unabsorbed depreciation for the purpose of book profit

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khushboo bothra (Querist)
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09 September 2010 How do we ascertain unabsorbed depreciation for determining book profit for the purpose of MAT calculation. Can a Company having credit balance in profit & loss A/c (Balance Sheet) be said to have unabsorbed depreciation?

Nilesh Shah

Nilesh Shah (Expert)
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12 September 2010 Nilesh Shah writes:
nilesh35@yahoo.com

Though the question is short; the answer is elaborate.

Proviso to clause (iii) of sub-section (2) of section 115JB reads:

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

It has been clarified that loss however shall not include depreciation. In this case, brought forward loss and unabsorbed depreciation, as per income-tax shall have no relevance. Further, where the value of the amount of either loss brought forward or unabsorbed depreciation is ‘nil’, no amount on account of such loss brought forward or unabsorbed depreciation would be reduced from the book profit.

The application of the provision is illustrated with the help of the following e.g.,

A.Y Profits/loss Profits/
before depre loss bef
ciation and dep
reciatio as ore dep
per books reciat
ion
& Dep
as per IT.

A.Y 2007-08
Loss 450000 Loss 100000
Dep 150000 Dep 500000

A.Y 08-09
Profits 750000 Profits 625000
depreci 300000 Depre 500000

A.Y 09-10
Loss 1500000 Loss 1200000
Dep 300000 Dep 500000

A.Y 10-11
Profits 1500000 profits 1200000
Dep 300000 Dep 1000000

For the purpose of calculationg book profit:

A.Y 2007-2008
Book loss 450000
Depreciation 150000

Above both will be carried forward.

A.Y 2008-2009
Profits 750000
Less: Depre 300000
--------
450000
Less: brought forward
Loss or depreciation,
Whichever is less 150000
Book profit for sec
115JB 300000

Amount to be carried forward
Business loss 450000
Depreciation Nil

A.Y 00-10 Loss 1500000
Depreciation 300000
Book profits Nil

Amount to be carried forward
Business loss 1950000
Depreciation 300000

A.Y 10-11
Profit 1500000
Less:Depreciation 300000
--------
1200000
Less: business loss
Or depreciation whichever
is less 300000
-----------
Book profit for 115JB 900000

The income tax computation will be as follows:

A.Y 2007-2008.
Business loss 100000
Depreciation 500000

Both will be carried forward, assuming
Return is filed on time.

A.Y 08-09

Profits 625000
Less: current
Depreciation 500000
---------
125000
Less; business loss
Of earlier year 100000
Depreciation of earlier
Year 25000

Taxable income Nil

Unabsorbed depreciation
Carried forward 475000

A.Y 09-10

Loss 1200000
Depreciation 500000

Amount to be carried forward
Business loss 1200000
Depreciation 975000

A.Y 10-11.

Profits 1200000
Less: Current
Depreciation 1000000
-----------
200000
Less; Business loss
Of A.Y 09-10 200000

Taxable income Nil

Amounts to be carried forward
Buiness loss A.Y 09-10 1000000
Unabsorbed depreciation 975000

I hope the above e.g will solve all your doubts.

What is the amount of depreciation debited to the P&L a/c for the purpose of MAT i.e 115JB ? Its not easy, can try. If you don't get it , I will reply

Sincerely,

Nilesh Shah

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