The Learned Standing Counsel For The Revenue Submitted That Theissue Involved In This Appeal Is Answered In Favour Of The Revenue By Thedecision Of This Court I v. Fab Exports Pvt. Ltd., [2002] 258 Itr 56

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 5.3.2007 THE HON'BLE MR.JUSTICE P.D.DINAKARANAND THE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN Commissioner of Income Tax-IIICoimbatore...Appellant M/s.Kongarar Spinners Ltd.,Kalayamputhur, Palani Taluk...Respondent Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'B' Bench dated25.7.2003 made in ITA No.376/Mds/1996 for the assessment year 1990-91against the Order of the Commissioner of Income Tax [Appeals], Coimbatoredated 27.12.1995 in ITA.No.680-C/94-95 for the assessment year 1990-91,against the order of the Deputy Commissioner of Income Tax, Special RangeII, Coimbatore dated 31.3.1993 and 26.8.1994 in GIR.C.T-9389/SR.II/CBE. (Delivered by P.D. DINAKARAN, J.) This appeal is directed against the order of the Income Tax AppellateTribunal dated 25.7.2003 made in ITA.No.376/Mds/1996 for the assessmentyear 1990-91, raising the following substantial question of law:"Whether on the facts and in the circumstances of the case, theTribunal was right in holding that while computing the bookprofit under Section 115J of the Income Tax Act, the unabsorbeddepreciation/ business loss of earlier years should be takenwithout adjusting the profit earned in some of the interveningyears against the loss of other years?" 2.1. The assessee company is engaged in the business of manufacture ofyarn. The assessment was completed under Section 143(3) of the Income TaxAct (for brevity, "the Act") computing taxable income at NIL and book https://hcservices.ecourts.gov.in/hcservices/ profits under section 115J of the Act at Rs.26,70,467/-. Finding therewas a mistake in the assessment order in the computation of profits underSection 115J, viz., the unabsorbed losses were taken at a higher figure,as furnished by the assessee, without considering the profits earned bythe assessee in the earlier years, notice under Section 154 of the Actwas issued. The assessee objected to the proposed rectification on theground that loss or depreciation whichever is less as per the books shouldbe taken and the working given by the assessee is correct. The AssessingOfficer, not satisfied with the objections of the assessee reworked theunabsorbed depreciation/ business loss and determined tax under Section115J of the Act at Rs.4,86,034/-. 2.2. On appeal by the assessee, the Commissioner of Income Tax(Appeals) reworked the unabsorbed depreciation / business loss givingpartial relief to the assessee, accepting their contention thatadjustments of profits for the assessment years upto 1982-83 against theloss/depreciation from a subsequent period, viz., 1983-84 is improper, andthe same was on appeal, at the instance of the Revenue, confirmed by theTribunal. Hence, the present appeal raising the substantial question oflaw, referred to above. 3. Heard the learned Standing Counsel for the appellant. There is norepresentation on behalf of the respondent/assessee. 4. The learned Standing counsel for the Revenue submitted that theissue involved in this appeal is answered in favour of the Revenue by thedecision of this Court in CIT v. FAB EXPORTS PVT. LTD., [2002] 258 ITR 56. 5. In CIT v. FAB EXPORTS PVT. LTD., [2002] 258 ITR 56, this Court heldas under: 3. Heard the learned Standing Counsel for the appellant. There is norepresentation on behalf of the respondent/assessee. 4. The learned Standing counsel for the Revenue submitted that theissue involved in this appeal is answered in favour of the Revenue by thedecision of this Court in CIT v. FAB EXPORTS PVT. LTD., [2002] 258 ITR 56. 5. In CIT v. FAB EXPORTS PVT. LTD., [2002] 258 ITR 56, this Court heldas under: "Section 115J of the Income-tax Act, 1961, is a special provisionrelating to certain companies. Section 115J(1) requires the totalincome of the company, to which that section may become applicable,to be “as computed under this Act in respect of any previous yearrelevant to the assessment year. . .”. By declaring in sub-section(2) that nothing contained in sub-section (1) will affect thedetermination of the amounts in relation to the relevant previousyear to be carried forward to the subsequent year or years undersection 32(2), section 32A(3), section 72(1)(ii), section 73,section 74, section 74A(3) or section 80J(3), Parliament has madeit clear that the determination of the amounts to be carriedforward is to be made in the normal way by applying the provisionsof the Act as if section 115J(1) had not been applied to theconcerned assessee. The term “affect” in sub-section (2) of section115J does not imply only an effect which is detrimental. The term“affect” here does not seek to confer a benefit on the assessee nordoes it seek to deprive the assessee of any benefit available tothe assessee under the Act. It seeks to build as it were, a wall,between what is to be determined in relation to the sections mentioned in sub-section (2) and what has been provided for in sub-section (1). The reference to “previous year” in sub-section (2),in the context, can only refer to every previous year in which theassessee seeks to carry forward the loss and other adjustable sums.The carry forward is a process which proceeds in a continuum. Theamount to be carried forward in the succeeding year being basedupon the amount carried forward at the commencement of the year,and the further loss or other adjustable amounts, if any, that theassessee may be entitled to add to that carried forward figure. TheAct does not in any of its provisions visualise interruption inthis process or suspending a part of the continuum and treating theadjustment as not having been made, even when the computation wouldshow that the profits in a particular year were sufficient to haveall the carried forward losses and other amounts set off againstthat figure of profit. The amount that can be carried forward isnot required to be recomputed for the years following the year inwhich section 115J(1) ceased to apply. Such a set off is not to bedeemed to have not been done nor can a set off so done be ignoredafter the last of the assessment years to which section 115J(1)applied. ... The plain words of section 115J(2) are that the determination ofthe amount in relation to the previous year to be carried forwardto the subsequent year under the provisions referred to thereinshall not be affected by anything contained in sub-section (1).These words are clear enough. The fact that a part of the income,which is set off against the carried forward loss and depreciationeven when, as a result of such set off, is not available for beingtaxed, is nevertheless deemed to be available for taxation to theextent of thirty per cent of the book profit, cannot thereforeresult in the assessee becoming entitled to carry forward theextent of the loss which could not be utilised for reducing theburden of taxation by setting off the same against the profitsbeing carried forward to a succeeding assessment year or years." (emphasis supplied) (emphasis supplied) 6. In view of the above well settled law, we find that the firstappellate authority as well as the Tribunal erred in holding that whilecomputing the book profit under Section 115J of the Act, the unabsorbeddepreciation/business loss of earlier years should be taken withoutadjusting the profit earned in some of the intervening years against theloss of other years. The question of law referred for consideration is answered in favour of Revenue and against the assessee. This appeal isallowed. No costs.Sd/-Asst. Registrar. sasiTo: /true copy/Sub Asst. Registrar. 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench "B", Chennai.2.The Secretary, Central Board of Direct Taxes, New Delhi.3.The Commissioner of IncomeTax (Appeals), Coimbatore. 4.The Commissioner of Income Tax, Coimbatore. 5.The Deputy Commissioner of Income Tax, Special Range-II Coimbatore. + 1 CC To Mr. N.Muralikumaran, Senior Standing Counsel for Income Taxm, SRNO.13585 T.C.(A).No.65 of 2004ava[co]gp/20.3.