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Adj. of Unabsorbed losses or Depreciation for MAT

Posted @ November 17, 2012, 1:34 am under (Income Tax Updates)

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

The MAT is to be worked out as per books of accounts. In case the assessee company has adjusted the loss against the surplus and reserves no deduction is allowed as nothing is left out.  

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



CIT v. Madras Fertilisers ltd. (TS-514-HC-2011)Bottom of Form

Unabsorbed depreciation adjusted against general reserves cannot be claimed as deduction while computing book profit under section 115J The taxpayer was required to pay MAT under section 115J of the Act on its book profits. In computing the books profits, unabsorbed depreciation (being the lower of unabsorbed loss or  unabsorbed depreciation) was deducted as per provisions of section 115J. However, as per the balance sheet of the taxpayer for the relevant AY, there was no unabsorbed depreciation as the same had been adjusted against general reserve. The A.O. allowed the claim of the taxpayer. However, CIT invoking provision of section 263 of Act disallowed this claim. 

The HC held that based on factual position, the taxpayer  had no unabsorbed loss or unabsorbed depreciation to be carried forward in the year under consideration,

and therefore, the CIT had rightly disallowed the claim of the taxpayer in respect of adjustment pertaining to unabsorbed depreciation. 


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