MAT Computation: Unabsorbed Depreciation/Loss Deductible Even If Adjusted in Prior Years

Issue

Whether an assessee can claim a deduction for the “lower of brought forward loss or unabsorbed depreciation” (as per books) while computing Book Profit under Section 115JB, even if these losses/depreciation were already set off or adjusted against profits in earlier assessment years.

Facts

The Filing: For Assessment Year 2018-19, the assessee-company filed a return declaring Nil income after setting off brought-forward losses under normal provisions. It also reported a book loss for MAT purposes under Section 115JB.
The Adjustment: While computing “Book Profit” under Section 115JB, the assessee sought to reduce the brought forward business loss or unabsorbed depreciation (whichever is less) as per its books of account.
AO’s Disallowance: The Assessing Officer (AO) disallowed this reduction.
AO’s Reasoning: The AO argued that these losses/depreciation had already been “adjusted” or utilized in previous assessment years (2013-14 to 2015-16) and were therefore “not available” for set-off in the current year (AY 2018-19).

Decision

The Tribunal/Court ruled in favour of the assessee.
Statutory Interpretation: Relying on a binding High Court precedent, the authority interpreted Clause (iii) of Explanation 1 to Section 115JB(2). This clause explicitly mandates that the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account, must be reduced from the book profit.
Books vs. Tax Records: The calculation under Section 115JB is strictly based on the books of account, not the income tax records. Even if losses were set off for tax purposes in prior years, if they remain on the books (due to accounting treatments or cumulative balances), the statutory formula under Section 115JB allows the deduction.
Conclusion: The assessee was entitled to the set-off notwithstanding that portions of such losses had been adjusted in earlier years.

Key Takeaways

- MAT is a Self-Contained Code: The computation of Book Profit under Section 115JB is distinct from the computation of taxable income under normal provisions.
- Book Entries Govern: The deduction for brought forward loss/depreciation under Section 115JB is determined solely by the figures appearing in the company’s audited accounts (books), not by the unabsorbed loss balance carried forward in the income tax return.

“Whichever is Less”: The specific formula is to take the lower of (a) unabsorbed depreciation or (b) brought forward business loss as per books. If either is nil, no deduction is available.
No Double Jeopardy: The fact that a loss was used to reduce tax liability in Year 1 does not automatically erase it from the “Book Profit” calculation mechanism for Year 2 if the book balance persists.

IN THE ITAT CHENNAI BENCH ‘B’

Deputy Commissioner of Income-tax

Triumph International (India) (P.) Ltd.^*

GEORGE GEORGE K, Vice President
and AMITABH SHUKLA, Accountant Member

IT Appeal No.745 (Chny) of 2025
[Assessment year 2018-19]

NOVEMBER 4, 2025

S. Easwar, JCIT for the Appellant. S.P.Chidambaram, Adv. for the Respondent.

ORDER

Amitabh Shukla, Accountant Member.- This appeal is filed by the Revenue against the order bearing DIN & Order No.ITBA / APL / S / 250 / 2024-25 / 1070565073(1) dated 22.11.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), Chennai-16, for the assessment year 2018-19. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time.

2. It has been noted that there is a delay of 39 days in the case, in filing of this appeal before the tribunal. In its affidavit the Revenue has pleaded that the matter involved preparation of scrutiny report after obtaining TPO’s comments and that extra time got consumed in the said exercise. All these activities contributed to the delay which was neither willful nor wanton. The Revenue submitted that there will not be case of any non-compliance now. We have considered the justification put forth by the Revenue and we are satisfied with their adequacy. The Ld. AR did not pose any serious objections to the delay. Accordingly, we hereby condone the delay and proceed to adjudicate this appeal.

3. The only issue contested by the Revenue through its grounds of appeal is regarding the decision of Ld.CIT(A) in deleting the addition of Rs.23,79,08,002/- on account of unobserved depreciation. Brief factual matrix of the case is that the assessee company M/s. Triumph International (India) Private Limited, a wholly-owned subsidiary of Triumph Universa AG, is engaged in the manufacture and sale of women’s foundation garments. For the Assessment Year 2018-19, the assessee filed its return of income on 04.03.2019, declaring a nil total income after setting off brought forward losses against the declared income of Rs. 15,66,94,670. Under Section 115JB, the assessee declared a book loss of Rs. 18,38,54,882. The Ld.Assessing Officer completed the assessment under Section 143(3) read with Section 144C on 30.11.2021, computing the book profit under Section 115JB at Rs. 5,40,53,120, disallowing the assessee’s claim of set-off of brought forward losses/unabsorbed depreciation amounting to Rs. 23,79,08,002/-. The AO held the view that these losses have already been adjusted in earlier years (AYs 2013-14 to 2015-16) and therefore were not available for set-off in AY 2018-19. Aggrieved, the assessee contested the matter and the Ld.CIT(A) vide is order dated 22.11.2024, allowed the assessee’s appeal on the issue of set-off of losses under Section 115JB, relying on the decision of the Hon’ble Karnataka High Court in Pr. CIT (Appeals) v. Bangalore International Airport Ltd. (Karnataka), which was upheld by the Hon’ble Supreme Court by dismissal of the SLP (Principal Commissioner of Income-tax v. Bangalore International Airport Ltd. (SC).

