IN INCOME TAX APPELLATE TRIBUNAL C BENCH, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA No.510/Bang/2014 (Assessment year: 2010-11) Bangalore International Airport Ltd. Administration Block, BIAL, Devanahalli Bangalore-560 300. Appellant PAN:AABC8973D Vs. Deputy Commissioner of Income-tax, Circle 11(2), Bangalore. Respondent AND ITA No.662/Bang/2014 (Assessment year: 2010-11) Deputy Commissioner of Income-tax, Circle 11(2), Bangalore. Appellant Vs. Bangalore International Airport Ltd. Bangalore-560 300. Respondent Revenue by : Shri Sanjay Kumar, CIT(DR) Assessee by : Shri Sampath Raghunathan, Advocate Date of hearing : 27/07/2016 Date of pronouncement : 27/09/2016 O R D E R Per INTURI RAMA RAO, AM : These are cross-appeals filed by assessee as well as revenue directed against order of Commissioner of ITA Nos.510 & 662/Bang/2014 Page 2 of 37 Income-tax-I, Bangalore [CIT(A)] dated 27/01/2014 for assessment year 2010-11. 2. Briefly facts of case are that assessee is company duly incorporated under provisions of Companies Act, 1956. Return of income for assessment year 2010-11 was filed on 30/09/2010 declaring loss of Rs.26,35,60,265/- under normal provisions of Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. After processing said return of income under sec.143(1), case was selected for scrutiny assessment by issuing requisite statutory notice us 143(2) of Act dated 25/08/2011 and assessment was completed u/s 143(3) vide order dated 19/03/2013. While doing so, AO made following additions: i) Foreign exchange gain ... Rs.298,93,65,068/- ii) Concession fee payable to Govt. of India ... Rs. 20,43,03,000/- iii)Disallowance of depreciation on Rs. 4,00,01,168/- intangible assets ... Assessing Officer (AO) denied claim of assessee- company to set off of lower of unabsorbed depreciation or book loss whichever is less on ground that computation of loss brought forward business loss or depreciation whichever is less as per books of account is to be done on year to year basis and same cannot be claimed on cumulative basis. ITA Nos.510 & 662/Bang/2014 Page 3 of 37 Following this principle, AO disallowed claim of Rs.36,33,43,000/- u/s 115JB of Act. 3. Being aggrieved, appeal was preferred before CIT(A), who vide impugned order partly allowed assessee s appeal. 4. CIT(A) allowed claim of assessee that gain on account of fluctuation in foreign exchange of Rs.29,893,65,068/- is not taxable as external commercial borrowing was taken on capital account following law laid down by Hon ble Delhi High Court in case of CIT vs. Woodward Governor India (P) Ltd.(294 ITR 451). Regarding disallowance of concessional fee payable to Government of India of Rs. 20,43,03,000/-, CIT(A), after referring to terms of concession agreement entered by assessee-company with Government of India held that concession fee payable by assessee-company in terms of agreement entered by it with Ministry of Civil Aviation, Govt. of India, does not fall within purview of section 43B of Act. 4.1 As regards disallowance of depreciation on tangible assets, CIT(A) has confirmed disallowance by holding that no evidence was furnished evidencing incurring of any cost to acquire any such rights. ITA Nos.510 & 662/Bang/2014 Page 4 of 37 4.2 As regards disallowance of expenditure on repairs and maintenance to buildings and repairs and maintenance on machinery, CIT(A) confirmed addition on account of repairs to buildings as assessee-company had failed to furnish details with regard to nature of expenditure incurred whereas in respect of repairs and maintenance on machinery and others, CIT(A) has allowed to extent of Rs.17,16,79,432/- and balance of Rs.1,88,69,560/- was confirmed by him by holding that assessee-company furnished details of expenditure on repairs and in respect of machinery and others only to extent of Rs.17,16,79,432/-. 4.3 With regard to set off of lower of brought forward business loss or unabsorbed depreciation against book profits for purpose of computing tax liability u/s 115JB, CIT(A) held that lower or loss or depreciation whichever is lower should be considered on cumulative basis for purpose of set off against book profits while computing tax liability u/s 115JB of Act. Thus, appeal was partly allowed by CIT(A). 5. Being aggrieved by that part of order of CIT(A) granting relief to assessee-society, revenue has preferred ITA No.662/Bang/2014 raising following grounds of appeal: ITA Nos.510 & 662/Bang/2014 Page 5 of 37 6. Ground Nos.1, 5 and 6 are general in nature and do not require any adjudication. 7. Ground No.2 challenges direction of CIT(A) holding that foreign exchange gains are capital in nature which we shall deal with now. ITA Nos.510 & 662/Bang/2014 Page 6 of 37 8. background facts to this ground of appeal are as follows: During course of assessment proceedings, AO noticed that assessee-company made foreign exchange gain of Rs.29,83,65,068/-. This amount was, though credited to profit and loss account, was claimed as deduction while computing taxable income under business head. It was contended by assessee-company, during course of assessment proceedings that gain was on account of re-statement of external commercial borrowing which was utilized for capital purpose by assessee-company. In support of same, assessee-company had produced sample copies of ECB returns filed before Reserve Bank of India (RBI) conveying that commercial borrowings were made only for capital purpose. However, AO had called upon assessee-company to file complete details and evidence supporting this contention. It was observed in assessment order that assessee-company had failed to do so. Hence, AO had drawn adverse inference and made addition of Rs.29,83,65,068/-. 