The Assessing officer and CIT(A) should have followed binding precedence and held that S.115JB is not applicable because of failure of integral computation and charging provision which require as precondition computation of GTI, Deductions, TI and tax payable . And also because company is not a dividend paying company.

[DEV KUMAR KOTHARI]

The Assessing officer and CIT(A) should have followed binding precedence and held that S.115JB is not applicable because of failure of integral  computation and charging  provision which require as precondition  computation of  GTI, Deductions, TI and tax payable . And also because company is not a dividend paying company.

Recent Judgment, which is under study in this article:

2022 (7) TMI 622 - ITAT KOLKATA - SASA MUSA SUGAR WORKS PVT. LTD. VERSUS DCIT, CIR – 10 (2) , KOLKATA

C.O. No.15/Kol/2017 (Arising out of ITA No. 2312/Kol/2016)  Dated: - 4-7-2022

Reported judgment referred and relied on in above recent judgment:

2008 (10) TMI 723 - ITAT KOLKATA - NEERAJ VANIJYA PVT. LTD. VERSUS INCOME-TAX OFFICER, WD-6 (3) , KOLKATA I.T.A. No. 1504/Kol/2008  Dated: - 31-10-2008 In this judgment the following judgment was referred in ground no. 2 and that was allowed.

2005 (2) TMI 439 - ITAT BANGALORE-A - PROCESS PUMPS PVT. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX. IT APPEAL NO. 657 (BANG.) OF 2001 Dated: - 2-2-2005

2021 (4) TMI 633 - ITAT KOLKATA - THE UNITED PROVINCES SUGAR COMPANY LTD. VERSUS INCOME TAX OFFICER, WARD-12 (2) KOLKATA  ITA No. 1956/Kol/2018 Dated: - 1-4-2021

Unreported judgments referred, relied and applied:

Judgment of ITAT in case of Sasa Musa Sugar Works Ltd for AY 2003-04 relevant portion has been reproduced in recent  reported judgment in case of Sasa Musa.

Judgments of ITAT in case of Vishnu Sugar Mills Ltd on interpretation of S.115J, 115JA and 115JB which were approved by Calcutta High Court. Relevant part dismissing appeal of Revenue on S.115JB has been reproduced in recent case of Sasa Musa

The relevant ground before Tribunal are taken under heading -

Relevant portion from order of ITAT with highlights added for analysis, catch points.

B. Grounds to seek further relief:

1) For that Ld. CIT(A) has passed order denying relief claimed, without full and proper consideration of facts and circumstances, details, written submissions and binding precedence relied on by the assessee further Ld. CIT(A) did not apply rule to apply view in favour of assessee. (original ground B.1)

2) For that Ld. CIT(A) was wrong in dismissing ground no. 4 and 5 before him and confirming wrong invocation of section 115JB although:

a. There is no computation of gross total income (GTI), deductions from GTI, total income and tax payable hence preconditions for invoking S.115JB are not full filled, and

 b. The assessee is not a dividend paying company hence S.115JB is not applicable. Therefore S. 115JB is not at all applicable, Ld. AO may be directed not to invoke S.115JB. (Original ground no. B. 2 and 3).

4. Brief facts of the case are that assessee is a limited company and is in the business of manufacturing of sugar. It has its registered office at Kolkata and factory at Sasa Musa, Dist. Gopalganj, Bihar. Assessee filed its return of income on 30.09.2014 reporting total income as ‘nil’. Statutory notices were issued which were complied by the assessee. In the course of assessment proceedings, ld. AO asked the assessee to furnish working of book profit under the provisions of section 115JB of the Act, to which assessee submitted that it is not liable to pay tax on book profit and the provisions of section 115JB of the Act are not  applicable in its case. Ld. AO determined the business income at Rs. 20,12,960/- after making certain additions and disallowances. Assessee had reported a loss of Rs. 49,75,164/- and claimed it as carry forward to be set off in subsequent years. While completing the assessment, the ld. AO did not set off past losses and held that tax computed on total income on book profit u/s 115JB is higher than the tax computed under the normal provisions and, therefore, the assessee is required to pay tax on the book profit u/s 115JB of the Act. 5. Aggrieved, assessee went into appeal before the ld. CIT(A). 6. In the appellate proceedings before the ld. CIT(A), assessee submitted that when there is no computation of gross total income (GTI), claim of deductions, total income and tax payable, the provisions of section 115JB of the Act are not applicable. It was also submitted that while computing the normal business income of the assessee, ld. AO did not set off past losses. It was further submitted without prejudice that when the past losses are set off, there will be business loss which will have to be kept apart and carried forward. In such a situation it was submitted that there will be no computation of GTI, no allowance of any deduction under Chapter VIA, no computation of total income and the tax payable on the total income will not arise, and, therefore, the computation provisions will not be applicable. It was also contended that the present issue on applicability of section 115JB in the case of the assessee had already attained finality by the order of Coordinate Bench of ITAT, Kolkata in assessee’s own case for assessment year 2003-04 in ITA No. 2014/Kol/2007, dated 28.09.2007. The assessee also relied on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of CIT vs Vishnu Sugar Mills Ltd. which was affirmed by Hon’ble Jurisdictional High Court of Calcutta in ITA No. 359 of 2006 dated 20.11.2006. However, the ld. CIT(A) did not find favour with the submissions made by the assessee and dismissed the ground raised on this issue.

