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2018 (12) TMI 821 - AT - Income TaxMAT computation - adjustment of book profit for working out MAT tax and the resultant profit on sale of assets - capital gains on sale of asset - Held that - The capital gains on sale of asset resulted into Nil income. Therefore, even applying the case law in the case of Veekaylal Investment Co.(P) Ltd. 2001 (2) TMI 117 - BOMBAY HIGH COURT the assessee is entitled for relief. In the instant case there was no profit in the ordinary course of business and the profit derived by the assessee was on account of sale of asset which was a capital profit. The assessee has not shifted the business profits to the balance sheet. The capital gains on sale of asset as per section 45 results in to loss but not the positive income. Therefore the facts of the assessee s case are identical to the decision of Bombay high court in the case of Bhagwan Industries Ltd, 2017 (8) TMI 32 - BOMBAY HIGH COURT and the said case is squarely applicable in the assessee s case. The lower authorities committed an error in making adjustment to the book profit and the same deserves to be deleted. The next contention of the assessee is that SICA was exempt from the provisions of section 115JB of the Act. In the instant case, there is no dispute that the assessee company s net worth was negative and the assessee satisfied the condition to hold the company as sick industrial company. Though the SICA was repealed w.e.f. 2003, the provision was not removed from the Income Tax Act. On the similar facts, the Coordinate Bench in B.V. REDDY TRANSPORTS PVT. LTD. VERSUS ASST. COMMISSIONER OF INCOME TAX 2018 (6) TMI 281 - ITAT HYDERABAD decided the issue in favour of the assessee - there is no case for making adjustment s u/s 115JB of the act and the assessee is entitled for relief - Decided in favour of assessee
Issues Involved:
1. Adjustment of book profit for calculating Minimum Alternate Tax (MAT). 2. Classification of profit on sale of assets and its treatment in the financial statements. 3. Exemption from MAT for sick industrial companies. Detailed Analysis: 1. Adjustment of Book Profit for Calculating MAT: The primary issue revolves around whether the profit on the sale of assets, which was directly carried to the balance sheet without being routed through the profit and loss account, should be considered for MAT under Section 115JB of the Income Tax Act, 1961. The assessee declared Nil income for the A.Y. 2013-14 and claimed a long-term capital loss of ?73,36,264/-. The assessee paid taxes under Section 115JB based on the book profit of ?79,743/-. However, the Assessing Officer (AO) found that the profit of ?4,33,66,168/- from the sale of land was directly taken to the capital reserve in the balance sheet without routing it through the profit and loss account. The AO, citing Clause (b) of Explanation 1 to Sub-section (2) of Section 115JB, argued that the book profit should include amounts carried to any reserves, except the reserve specified under Section 33AC (Shipping Business). Consequently, the AO adjusted the book profit to include this amount. 2. Classification of Profit on Sale of Assets and Its Treatment in Financial Statements: The assessee argued that the profit on the sale of the land was directly taken to the capital reserve account, which is permissible under the Companies Act, and thus should not be adjusted under Section 115JB. The assessee relied on the Supreme Court decision in Apollo Tyres Ltd. Vs. CIT and the Bombay High Court decision in CIT Vs. Forever Diamonds Pvt. Ltd., which support the notion that the AO cannot alter the profit and loss account certified under the Companies Act for computing book profit under Section 115JB. The Tribunal noted that the profit from the sale of assets was not credited to the profit and loss account but was directly taken to the balance sheet, differentiating it from the case cited by the AO (Rain Commodities Ltd. Vs. CIT). 3. Exemption from MAT for Sick Industrial Companies: The assessee claimed exemption from MAT under Clause (2)(vii) of Section 115JB, arguing that the company was a sick industrial company as its accumulated losses exceeded its net worth. The AO contended that for a company to be considered a sick industrial company under the Sick Industrial Companies Act (SICA), it must be declared so by the Board for Industrial and Financial Reconstruction (BIFR). Since the assessee did not provide any BIFR declaration, the AO rejected the claim. However, the Tribunal noted that even though SICA was repealed, the provision exempting sick industrial companies from MAT was not removed from the Income Tax Act. The Tribunal referred to the ITAT Hyderabad decision in B.V. Reddy Transports Pvt. Ltd. Vs. ACIT, which supported the assessee's position that the company, having a negative net worth, qualifies as a sick industrial company and is thus exempt from MAT. Conclusion: The Tribunal concluded that the AO and CIT(A) erred in making adjustments to the book profit under Section 115JB. The Tribunal held that the profit from the sale of assets, directly taken to the capital reserve, should not be included in the book profit for MAT purposes. Additionally, the Tribunal recognized the assessee as a sick industrial company exempt from MAT, despite the repeal of SICA, as the relevant exemption provision was not removed from the Income Tax Act. Therefore, the appeal of the assessee was allowed, and the orders of the lower authorities were set aside.
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