9. On before CIT(A), CIT(A) had concluded that ECB external commercial borrowings on which foreign exchange gain was earned was utilized on capital account based on ECB returns filed before RBI. After concluding that gain made on account of foreign exchange fluctuation is on capital account, after referring to judgment of Hon ble Delhi High Court in case of CIT vs. Woodward Governor India (P) Ltd. (294 ITA Nos.510 & 662/Bang/2014 Page 7 of 37 ITR 451) and after referring to CBDT circular No.5 dated 09/10/1967 held that gain made on account of restatement of external commercial borrowings is on capital account and not liable to tax. relevant finding of CIT(A) is as follows: ITA Nos.510 & 662/Bang/2014 Page 8 of 37 ITA Nos.510 & 662/Bang/2014 Page 9 of 37 10. Before us, learned CIT(DR) vehemently contended that CIT(A) ought not to have concluded that foreign exchange gains made on account of re-statement of external commercial borrowings is on capital account without appreciating evidence on record. ITA Nos.510 & 662/Bang/2014 Page 10 of 37 On other hand, learned authorized representative of assessee relied on findings of CIT(A). 11. We heard rival submissions and perused material on record. issue in this ground of appeal is whether gains made on account of restatement of foreign exchange loan on capital account should be treated as capital receipt. This issue requires to be adjudicated in light of provisions of section 43A of Act. said provisions of section 43A are as under: 43A. Special provisions consequential to changes in rate of exchange of currency.- Notwithstanding anything contained in any other provision of this Act, where assessee has acquired any asset in any previous year from country outside India for purposes of his business or profession and, in consequence of change in rate of exchange during any previous year after acquisition of such asset, there is increase or reduction in liability of assessee as expressed in Indian currency (as compared to liability existing at time of acquisition of asset) at time of making payment (a) towards whole or part of cost of asset; or (b) towards repayment of whole or part of moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for purpose of acquiring asset along with interest, if any, amount by which liability as aforesaid is so increased or reduced during such previous year and which is taken into account at time of making payment, irrespective of method of accounting adopted by assessee, shall be added to, or, as case may be, deducted from (i) actual cost of asset as defined in clause (1) of section 43; or ITA Nos.510 & 662/Bang/2014 Page 11 of 37 (ii) amount of expenditure of capital nature referred to in clause (iv) of sub- section (1) of section 35; or (iii) amount of expenditure of capital nature referred to in section 35A; or (iv) amount of expenditure of capital nature referred to in clause (ix) of sub-section (1) of section 36; or (v) cost of acquisition of capital asset (not being capital asset referred to in section 50) for purposes of section 48, and amount arrived at after such addition or deduction shall be taken to be actual cost of asset or amount of expenditure of capital nature or, as case may be, cost of acquisition of capital asset as aforesaid: Provided that where addition to or deduction from actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by Finance Act, 2002, on account of increase or reduction in liability as aforesaid, amount to be added to, or, as case may be, deducted under this section from, actual cost or expenditure or cost of acquisition at time of making payment shall be so adjusted that total amount added to, or, as case may be, deducted from, actual cost or expenditure or cost of acquisition, is equal to increase or reduction in aforesaid liability taken into account at time of making payment. Explanation 1. In this section, unless context otherwise requires, (a) rate of exchange means rate of exchange determined or recognised by Central Government for conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) foreign currency and Indian currency have meanings respectively assigned to them in section 2 of Foreign Exchange Management Act, 1999 (42 of 1999). ITA Nos.510 & 662/Bang/2014 Page 12 of 37 Explanation 2. Where whole or any part of liability aforesaid is met, not by assessee, but, directly or indirectly, by any other person or authority, liability so met shall not be taken into account for purposes of this section. Explanation 3. Where assessee has entered into contract with authorised dealer as defined in section 2 of Foreign Exchange Management Act, 1999 (42 of 1999), for providing him with specified sum in foreign currency on or after stipulated future date at rate of exchange specified in contract to enable him to meet whole or any part of liability aforesaid, amount, if any, to be added to, or deducted from, actual cost of asset or amount of expenditure of capital nature or, as case may be, cost of acquisition of capital asset under this section shall, in respect of so much of sum specified in contract as is available for discharging liability aforesaid, be computed with reference to rate of exchange specified therein. Originally, provisions of section 43A were introduced in Act by Finance Act 1967 w.e.f. 1/4/1967 to provide for adjustment in actual cost of assets pursuant to change in foreign exchange rates. As result of insertion of this provision, cost of capital asset on account of exchange fluctuation is required to be adjusted and depreciation is to be allowed with reference to adjusted actual cost. This position was clarified by CBDT in Circular No.5 dated 09/10/1967 which is as under: ITA Nos.510 & 662/Bang/2014 Page 13 of 37 11.1 Even Accounting Standard 11 issued by Institute of Chartered Accountants also provides for similar adjustment. However, provisions of section 43A were amended by Finance Act, 2002 w.e.f. 1/3/2003 to provide that this adjustment is required to be made only at time of making payment. In other words, prior to amendment of section 