8.1. Ground No. 1 is general in nature and, therefore, is not adjudicated upon.

On ground no. B.2.a, in respect of non-applicability of provisions of section 115JB of the Act, ld. counsel reiterated the submissions made before the authorities below which are not reproduced for the sake of brevity. Ld. Counsel however placed reliance on the recent judgment of Co-ordinate Bench of ITAT, Kolkata in the case of The United Provinces Sugar Co. Ltd. vs ITO in ITA No. 1956/Kol/2018 for A.Y. 2013-14 dated 01.04.2021 which has dealt on the identical issue. Ld. Counsel laid emphasis on the contention that the authorities below ought to have followed the binding precedents, rule of consistency and applied view in favour of the assessee to allow the claim and not to deny the relief by ignoring the binding precedents. He also submitted that there are no contrary judgments which require application of section 115JB on the fact pattern which exists in the case   of the assessee. He further submitted that ld. DR also has not filed any such judgment to counter the claim of the assessee.

9. On confrontation of these submissions made by the ld. Counsel of the assessee to the ld. Sr. DR, nothing contrary was put forth. From the submissions made by the ld. Counsel and perusing the judicial precedents, we note that pre-conditions to invoke for application of section 115JB of the Act are that there should be computation of GTI, allowance of deductions under Chapter VIA, computation of total income and tax payable thereon. We also note that rules for computation of total income and the charging provision u/s 115JB are integral provisions and if the computation is not made as per the computation provisions, the charging section also cannot be applied. The computation of total income and tax and the explanation furnished by the assessee is placed on record in paper book at page no. 31. Computation of income is reproduced as under:

(note: The  computation in form of table can be seen in reported judgment so it is not reproduced for sake of brievity.)

From order of ITAT with highlights added for analysis, catch points.:

From the above computation, we note that there is no computation of GIT since there is loss of Rs. 49,75,164/- towards unabsorbed depreciation which is kept apart for carry forward.

Therefore, there is no deduction which has been claimed to arrive at total income which is reported at Nil.

 From the perusal of order of Coordinate Bench of ITAT, Kolkata in assessee’s own case for A.Y. 2003-04 (supra), we note that the issue is squarely covered by the said decision. The said decision is reproduced as under which is placed at page no. 116 to 117 of the paper book:

 “The assessee has filed this appeal against the order of the Ld. CIT(A) dated 27.12.2006 for the assessment year 2003-04 on the following grounds:

1. For that Ld. CIT(A) was wrong in dismissing the appeal of the assessee by not following the binding judgment of the Calcutta High Court in the case of Vishnu Sugar Mills Ltd. approving order of ITAT, in which it has been held that when there is no Gross Total income, total income and any tax is not payable, s. 115JB will not be applicable. Furthermore, the Ld. CIT(A) dismissed ground simply stating that facts are different without pointing out any difference and ignoring the fact that as per return and assessment order there is no gross total income, total income and no tax is payable on normally computed income.

 2. For that ld. Assessing Officer may be directed not to apply section 115JB since there is no gross total income, no total income and no tax payable and therefore, preconditions to apply section 115JB are not satisfied and in view of the judgment of the Calcutta Tribunal in case of Vishnu Sugar Mills Ltd. which has been approved by the Calcutta High Court section 115JB is not applicable in assessee’s case for the year under consideration (copy of relevant portion for orders is enclosed with appeal memo)

3.  xxxx      At the time of hearing the Ld. Counsel for the assessee submitted that the issue involved in this case is covered by the order of the Hon’ble Calcutta High Court in the case of CIT Vs- Vishnu Sugar Mills Ltd. dated 20.11.2006 in IT A No. 359 of 2006 and he, therefore, did not press the alternate plea taken by him by ground nos. 3 and 4.

