MAT Adjustment Must Be Based on Lower of Business Loss or Depreciation: ITAT Dismisses Appeal of Sungroup Enterprises [Read Order]
The Tribunal relied on accounting records and prior year financial statements of the assessee to determine the correct figures of brought-forward business loss and unabsorbed depreciation
Sungroup Enterprises, ITAT New Delhi, MAT Adjustment
Sungroup Enterprises, ITAT New Delhi, MAT Adjustment
The Bench of the Income Tax Appellate Tribunal (ITAT), New Delhi, held that the lower of the unabsorbed depreciation or business loss, as per the books of account, must be adjusted against the current year’s profit while computing Minimum Alternate Tax (MAT).
The appellant, Sungroup Enterprises (P) Ltd., is engaged in providing investment advisory and management consultancy services, filed its return of income for Assessment Year 2012-13 declaring a total income of Nil. The return was selected for scrutiny and reassessed under Section 147 read with Section 143(3)of the Income Tax Act, 1961.
The Assessing Officer (AO) determined a deemed total income of ₹85,75,056 under Section 115JB by making adjustments to the brought-forward business losses and unabsorbed depreciation, resulting in an addition of ₹57,20,752.
Aggrieved by this computation, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals), New Delhi [CIT(A)], challenging the AO’s calculation and the method adopted for setting off losses under Section 115JB. The CIT(A) upheld the addition, leading to an appeal.
Represented by Rohit Garg, the appellant contended that under Section 115JB, the assessee is entitled to set off either the brought-forward business loss or unabsorbed depreciation, whichever is lower, for each financial year separately. It was argued that the AO’s computation was contrary to the financial statements and the intent of the provision.
It was submitted that the AO had misapplied the MAT provisions by aggregating losses and depreciation in a manner contrary to accounting principles and statutory language. It was further submitted that it had consistently followed the correct method of determining the lower of the two figures on a year-by-year basis.
Represented by Vivek Kumar Upadhyay, the Revenue submitted that the appellate authority correctly applied the statutory provisions and recomputed the set-off of business losses and unabsorbed depreciation in line with accounting and legal principles.
The Bench comprising Vikas Awasthy, Judicial Member and S. Rifaur Rahman, Accountant Member upheld the order of the CIT(A). The Bench observed that Explanation 1(iii) to Section 115JB mandates that the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per the books of account, shall be deducted while computing book profits.
Further, Explanation 2 clarifies that “loss” does not include depreciation, meaning the two must be segregated for accurate computation.
The Bench referred to M/s. Milan Intermediates LLP v. ITO (2018), which held that the taxpayer cannot choose the order of set-off between business loss and unabsorbed depreciation. The lower of the two figures must be reduced first from the profits for the year.
Thus, the Tribunal found that the CIT(A)’s approach in recalculating the unabsorbed losses and depreciation was consistent with these principles.
Accordingly, the Tribunal held that the CIT(A) correctly applied the provisions of Section 115JB and upheld the adjustment methodology.
Finding no infirmity in the order, the appeal was dismissed.
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