43A, adjustment was required to be made at end of every year on account of rate fluctuation. This position was made amply clear by Hon ble Supreme Court in case of CIT vs. Woodward Governor (P) Ltd. (312 ITR 254): 30. Section 43A starts with non obstante clause. Section 43A(1) overrides other provisions only as regards cases falling under that sub-section. For instance, in case where asset is acquired, or liability to pay in foreign exchange arises, after change in rate of exchange, said sub-section has no application and general principles of law must be ITA Nos.510 & 662/Bang/2014 Page 14 of 37 applied in deciding whether actual cost is increased or reduced as result of such change. In other words, section 43A(1) applies only where as result of change in rate of exchange there is increase or reduction in liability of assessee in terms of Indian rupee to pay price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for purpose of acquiring asset. Section 43A(1), therefore, has no application unless asset is acquired and liability existed, before change in rate of exchange takes effect. In such case, section 43A contemplates recomputation of cost of assets for purposes of depreciation [Sections 32 and 43(1)], and also as regards capital assets for scientific research [section 35(1)(iv )] and also regarding patent rights or copyrights [Section 35A]. 31. As held in Arvind Mills Ltd. s case (supra) increase or decrease in liability in repayment of foreign loan should be taken into account to modify figure of actual cost in year in which increase or decrease in liability arises on account of fluctuation in rate of exchange. Thus, adjustments in actual cost are to be made irrespective of date of actual payment in foreign currency made by assessee. This position also finds place in clarification issued by Ministry of Finance dated 4-1-1967 which inter alia reads as under : "2. Government agrees that for purposes of calculation of depreciation allowance, cost of capital assets imported before date of devaluation should be written off to extent of full amount of additional rupee liability incurred on account of devaluation and not what is actually paid from year to year. proposed legal provision in matter is intended to be framed on this basis." [Emphasis supplied] 32. One more aspect needs to be mentioned. Section 43(1) defines actual cost for purpose of grant of depreciation etc. to mean "the actual cost of assets to assessee". Till insertion of unamended section 43A there was no provision in Income-tax Act for adjustment of actual cost which was fixed once and for all, at time of acquisition of asset. Accordingly, no adjustment could be made in actual cost of assets for purposes of grant of depreciation for any increase/decrease of liability subsequently arising due to exchange fluctuation. Consequently, section 43A was introduced in Act by Finance Act, 1967 with effect from 1-4-1967 in above terms to provide for ITA Nos.510 & 662/Bang/2014 Page 15 of 37 adjustment in actual cost of assets pursuant to change in foreign currency exchange rates. As consequence of insertion of said section, it became possible to adjust increase/decrease in liability relating to acquisition of capital assets on account of exchange rate fluctuation, in actual cost of assets acquired in foreign currency and for, inter alia, depreciation to be allowed with reference to such increased/decreased cost. This position is also made clear by Circular No. 5-P, dated 9-10-1967 issued by CBDT. One more point needs to be mentioned. Section 43A (unamended) corresponds to para 10 of AS-11 similarly providing for adjustment in carrying cost of fixed assets acquired in foreign currency, due to foreign exchange fluctuation at each balance sheet date. relevant para reads as follows : "10. Exchange differences arising on repayment of liabilities incurred for purpose of acquiring fixed assets, which carried in terms of historical cost, should be adjusted in carrying amount of respective fixed assets. carrying amount of such fixed assets should, to extent not already so adjusted or otherwise accounted for, also be adjusted to account for any increase or decrease in liability of enterprise, as expressed in reporting currency by applying closing rate, for making payment towards whole or part of cost of assets or for repayment of whole or part of monies borrowed by enterprise from any person, directly or indirectly, in foreign currency specifically for purpose of acquiring those assets." 33. As stated above, what triggers adjustment in actual cost of assets, in terms of unamended section 43A of 1961 Act is change in rate of exchange subsequent to acquisition of asset in foreign currency. section mandates that at any time there is change in rate of exchange, same may be given effect to by way of adjustment of carrying cost of fixed assets acquired in foreign currency. But for section 43A which corresponds to para 10 of AS-11 such adjustment in carrying amount of fixed assets was not possible, particularly in light of section 43(1). unamended section 43A nowhere required as condition precedent for making necessary adjustment in carrying amount of fixed asset that there should be actual payment of increased/decreased liability as consequence of exchange variation. words ITA Nos.510 & 662/Bang/2014 Page 16 of 37 used in unamended section 43A were "for making payment" and not "on payment" which is now brought in by amendment to section 43A vide Finance Act, 2002. 