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PVR Pictures Ltd, New Delhi. Vs. Deputy Commissioner of Income Tax - (Income Tax Appellate Tribunal) (10 Mar 2023)

Assessee is entitled to reduce the book profits by the amount of loss brought forward (excluding depreciation) or unabsorbed depreciation


Direct Taxation

The assessee has challenged the computation of adjustment allowable in terms of clause (iii) of Explanation-1 to Section 115JB(2) of Income Tax Act, 1961 for computation of book profits made by the Assessing Officer resulting in lower adjustment to the extent of Rs.93,06,502.

Clause (iii) of Explanation-1 to Section 115JB(2) of the Act states that an assessee is entitled to reduce the book profits by the amount of loss brought forward (excluding depreciation) or unabsorbed depreciation, whichever is less as per books of account.

The assessee has correctly considered the figure of unabsorbed depreciation for Financial Year 2010-11 at Rs.22,18,04,962 in its working which portion has remained unabsorbed against the existing book profits of that year. The CIT(A) has wrongly considered the entire depreciation allowance of Rs.39,38,03,227 instead of restricting itself to the unabsorbed component. The figure of Rs.39,38,03,227 considered by the CIT(A) is total depreciation allowance instead of unabsorbed depreciation and thus the position taken by the CIT(A) is contrary to the phraseology of clause (iii) of Explanation-1 to Section 115JB(2).

To reiterate clause (iii) of Explanation-1 to Section 115JB(2) uses the expression ‘unabsorbed depreciation’ which has distinct connotations vis-à-vis total depreciation. Present Tribunal thus find merit in the plea of the assessee in justification of the computation of adjustment available to it against the book profit.

In this view of the matter, the claim of the assessee of Rs.93,06,502 being lower of unabsorbed depreciation and business loss deserves to be set off against the current year book profit in terms of the provisions of clause (iii) of Explanation-1 of Section 115JB(2) of the Act. Hence, the action of the CIT(A) is reversed. The appeal of the assessee is allowed.


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