2012 (11) TMI 1285 - AT - Income Tax

Summary

Issues Involved:
The judgment involves issues related to the correctness of the order of the Commissioner of Income Tax (Appeals) III, Chennai u/s 143(3) of the Income Tax Act 1961. The main issues include the treatment of impairment loss on assets u/s 115JB, the status of the assessee as a sick industrial company affecting book profits u/s 115JB, and the taxability of remission of principal amount due to OTS.

Issue 1 - Impairment Loss on Assets u/s 115JB:

The assessee, a company engaged in manufacturing medical consumables, filed its return admitting income of NIL after setting off brought forward losses. During scrutiny, the Assessing Officer noted alteration in book profits by claiming impairment loss as expenditure to avoid taxes u/s 115JB. The assessee contended that being a sick industrial company, its book profits were not taxable under 115JB due to negative net worth. However, the Assessing Officer, after verifying the status of the case before BIFR, held that the assessee was no longer a sick undertaking and taxed the entire book profits. The CIT(A) considered the provisions of 115JB(2) Explanation 1 (vii) and held that the assessee's net worth was negative, thus reducing the profits for computing book profit. The Tribunal upheld the CIT(A)'s decision, stating that the assessee's claim was valid until its net worth equaled or exceeded accumulated losses.

Issue 2 - Status of Assessee as Sick Industrial Company u/s 115JB:

The Tribunal examined the statutory provisions of 115JB(2) Explanation 1 (vii) and found that the assessee's claim as a sick industry was rightly accepted by the CIT(A). The Tribunal emphasized that the SARFESI Act proceedings did not affect the status of a sick industry as per the Income Tax Act. It held that until the net worth of the sick industry equaled or exceeded accumulated losses, the relief under 115JB(2) Explanation 1 (vii) was applicable. Therefore, the Tribunal upheld the CIT(A)'s decision in favor of the assessee, rejecting the Revenue's appeal.

Issue 3 - Taxability of Remission of Principal Amount due to OTS:

The Revenue contended that the CIT(A) wrongly granted the assessee benefits of profits reduced under 115JB and remission of principal amount due to OTS after declaring it a sick unit. The Tribunal, having decided the main issue in favor of the assessee, found these grounds to be of academic significance. Consequently, the Tribunal upheld the CIT(A)'s order against the Revenue, dismissing the appeal.