34. Lastly, we are of view that amendment of section 43A by Finance Act, 2002 with effect from 1- 4-2003 is amendatory and not clarificatory. amendment is in complete substitution of section as it existed prior thereto. Under unamended section 43A adjustment to actual cost took place on happening of change in rate of exchange whereas under amended section 43A adjustment in actual cost is made on cash basis. This is indicated by words "at time of making payment". In other words, under unamended section 43A, "actual payment" was not condition precedent for making necessary adjustment in carrying cost of fixed asset acquired in foreign currency, however, under amended section 43A with effect from 1-4-2003 such actual payment of decreased/enhanced liability is made condition precedent for making adjustment in carrying amount of fixed asset. This indicates complete structural change brought about in section 43A vide Finance Act, 2002. Therefore, amended section is amendatory and not clarificatory in nature. 11.2 Thus, principle enunciated in above decision is that adjustment on account of foreign exchange rate fluctuation is required to be made to actual cost as at end of every year prior to amendment of provisions of section 43A i.e. before 1/4/2003. In present case, assessment year involved is 2010-11. Therefore, amended provisions of section 43A are applicable. As per amended provisions of section 43A, adjustment is required to be made in actual cost of asset for purpose of allowing depreciation only at time of actual payment of such ECB borrowings. Therefore, we are of considered opinion that CIT(A) was right in holding that gains arising on account of exchange fluctuation are not liable to ITA Nos.510 & 662/Bang/2014 Page 17 of 37 tax as it is on capital account and is required to be adjusted in year of actual repayment of loan from actual cost of asset. To this extent, direction of CIT(A) is modified and grounds of appeal are partly allowed. 12. Ground No.3 challenges direction of CIT(A) in allowing sum of Rs.17,16,79,432/- out of Rs.19,05,43,000/- under repairs and maintenance. AO has disallowed sum of Rs.19,05,43,000/- claimed as repairs and maintenance expenses towards machinery and others. AO disallowed on ground that assessee could not furnish details of repairs and maintenance of machineries incurred by it for each and every year supported by relevant documents by way of invoice bills, agreements etc. 13. However, before CIT(A), assessee had furnished details of expenditure incurred towards repairs and maintenance on machineries and others as follows: ITA Nos.510 & 662/Bang/2014 Page 18 of 37 balance details were not filed and therefore, confirmed addition of Rs.1,88,63,568/- and also confirmed addition towards repairs and maintenance and others as no details were filed. 14. Before us, learned CIT(DR) argued that CIT(A) ought not to have allowed sum of Rs.17,16,77,432/- out of Rs.19,05,43,000/- incurred towards repairs of machinery and others without examining true nature of expenditure with reference to invoices etc. He merely accepted details filed before him. ITA Nos.510 & 662/Bang/2014 Page 19 of 37 On other hand, learned authorised representative of assessee submitted that details of expenditure runs into voluminous and furnishing of entire details is cumbersome. entire expenditure is incurred only towards consumables, machineries etc. 15. We heard rival submissions and perused material on record. CIT(A) had merely allowed repairs and maintenance towards machinery and other expenditure of Rs.17,16,77,432/- based on account-wise details filed before him without examining in detail true nature of expenditure incurred with reference to invoices, bills etc. In our considered opinion, CIT(A) not to have allowed same without examining true nature of expenditure with reference to external evidence. Therefore, to meet ends of justice, we remit this ground to file of AO for fresh adjudication after affording due opportunity to assessee. 16. fourth ground of appeal challenges direction of CIT(A) to reduce sum of Rs.1,31,59, 000/- being lower of brought forward loss or depreciation from book profit under section 115JB of Act. assessee, while calculating tax liability under section 115JB of Act, had claimed set off of brought forward loss of Rs.36,33,40,000/- from declared net profit of Rs.83,62,22,838/-. For purpose of arriving at amount of loss or depreciation which is eligible for set off against ITA Nos.510 & 662/Bang/2014 Page 20 of 37 book profit, had considered amount of loss or depreciation on cumulative basis as per books of account, whereas AO was of view that amount of loss or depreciation is to be considered on year to year basis in terms of CBDT circular No.495 dated 22/9/1987. Accordingly, AO disallowed entire claim of assessee. However, on appeal before CIT(A), CIT(A) following decision of Hon ble ITAT, Bombay in case of Amline Textiles (P.) Ltd. vs. ITO (27 SOT 152) directed AO to compute amount of loss or depreciation on cumulative basis which is given as under: 17. Being aggrieved by this direction, revenue is in appeal before us. 18. In present ground, dispute is with regard to method of computing amount of loss or depreciation, whichever is less, for purpose of setting off against declared book profit for year. provisions of section 115JB read as under: ITA Nos.510 & 662/Bang/2014 Page 21 of 37 Special provisions for payment of tax by certain companies. 