4. The Ld. Departmental Representative did not controvert this submission of the Ld. Authorized Representative of the assessee.

5. We have heard both the parties, perused the material available on record and judgment of the Hon’ble Calcutta High Court. We find that since there is no gross total income, no total income and -no tax payable and therefore, preconditions to apply Section115JB were hot satisfied and in view of the judgment of the Calcutta Tribunal in case of Vishnu Sugar Mills Ltd. which has been approved by the Hon’ble Calcutta High Court, section 115JB is not applicable in assessee’s case for the year under consideration so, respectfully following the aforesaid judgment of the Hon’ble Calcutta' High Court, we do not find any merit in upholding the action of the Assessing Officer by the Ld. CIT(A) in applying section 115JB to compute the book profit. Accordingly, the appeal of the assessee is allowed.-

“ 9.2. Further we note that identical issue was dealt by the Co-ordinate Bench of ITAT, Kolkata in the case of Vishnu Sugar Mills Ltd. vs DCIT  in ITA No. 873/Cal/1996 dated 31.08.2001 placed in the paper book at page no. 70 to 73 which was affirmed by Hon’ble Jurisdictional High Court of Calcutta in ITA 359 of 2006, dated 20.11.2006. The relevant extract from the order of Hon’ble Jurisdictional High Court of Calcutta is reproduced as under:

“We have perused the order passed by the Tribunal. It appears that the Tribunal has extensively dealt with the matter. We do not find that any substantial question of law is involved which is required to be decided by this Court. We, therefore, do not find any reason to admit the application. Hence, this application is dismissed.”

9.3. We also note that the Co-ordinate Bench of ITAT, Kolkata in a recent decision in the case of The United Provinces Sugar Co. Ltd. (supra) vide order dated 01.04.2021 has dealt with the identical issue by holding that “the issue whether book profits can be computed u/s 115JB of the Act, when the GTI and total income of the assessee are Nil and no taxes payable, is adjudicated in favour of the assessee, respectfully following the decision of Hon’ble Jurisdictional High Court on this issue.”

9.4. Considering the facts on record and respectfully following the binding judicial precedents including that in the assessee’s own case all of which referred above, we hold that provisions of section 115JB of the Act are not applicable in the case of the assessee when the GTI and total income of the assessee are Nil and no taxes payable. Accordingly, the ground of appeal of the assessee is allowed.

10. Coming to ground no. B.2.b where the assessee has claimed that it is not a dividend paying company and, therefore, for this reason also section 115JB is not applicable, ld. Counsel of the assessee placed reliance on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of Neeraj Vanijya Pvt. Ltd. vs ITO in ITA No. 1504/Kol/2008 for A.Y. 2005-06, dated 31.10.2008. We find that the contention of the  assessee is covered by the said decision and respectfully following the same, we allow this ground in favour of the assessee.

 Conclusion:

Author has claimed about non applicability of S.115J, 115JA and 115JB since  inception of S.115J and then new provisions. In case of S.115J and 115JA preconditions were that there should be computation of Gross Total Income, deductions from Gross Total Income, computation of total income and tax payable thereon.  These contentions were accepted and it was held  by Tribunal that S.115J and 115JA will not apply if these preconditions are not satisfied.

In case of S.115JB there is one more condition that there should be tax payable on normally computed income. Therefore, CIT(A) allowed appeal of assessee Vishnu Sugar Mills Ltd. On appeal of department Tribunal upheld and allowed claim. Department’s appeal was dismissed by High Court.

In case of Sasa Musa also claim was allowed by Tribunal for AY 2003-04 or these reasons and grounds.

In case of Neeraj VAnijya o claim was allowed by Tribunal for  these reasons and grounds and also for reason that company  was not a dividend paying company.

All above judgments have been accepted and has not been challenged before the Supreme Court and High Court, as the case may be. It is not a case that in these cases appeal was not filed due to low tax effect. In fact at the relevant time, if an issue is repetitive, then revenue could file appeal before High Court or Tribunal although tax effect was less than prescribed limit.

Therefore the legal position was well settled when the AO passed assessment order for AY 2012-13 in recent case of Sasa Musa.

Therefore AO as well as the CIT(A) were not justified in not following binding precedence and assessee had to face litigation to save its skin from illegal demands raised by AO and confirmed by CIT(A).

Now let us hope revenue will not un-necessarily prefer appeal before the  High Court.