4. The Ld.Counsel for the Revenue vehemently argued that the order of the Ld.CIT(A) is erroneous being in conflict with correct appreciation of the facts of the case. It was argued that the Ld.AO had already considered allowance of the impugned losses amounting to Rs. 23,79,08,002/- in AYs 2013-14 to 2015-16 and therefore the same could not have been allowed this year. It was contested that the reliance of Ld.CIT(A) upon the decision of Hon’ble Karnataka High Court in the case of Bangalore International Airport (supra) is misplaced. The Ld.DR argued that its case is covered by the decision of this tribunal in the case of Lakshmi Machine Works v. Asstt. CIT [2010] 126 ITD 343 (Chennai) and of Authority for advance Rulings, Delhi as at Rashtriya Ispat Nigam Ltd., In re v (AAR – New Delhi).. It was contended that the scheme prescribed u/s 115JB(2) deserves to be complied with.

5. The Ld.Counsel for the assessee vehemently argued in favour of the order of Ld.CIT(A). It was submitted that it was requested to submit the details regarding of claim of its losses under MAT provisions and to show cause why losses claimed under MAT provisions should not be disallowed. It was argued that without appreciating the submissions of the assessee the disturbance was made to its total income and tax demand raised. The Ld.Counsel argued that the Ld.CIT(A) vide his order dated 22 Nov 2024 correctly allowed the set-off of losses claimed amounting to Rs.5,40,53,120, being cumulative balance of unabsorbed depreciation as per books of accounts the Respondent, under MAT provisions of the Act by relying on the Karnataka decision in the case of Bangalore International Airport Ltd. (supra).

6. The Ld.Counsel for the assessee submitted that, as per Explanation under sub-section (2) of Section 115JB of the Act, “book profit” is the net profit shown in the Profit and Loss account as prepared under Sub-section (2) to be reduced, inter-alia, by the amount of loss brought forward or unabsorbed depreciation whichever is less, amongst various other adjustments. Attention was invited to the following extract of the impugned explanation:-

“(iii) The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation- For the purposes of this clause,

(a) The loss shall not include depreciation;

(b) The provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil”

Thus, it was argued that the assessee has set off the lower of (i) total amount of loss brought forward (excluding unabsorbed depreciation) as per books of accounts and (ii) total amount of unabsorbed depreciation as per books of accounts for the purposes of set off against the book profits made in the year under consideration. It was argued that the Ld.AO has actually set off the profits earned in earlier AY’s from the quantum of unabsorbed depreciation. Accordingly, the Ld.AO re-determined the quantum of unabsorbed depreciation available for set off in year under consideration as ‘Nil’ and consequently re-determined the lower of the loss brought forward or unabsorbed depreciation as Nil.

7. It is the case of the assessee that the MAT provisions under section 115JB do not explicitly prescribe the method of set of losses. Explanation to section 115JB(2) of the Act only provides for the mechanism to determine the amount which needs to be reduced from the book profits and it does not suggest its character as to whether the determined amount is brought forward business loss or unabsorbed depreciation. Reference was also drawn to the concept of “set off” of the amount of a “loss” of an earlier year against the amount of an “income” of the later year under the normal provisions of the Act. It was explained that sections 71B, 72(1), 73(2), 73A(2), 74(1), 74A(3)] are different from the language employed under MAT provisions under section 115JB inasmuch as it merely prescribes only the quantum of deduction while computing book profits and not the manner of set off of losses. The Ld.AR thus argued that the provisions of section 115JB of the Act provides for only a mechanism to determine the amount which will go to reduce the book profits and not the mechanism to set-off such amount from either the brought forward losses or unabsorbed depreciation. It was urged that as long as there is sufficient book losses and unabsorbed depreciation, the lower of the two needs to be set off against the book profits under section 115JB of the Act. Reference was also invited to documents placed in its paper book indicating availability of sufficient brought forward book losses for adjustment in the subject AY under the MAT provisions.

8. The Ld.Counsel further argued placing reliance upon the decision of the Hon’ble Karnataka High Court in the case of Bangalore International Airport Ltd. (supra) wherein the HC held that cumulative brought forward losses or unabsorbed depreciation as per books of accounts should be considered for set off from the profits while computing book profits under section 11JB:

“12. We have carefully perused the explanation to section 115JB of the Act. Clause 2(iii) of Explanation 1 (i)of section 115JB makes it clear that the amount of loss brought forward or unabsorbed depreciation which ever is less as per the books of accounts must be permitted to be set off. The CIT(A)2 and the ITAT3 placing reliance on CBDT4 Circular No. 495 dated September 22, 1987, have rightly held that the cumulative brought forward losses or unabsorbed depreciation should be considered for set off. In view of unambiguous language employed in the statute, no exception can be taken with ITAT’s order confirming the CIT(A)’s order holding hat the assessee is entitled to claim set off. So far as the actual amount is concerned, the ITAT has remitted the matter to the Assessing Officer. However, on principle, the ITAT has rightly held that the assessee is entitled to claim set off. “

It was further argued that the Special Leave Petition (SLP) in. Bangalore International Airport Ltd.(supra) filed against the above decision by the Revenue stands dismissed by the Supreme Court.