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in case of assessee, being company, income-tax, payable on total income as computed under this Act in respect of any previous year relevant to assessment year commencing on or after 1st day of April, 77 [2012], is less than 71 [eighteen and one-half per cent] of its book profit, 79{such book profit shall be deemed to be total income of assessee and tax payable by assessee on such total income shall be amount of income-tax at rate of ten percent. (2) Every assessee, being company, shall, for purposes of this section, prepare its profit and loss account for relevant previous year in accordance with provisions of &Tarts I I and Ill of Schedule VI to Companies Act, 1956 (1 of 1956) Provided that while preparing annual accounts including profit and loss account, i. accounting policies; ii. accounting standards adopted for preparing such accounts including profit and loss account; iii. method and rates adopted for calculating depreciation, shall be same as have been adopted for purpose of preparing such accounts including profit and loss account and laid before company at its annual general meeting in accordance with provisions of section 210 of Companies Act, 1956 (1 of 1956) : Provided further that where company has adopted or adopts financial year under Companies Act, 1956 (1 of 1956), which is different from previous year under this Act, i. accounting policies; ii. accounting standards adopted for preparing such accounts including profit and loss account; iii. method and rates adopted for calculating depreciation, ITA Nos.510 & 662/Bang/2014 Page 22 of 37 shall correspond to accounting policies, accounting standards and method and rates for calculating depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within relevant previous year. Explanation I For purposes of this section, "book profit" means net profit as shown in profit and loss account for relevant previous year prepared under sub-section (2), as increased by a) amount of income-tax paid or payable, and provision therefor; ot b) amounts carried to any reserves, by whatever name called other than reserve specified under section 33AC; or c) amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or d) amount by way of provision for losses of subsidiary companies; e) or amount or amounts of dividends paid or proposed ; or f) amount or amounts of expenditure relatable to any income to which section 10 (other than provisions contained in clause (38) thereof) or section 11 or section 12 apply; or g) amount of depreciation h) amount of deferred tax and provision therefor, i) amount or amounts set aside as provision for diminution in value of any asset, if any amount referred to in clauses (a) to (i) is debited to profit and loss account and as reduced by - (i) amount withdrawn from any reserve or provision (excluding reserve created before 1st day of April, 1997 otherwise than by way of debit to profit and loss account), if any such amount is credited to profit and loss account: ITA Nos.510 & 662/Bang/2014 Page 23 of 37 Provided that where this section is applicable to assessee in any previous year, amount withdrawn from reserves created or provisions made in previous year relevant to assessment year commencing on or after 1st day of April, 1997 shall not be reduced from book profit unless book profit of such year has been increased by those reserves or provisions (out of which said amount was withdrawn) under this Explanation or Explanation below second proviso to section 115JA, as case may be; or] (ii) amount of income to which any of provisions of section 10 (other than provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to profit and loss account; or (iia) amount of depreciation debited to profit and loss account (excluding depreciation on account of revaluation of assets); or (iib) amount withdrawn from revaluation reserve and credited to profit and loss account, to extent it does not exceed amount of depreciation on account of revaluation of assets referred to in clause (iia); or] (iii) amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation. For purposes of this clause, (a) loss shall not include depreciation; (b) provisions of this clause shall not apply if amount of loss(brought forward or unabsorbed depreciation is nil; or] (iv) to (vi) .. (vii) amount of profits of sick industrial company for assessment year commencing on and from assessment year relevant to previous year in which said company has become sick industrial company under sub-section (1) of section 1794 of Sick Industrial Companies (Special Provisions) Act, 1985(1 of 1986) and ending with assessment year during which entire net worth of such company becomes equal to or exceeds accumulated losses. Explanation. For purposes of this clause, "net worth" shall have meaning assigned to it in clause (ga) of sub-section (1) of section 395 of Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or ITA Nos.510 & 662/Bang/2014 Page 24 of 37 (viii) amount of deferred tax, if any such amount is credited to profits and loss account. Explanation 2. For purposes of clause (a) of Explanation 1, amount of income-tax shall include- i. any tax on distributed profits under section 115-0 or on distributed income under section 115R ii. any interest charged under this Act; iii. surcharge, if any, as levied by Central Acts from time to time; iv. Education Cess on income-tax, if any, as levied by Central Acts from time to time; and v. Secondary and Higher Education Cess on income- tax, if any, as levied by Central Acts from time to time. said provisions have been considered by co-ordinate bench of Tribunal in case of Amline Textiles (P.) Ltd.vs. ITO (27 SOT 152) and held as follows: 8. Section 115JB is special provision for payment of tax by certain companies. Sub-section (1) contains non obstante clause and provides that where income-tax payable on total income of company as computed under this Act is less than 10 per cent of its book profit, then such book profit shall be deemed to be total income of assessee and tax payable by assessee on such total income shall be amount of income-tax at rate of 10 per cent. Explanation (1) provides mode of computing "book profit" by taking net profit as shown in profit and loss accounts as its starting point to be increased by items mentioned in clauses (a) to (h) debited to profit & loss account and as reduced by items specified in clauses (i) to (vii). At this stage it will be apt to consider relevant part of this section as under : "Explanation (1) - For purposes of this section, book profit means net profit as shown in profit and loss account for relevant previous year prepared under sub-section (2), as increased by - (a)to (g) ****** ITA Nos.510 & 662/Bang/2014 Page 25 of 37 (h)if any amount referred to in clauses (a) to (h) is debited to profit and loss account, and as reduced by (i)& (ii) ****** (iii)the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation - For purposes of this clause, (a)the loss shall not include depreciation; (b)the provisions of this clause shall not apply if amount of loss brought forward or unabsorbed depreciation is nil; or" 9. On going through mandate of above provision it transpires that having increased amount of net profit as per profit and loss account in accordance with clauses (a) to (h), certain items are to be reduced which, inter alia include amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. term loss has been defined for purposes of this clause as exclusive of amount of depreciation. 