Adjustment of Unabsorbed losses or Depreciation as per books of accounts for MAT

[joseph david]

For the Accounting year 2008-09-in books of accounts of ABC Ltd  there is a business loss of Rs. 1211 lacs and Depreciation loss of Rs. 1537 lacs and the total Net loss is Rs. 2748 lacs. In the same year ABC Ltd has  deferred tax asset of Rs 884 lacs. Net loss after taxation for the year is 1876 lacs. This is adjusted against surplus brought forward from previous year of  Rs. 245 lacs and the balance is adjusted against General Reserve and surplus carried to balance sheet is shown as NIL.

For the Financial year 2009-10 ABC Ltd has Business Profit of 601 lacs and Depreciation loss of 1569 lacs. The net loss (after depreciation) also is adjusted against General Reserve and surplus carried to balance sheet is shown as NIL.

Query:
In the financial year 2010-11 ABC is expecting Net profit of 930 lacs-

As per 115JB Explanation 1 (iii) from the book profit we have to reduce:

The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account –

a)As per books of accounts in the year 2008-09
Business loss            1211 lacs
Depreciation loss     1537 lacs
Lower of the two--   1211 lacs

b)As per books of accounts in the year 2009-10
Business Profit          601 lacs
Depreciation loss     1569  lacs
Lower of the two--     nil lacs


Can ABC deduct upto 930 lacs  against Net Profit of 930 lacs though ABC has adjusted in the year 2008-09 the net loss against general reserve and surplus brought forward from previous year-so that book profits will be NIL and taxable payable will be nil.

[satyanveshi]

Since long I have been thinking on this. However, I will express my opinion. Since after adjustment of losses with general reserves nothing is left out. Therefore, there is nothing to adjust in the current year. Further, MAT tax is on book profits. the losses stated were not carried forward to future years and and were absorbed against the profits earned earlier. I think this situation is not envisaged in MAT tax. or else the problem is compounded. to take into consideration of the losses how long we have to travel back in case after adjustment of depreciation loss every year there is no loss or no profit. This question really requires an answer.

[pawansingla]

The MAT is to be worked out as per books of accounts. As assessee company has adjusted the loss against the surplus and reserves. Therefore nothing is left out. There was a jdugement of bombay tribunal on the same raito. I have to search for that .

[pawansingla]

KFA Corporation Ltd. v. Joint Commissioner of Income-tax [IT APPEAL NO. 5147 (MUM) OF 2002]

Section 115JA of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 1997-98 - Assessee while working out book profit for calculating its MAT liability for relevant previous year deducted unabsorbed depreciation of earlier year contending that when compared to its total carry forward loss, such unabsorbed depreciation being lesser, it was eligible for set off against net profit for relevant previous year vide Explanation (iii) to section 115JA(2) - Assessee’s explanation was that even though book loss (inclusive of depreciation) was set off against brought forward surplus, general reserve as well as investment allowance reserve reversed back through its profit and loss account, yet such nullification of loss through transfers from earlier year’s reserve, surplus or excess provision would not deprive it from claiming deduction under Explanation (iii) to section 115JA(2) - Assessing Officer rejected assessee’s explanation - On appeal, Commissioner (Appeals) noted that once losses / unabsorbed depreciation were set off by assessee himself against brought forward credit balance of profit and loss account or excess provisions written back or transfer from general reserve or transfer from investment allowance reserve, there would be no remaining unabsorbed loss whatsoever and, thus, there was no question of any deduction that could be claimed by assessee under Explanation (iii) to section 115JA(2) - On instant appeal, it was seen that audited accounts of relevant previous year, did not have any unabsorbed depreciation or unabsorbed loss remaining to be set off - Moreover, no comments were also seen be made by statutory auditors as to any inappropriate treatment in setting off assessee’s unabsorbed depreciation or unabsorbed loss against reserves, and/or provisions written back - Whether result of aforesaid facts was that there would be nothing for assessee to deduct in terms of Explanation (iii) to sub-section (2) of Section 115JA for arriving at its book profit for relevant previous year - Held, yes - Whether, therefore, order passed by Commissioner (Appeals) was to be affirmed - Held, yes More


hope this will answer your query.

[joseph david]

Thanks for your reply-Can I get the full text of judgement-Can you attach

regards
Joseph David

KFA Corporation Ltd. v. Joint Commissioner of Income-tax [IT APPEAL NO. 5147 (MUM) OF 2002]

Section 115JA of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 1997-98 - Assessee while working out book profit for calculating its MAT liability for relevant previous year deducted unabsorbed depreciation of earlier year contending that when compared to its total carry forward loss, such unabsorbed depreciation being lesser, it was eligible for set off against net profit for relevant previous year vide Explanation (iii) to section 115JA(2) - Assessee’s explanation was that even though book loss (inclusive of depreciation) was set off against brought forward surplus, general reserve as well as investment allowance reserve reversed back through its profit and loss account, yet such nullification of loss through transfers from earlier year’s reserve, surplus or excess provision would not deprive it from claiming deduction under Explanation (iii) to section 115JA(2) - Assessing Officer rejected assessee’s explanation - On appeal, Commissioner (Appeals) noted that once losses / unabsorbed depreciation were set off by assessee himself against brought forward credit balance of profit and loss account or excess provisions written back or transfer from general reserve or transfer from investment allowance reserve, there would be no remaining unabsorbed loss whatsoever and, thus, there was no question of any deduction that could be claimed by assessee under Explanation (iii) to section 115JA(2) - On instant appeal, it was seen that audited accounts of relevant previous year, did not have any unabsorbed depreciation or unabsorbed loss remaining to be set off - Moreover, no comments were also seen be made by statutory auditors as to any inappropriate treatment in setting off assessee’s unabsorbed depreciation or unabsorbed loss against reserves, and/or provisions written back - Whether result of aforesaid facts was that there would be nothing for assessee to deduct in terms of Explanation (iii) to sub-section (2) of Section 115JA for arriving at its book profit for relevant previous year - Held, yes - Whether, therefore, order passed by Commissioner (Appeals) was to be affirmed - Held, yes More


hope this will answer your query.