9. The assessee has placed further reliance upon the decision of the Hon’ble Kolkata Tribunal in the case of Dy. CIT v. Binani Industries Ltd (Kolkata – Trib.) holding that cash loss or depreciation loss once adjusted/reduced from book profits in earlier AY’s, do not vanish out of the books until it is wiped out by profits in subsequent years. The relevant extract of the decision is as under:

“3.2.We are in agreement with the arguments of the Learned AR that the losses (both cash loss and depreciation loss) would continue to remain in the books of accounts till it is wiped off by earning profits by the assessee company and accordingly the same would be available for reduction from book profits u/s 115JB of the Act. We hold that the least of the cash loss or depreciation loss once adjusted/reduced from book profits in earlier assessment years, do not vanish out of the books until it is wiped out by profits in subsequent years. Till such time, the losses would only continue to remain in the books. We hold that for the purpose of computation of book profits u/s 115JB of the Act, every year the situation of least of cash loss and depreciation loss needs to be worked out and reviewed and accordingly the understanding of the Learned AO that such loss once adjusted in earlier year is no longer available for set off is misconceived. Hence we do not find any infirmity in the order of the Learned AO-NAFAC in this regard.”

10. It was submitted that the Assessing Officer has followed the aforesaid decision while computing the losses available for set off:

“The same is being done in the MAT computation worked upon by this office. Such losses continue to be in books of account of the assessee until wiped out by the book profits in subsequent years. The setting off of such losses (cash loss or deprecation loss) by book profits year by year represents their wiping out in phases, ultimately leading them to vanish (turn to nil).”

“The tribunal clearly states the in the computation of book profits u/s 115JB, least of cash loss and depreciaton loss needs to be worked out and reviewed, which in the case of assessee was not clearly done, whereas done in the MAT computation given by this office(refer excel sheet attached)”

It is the case of the assessee that the Ld.AO has not followed the above decision and has re-worked out the MAT computation as opposed to the prescription in the impugned decision of the tribunal in Binani Industries (supra). It was argued that the Tribunal clearly prescribed that the lower of the loss brought forward or the unabsorbed depreciation do not vanish from the books of accounts unless wiped out by the profits in subsequent years. The Tribunal has held that for each year for the purposes of computation of book profits under section 115JB of the Act, the loss brought forward and the unabsorbed depreciation needs to be worked out as per books of account. It was suggested that the Hon’ble Delhi Tribunal in their decision in case of GO Airlines (India) Ltd. v. Deputy Commissioner of Income Tax (Mumbai – Trib.) has followed the decision of the Binani Industries (supra) issued by the Kolkata Tribunal and held that unless the entire loss as per books of account gets wiped out by profits earned in subsequent years, the said loss would continue to remain in the balance sheet of the assessee i.e. “books of accounts” and would be eligible for reduction in accordance with clause (iii) of Explanation 1 to Section 115JB of the Act, while computing book profits u/s. 115JB of the Act.

11. We have heard rival submissions in the light of material available on records. We have noted that in this case the issue seminal to the controversy is that whether the loss as per the books of accounts once reduced from books profits in earlier years would not be available for reduction in the subsequent years and the losses would continue to remain in the books of accounts till they are wiped out by profit derived by the assessee. We have also noted that Hon’ble Karnataka High Court in the case of Bangalore International Airport supra has decided the issue in assessee’s favour holding that “. Clause 2(iii) of Explanation 1 (i)of section 115JB makes it clear that the amount of loss brought forward or unabsorbed depreciation which ever is less as per the books of accounts must be permitted to be set off. The CIT(A)2 and the ITAT3 placing reliance on CBDT4 Circular No. 495 dated September 22, 1987, have rightly held that the cumulative brought forward losses or unabsorbed depreciation should be considered for set off. In view of unambiguous language employed in the statute, no exception can be taken with ITAT’s order confirming the CIT(A)’s order holding hat the assessee is entitled to claim set off. So far as the actual amount is concerned, the ITAT has remitted the matter to the Assessing Officer. However, on principle, the ITAT has rightly held that the assessee is entitled to claim set off.”

We have also noted that the impugned decision of Hon’ble Karnataka High Court has become the law of the land in as much as the SLP of the Revenue stands dismissed. We have noted that the Ld.CIT(A) has followed the said decision while giving relief to the assessee. The case laws relied upon by the Revenue have been considered and found to be distinguished on true facts. Further, we have also noted that the order of an Hon’ble Karnataka High Court (supra) of, even a non-jurisdictional high court, in the scheme of judicial discipline, occupies a higher persuasive value. Accordingly, in respectful compliance to the decision of Hon’ble Karnataka High Court (supra), we are of the considered view that there is no case for any intervention to the order of the Ld.CIT(A) at this stage. Accordingly, we uphold the decision of the Ld.CIT(A) and dismiss all grounds of appeal raised by the Revenue.

12. In the result, the appeal of the Revenue is dismissed.