10. Here it would be relevant to mention that section 115J, original predecessor of section 115JB also has Explanation which provides mechanism for computing book profit . Clause (iv) provides for reduction of amount of loss or amount of depreciation which would be required to be set off against profit of relevant previous year as if provisions of section 205 of Companies Act, 1956 are applicable. There was controversy on interpretation of term loss in clause (iv) of Explanation as to whether loss should be considered as before or after taking into account amount of depreciation. Hon ble Supreme Court in case of Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 7771 held that term loss occurring in clause (b) of first proviso to section 205(1) of Companies Act has to be read as amount arrived at after taking into account depreciation and accordingly same was to be read and understood in context of section 115J also. Resultantly term "loss" was understood as amount arrived at after taking into account depreciation. Legislature made its intention clear by providing in successor sections that loss shall not include depreciation, it is so provided in section 115JA and similar wording has been used in clause (iii) of Explanation (1) to section 115JB also, which is under consideration. Hence judgment of Hon ble Supreme Court rendered in ITA Nos.510 & 662/Bang/2014 Page 26 of 37 case of Surana Steels (supra) is not relevant in context of section 115JB, which specifically states that loss shall not include depreciation. net effect of position as it now exists is that while computing amount of loss brought forward, amount of depreciation is not to be considered. In other words, loss for purposes of section 115JB has to be computed before depreciation. 11. basic rule of interpretation of provisions is strict rule , that is, follow what has been expressly stated in provision and go by plain language of section. It is not permissible to import any thing into statutory provision and read what is not explicitly provided. need for unearthing real intention arises only when language of section is ambiguous, vague or uncertain. With this basic principle of interpretation on hand, we move on to examine rival contentions made by parties as to whether clause (iii) it refers to consideration of year-wise separate figures of unabsorbed depreciation and loss brought forward or composite figures. 12. Clause (iii) states that amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account is to be reduced from net profit. As per plain language of this provision, it is noted that word employed in provision is "amount" and not "amounts" of loss brought forward or unabsorbed depreciation, whichever is less. reference to "amount of" brought forward loss or unabsorbed depreciation whichever is less shows intention of Legislature for considering one consolidated figure of brought forward loss or unabsorbed depreciation for earlier years in totality and not on year to year basis. use of word "amount" in singular conveys aim of referring it to one figure. Wherever Legislature desired to use word "amount" in plural, it specifically used word "amounts" instead of "amount" as can be seen from heading of section 40 - Amounts not deductible . From here we can easily deduce that for purposes of clause (iii) of Explanation (1) unabsorbed depreciation for all earlier years is to be clubbed into one amount; and amount of brought forward loss (before depreciation) is also to be taken by summing up all figures of loss of earlier years, and then lower of these two amounts is to be reduced from net profit as shown in profit & loss account so as to comply with prescription of clause (iii) of Explanation (1). Similar position is coming up from pressing into service of word loss in this clause in contradistinction to word losses , as has been done in marginal notes to sections 72, 73, 74, 74A and 75 etc. From here we gather ITA Nos.510 & 662/Bang/2014 Page 27 of 37 that by using words amount and loss in this clause, point has been made clear that it is composite figure each of unabsorbed depreciation and brought forward loss, that merits consideration. 