Commissioner of Income Tax and Another vs Gokuldas Apparels (P) Ltd.

K.L. Manjunath, J.—The revenue has come up in this appeal being aggrieved by the concurrent findings of the order passed by the Commissioner (Appeals), Bangalore, which has been affirmed by the Tribunal, Bangalore Bench in ITA No. 820/-Bang/2001, dated 23rd June, 2004.

The facts leading to this case are as hereinunder:

The respondent company, assessee, filed the return of income for the assessment year 1997-98 contending that it is entitled to seek set off of business loss and depreciation whichever in less within the profit earned in the relevant assessment year. The same was not considered by the assessing officer. Being aggrieved by the same, the assessee filed an application for rectification of the order before the assessing officer which also came to be rejected. Against which the assessee filed an appeal before the Commissioner (Appeals), Bangalore, which came to be allowed on the ground that in the previous assessment years, there was an unabsorbed business loss and unabsorbed depreciation and that the same has to be set off against the book profits earned, whichever is less between the two out of the profit earned in the current assessment year. The Commissioner (Appeals), Bangalore, held that the action of the assessing officer in computing the income without giving set off of business loss or depreciation whichever is less and the further action of the assessing officer in not rectifying the mistake which was apparent from record are not in order and directed the assessing officer to set off the unabsorbed depreciation as claimed against the profits as per the P&L a/c. Being aggrieved by the order of the Commissioner (Appeals), the Revenue filed an appeal before the Tribunal, The Tribunal concurred with the view expressed by the Commissioner (Appeals), Bangalore. Being aggrieved by the same, the present appeal is filed raising the following substantial questions of law:

(i) Whether the appellate authorities were correct in directing the assessing officer to set off the unabsorbed depreciation claimed while computing book profits u/s 115JA of the Act?

(ii) Whether the appellate authorities were correct in holding that under Clause (iii) of Explanation to Sub-section (1) of Section 115JA of the Act the amount of loss brought forward or unabsorbed depreciation whichever is less as per the books of account has to be reduced from the net profit to arrive at the book profit?

(iii) Whether the appellate authorities failed to take into consideration the wordings of the provision is totally different from that of Clause (c) in view of the Explanation to Sub-section (1A) of Section 115JA of the Act?

We have heard the learned Counsel for the parties.

The learned Counsel for the revenue has placed the P&L a/c dated 31st March, 1997 which also discloses the previous transaction and which also reflects the transactions of the brought forward figures of the previous assessment years. It is noticed by the court that there was a loss of Rs. 72,80,332 in the previous year and prior to that, the assessee had an income of Rs. 78,46,018. As the income of the assessee was brought forward from the previous assessment years, the counsel for the revenue contends that, out of the business loss for the previous year has to be set off against the outstanding profits as per the books of accounts.

According to the learned senior Counsel appearing for the assessee, the arguments advanced by the learned Counsel for the revenue cannot be accepted since the profit of the previous years cannot be set off against the loss incurred during the relevant assessment year.

The learned Counsel for the revenue is unable to establish to this Court how the profit of the earlier years of assessment could be set off against the loss occurred in the current assessment year. Therefore, we are of the view that the Commissioner (Appeals), Bangalore as well as the Tribunal were justified in setting aside the order of the assessing officer since the assessing officer failed to give setoff to the unabsorbed depreciation claimed while computing the book profit u/s 115JA of the Income Tax Act in view of the loss brought forward on account of unabsorbed depreciation as per the books of accounts. Accordingly, the questions of law are answered against the revenue and in favour of the assessee.

The appeal is accordingly dismissed.