Tribunal in the case of Prithvi Softech Limited ITA No. 797/Mds/2010 dated 28.7.2021. In that case also, the assessee was having brought forward business loss for the last 4 years and no material was brought o record that such loss was set off against any profit of subsequent year in determining the book profits of the assessee company after the year in which such loss was suffered. Being so, the Tribunal held that such loss was available for set off during the year for determining the book profit as per the provisions of clause (iii) of section 115JB(2). However, in the present case, the facts are entirely different as the assessee is having no balance of brought forward business loss of earlier year. Being so, the various decisions relied on by the assessee have no application to the facts of the present case. In view of the above, we are in complete agreement with the finding of the CIT(Appeals). 17. The ld. AR further submitted that there was no mistake apparent on record under the provisions of section 115JB(2) of the Act so as to rectify the assessment order by the AO. As discussed earlier, in the present case ITA No.809/Bang/2017 Page 10 of 10 there was no brought forward business loss as on 1.4.2009 at the beginning of the FY 2009-10 relevant to AY 2010-11 and the loss was already absorbed by capital reduction and there is no question of debate on this issue and the statute is clear. Explanation 1 to clause (iiii) of section 115JB(2) of the Act is directly applicable to the facts of the present case. Accordingly this not being a debatable issue, the AO was justified in exercising his powers u/s. 154 of the Act. Therefore, the orders of the lower authorities are confirmed. 18. In the result, the appeal by the assessee is dismissed. Pronounced in the open court on this 8 th day of February, 2022. Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 8 th February, 2022. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.