13. Moving still further we find from language of this clause that there is no reference to considering brought forward loss or unabsorbed depreciation on year to year basis. There is nothing in language of section, which could suggest, even remotely, that Legislature intended to consider year-wise figures. If it had desired like that, then it would have been so stated in unequivocal terms in provision itself. In absence of any specific mention in this regard in clause, we are unable to infer such intendment. Since language of section is clear and does not admit of any doubt, we are not persuaded to interpret it in way, ld. DR impresses upon us to do. 14. authorities below have concluded that year-wise determination of amount of loss brought forward or unabsorbed depreciation is to be considered and if in particular year - as in assessment year 2001-02 under consideration - there is no loss before depreciation, then benefit of unabsorbed depreciation cannot be granted. In forming this opinion, assistance has been taken from opening words of sub-section (1) of section 115JB as well as sub-section (5) of this section. Sub-section (1) starts with non obstante clause : "Notwithstanding anything contained in any other provisions of this Act, ........" and sub-section (5) states that : "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being company, mentioned in this section." It is on strength of these two sub-sections that learned CIT(A) has decided that all other provisions of Act merit consideration in determination of book profit under section 115JB and hence provisions of sections 71 to 73 will also apply and when so applied section 72 serves as guiding light as per which benefit of carry forward of business loss is limited to eight years. case is made out that since business loss can be carried forward only for eight years, and in ninth year, unabsorbed loss of first year will cease to be available for set off, albeit for second to seventh years, it can still be carried forward, it automatically implies that amount of loss has to be carried forward on year to year basis for purposes of section 115JB also and hence it cannot be single figure of loss for all years. As all provisions of Act including section 72 apply by virtue of sub-sections (1) and (5) of section 115JB, it has been opined that ITA Nos.510 & 662/Bang/2014 Page 28 of 37 unabsorbed depreciation and unabsorbed business loss are to be maintained year-wise. 15. We are not convinced with this line of thinking for reason that what is contemplated by sub-sections (1) and (5) is that other provisions of Act should be considered as in operation while giving effect to section 115JB. Reference to "other provisions of this Act" clearly indicates that what is provided in section 115JB should be religiously followed accordingly and anything over and above that will be subject to other provisions of Act. By no stretch of imagination can it be construed as substituting other provisions of Act in place of what is specifically made available in this section, insofar as computation of book profit is concerned, entire mechanism for its calculation is clearly set out in Explanation (1). Not only starting point being net profit as shown in profit & loss account but also all amounts which are to be increased as stipulated in clauses (a) to (h) and those which are to be reduced as specified in clauses (i) to (vii) find separate mention in scheme of section itself. So computation of book profit is to be done strictly as per this Explanation and no assistance from any other section of Act can be taken for that purpose. When clause (iii) of Explanation (1) clearly states that amount of loss brought forward or unabsorbed depreciation, which is less as per books of account is liable to be reduced, in our considered opinion, there is no authority for falling upon command of section 72 for holding that business loss is to be considered on year to year basis and not as aggregate figure for all years in unison. 16. There is one more reason for not approving view taken by authorities below. Section 72(3) restricts period to which loss can be carried forward to not more than eight assessment years immediately succeeding assessment year for which loss was first computed. As per this section if there is brought forward loss which is more than eight years old, that has to be abandoned and only brought forward loss of less than prescribed period can be carried forward for set off against business income. On contrary there is no prohibition in section 115JB as per which amount of unabsorbed loss is to be discarded after expiry of eight years from year in which it was first computed. Even if loss is brought forward from 50 years back, that has also to be reckoned. To put it simply amount of loss brought forward or unabsorbed depreciation has to be considered for as many years as coming in books of account irrespective of any rider for particular number of years. We, therefore, hold that reference to provisions of sections 71 to 73 for arriving at conclusion that ITA Nos.510 & 662/Bang/2014 Page 29 of 37 section 115JB refers to year-wise consideration of loss brought forward or unabsorbed depreciation, is erroneous. 17. Now we turn to examine clause (b) of Explanation to clause (iii) of Explanation (1) to section 115JB(2), which provides that provisions of this clause shall not apply if amount of loss brought forward or unabsorbed depreciation is nil . ld. CIT(A) has relied on this provision for upholding action of Assessing Officer that since loss before depreciation for assessment year 2001-02 is Nil, hence no deduction is permissible for this year. bare perusal of this provision brings out intention of Legislature in not allowing reduction of subject-matter of clause (iii) for purposes of computing Book profit , if amount of unabsorbed depreciation of brought forward loss is Nil. In other words it has been provided that reduction is not to be permitted if one of these two figures namely, loss brought forward or unabsorbed depreciation, is nil. To put it simply if one of these two figures is Nil, then other figure will be ignored altogether. rationale behind this portion of enactment is not to unnecessarily allow reduction of one, if other is not there. Since loss is to be considered before depreciation and if there is brought forward loss only, but no corresponding unabsorbed depreciation or vice versa, then no reduction is to be made of amount of brought forward loss or unabsorbed depreciation, as case may be. In earlier part of order we have held that if there is loss brought forward and unabsorbed depreciation for more than one year, then one combined figure each of unabsorbed depreciation and brought forward loss for such years is to be determined for consideration. Adverting to facts of our case, we find that none of figures of unabsorbed depreciation or brought forward loss is Nil, hence this part of Explanation is not relevant for our purpose. 18. In view of foregoing discussion we are of considered opinion that lower of solitary figures of unabsorbed depreciation or loss brought forward for all earlier years taken together, is to be reduced for purposes of computing "book profit" under section 115JB. As aggregate amount of unabsorbed depreciation in respect of four years is at Rs. 1,51,15,393 which is lower than aggregate of loss before depreciation at Rs. 2,40,75,717, in our considered opinion, assessee had rightly claimed reduction for lower amount of Rs. 1.51 crores. We, therefore, accept assessee s contention on this point. ITA Nos.510 & 662/Bang/2014 Page 30 of 37 19. Applying above legal position to facts of present case, as per audited financial statements, for immediately preceding year i.e. March 2009, there was loss of Rs.150,31,14,000/- which comprised of depreciation loss of Rs.113,14,04,000/- and business loss of Rs.37,17,10,000/- chart showing above loss as furnished by assessee is placed at page 322 of paper book which is as under: lower of depreciation loss or business loss is required to be set off against book profit determined. In present case, amount of unabsorbed depreciation, loss is to be set off against book profit is required determined. In this case, there is unabsorbed depreciation loss of Rs.113,14,04,000/- and business loss of Rs. Rs.37,17,10,000/-, depreciation loss of Rs.37,17,10,000/- lower of two is required to be set off against book profits. However, CIT(A), though accepted in principle, contention of assessee-company that lower of unabsorbed depreciation or business loss calculated on cumulative basis as shown in immediately preceding financial year can be set off against book profits but adopted following table which is not borne out of record: ITA Nos.510 & 662/Bang/2014 Page 31 of 37 Since figures adopted by CIT(A) are not borne out of record, we remit issue back to file of AO to adopt correct figure following principle that unabsorbed depreciation or business loss should be calculated on cumulative basis. 20. In result, appeal filed by revenue is partly allowed for statistical purposes. ITA No.510/Bang/2014 (assessee s appeal): 21. In this appeal, assessee raised following grounds of appeal: ITA Nos.510 & 662/Bang/2014 Page 32 of 37 22. first ground of appeal relates to disallowance of depreciation on intangible assets of Rs.4,00,01,168/-. It was claimed that assessee-company incurred expenditure of Rs.4,00,01,168/- on acquiring intangible assets. It was submitted that expenditure incurred during pre-operative period on following items: It was further submitted that amount was incurred to obtain intangible rights in respect of above. nature of expenditure was described as under: ITA Nos.510 & 662/Bang/2014 Page 33 of 37 ITA Nos.510 & 662/Bang/2014 Page 34 of 37 AO denied claim holding that amount was incurred for availing legal, technical and management services which does not resulted in acquisition of any right of any nature. 23. On appeal before CIT(A) same was confirmed by CIT(A) as under: ITA Nos.510 & 662/Bang/2014 Page 35 of 37 24. Being aggrieved, assessee is in appeal before us. 24.1 It was argued that above expenditure has resulted in acquisition of commercial right and following law laid down by Hon ble Supreme Court in case of CIT vs. Smifs Securites Ltd. (2012)24 taxmann.com 222 (SC). Therefore, expenditure qualifies for depreciation. 24.2 On other hand, learned CIT(DR) placed reliance on orders of CIT(A). 25. We heard rival submissions and perused material on record. As submitted by learned authorised representative of ITA Nos.510 & 662/Bang/2014 Page 36 of 37 assessee, expenditure was incurred wholly in connection with entering into various agreements. Most of expenditure was towards availing of professional and legal services during pre-operative period i.e. before commencement of commercial operation. In our considered opinion, this expenditure is revenue in nature incurred during pre-operative period which qualifies for capitalization among various fixed assets. As result of this expenditure, it cannot be said that assessee had acquired any commercial rights. Furthermore, some of expenditure also related to leasehold rights in land which par takes character of land which does not qualify for depreciation. We uphold order of CIT(A) and dismiss ground of appeal filed by assessee-company. 26. second ground of appeal relates to disallowance of repairs and maintenance of expenses towards building of Rs.11,65,21,222/- and machinery and other expenditure of Rs.1,88,63,568/-. In appeal filed by revenue we remitted matter back to file of AO for de novo examination of issue. Similarly, we remit this ground also to file of AO for de novo examination after affording due opportunity of hearing to assessee. This ground of appeal is accordingly disposed of. 27. Ground No.3 relates to determination of correct amount to be set off against profits determined on book profit under ITA Nos.510 & 662/Bang/2014 Page 37 of 37 section 115JB. Since in revenue s appeal, we remitted this issue back to file of AO for fresh adjudication, this ground of appeal does not survive. 28. Ground Nos.4 and 5 are consequential in nature and does not require any adjudication. 29. In result, assessee s appeal is partly allowed for statistical purposes. Order pronounced in open court on this 27th September, 2016 Sd/- sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D t e d : 27/09/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)- Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore Bangalore International Airport Ltd. v. Deputy Commissioner of Income-tax, Circle 11(2), Bangalore