2016 (5) TMI 474 - HC - Income Tax

Recovery proceeding - Grant of concession in terms of the Scheme sanctioned by BIFR - concession denied on the ground that the net worth of the petitioner company having turned positive - Held that - A perusal of the impugned communication dated 25.08.2014 shows that the rejection of the claim of the petitioner is merely on the ground that the net worth of the petitioner company had become positive. The operative period of the scheme had expired on 31.10.2006. The issue has not been considered in the light of the observations made in the scheme formulated by the BIFR. Hence, the impugned communication deserves to be set aside. The writ petition is accordingly allowed.The impugned communication is set aside and the matter is remitted back to the competent authority to be decided afresh

Summary

Issues:
Challenge to communication rejecting concession under BIFR scheme by Income Tax Department.

Analysis:
The petitioner challenged a communication from the Directorate of Income Tax (Recovery) dated 25.08.2014 rejecting the concession under a scheme sanctioned by the Board of Industrial and Financial Reconstruction (BIFR). The rejection was based on the company's positive net worth as of 31.03.2006, after the scheme had expired on 31.10.2006. The petitioner argued that the Income Tax Department cannot withdraw concessions from a sick industrial company solely based on a positive net worth post-scheme. The Delhi High Court previously held in a similar case that such concessions should not be denied due to a positive net worth after the scheme's sanction. The Supreme Court also dismissed the department's appeal against this decision.

The respondents raised concerns about the entitlement of benefits until the scheme's applicability period. They acknowledged the Delhi High Court's decision against the department, emphasizing that concessions should not be denied based on a positive net worth post-scheme. The department was advised to consider the petitioner's eligibility under Section 41(1) of the Income Tax Act, 1961.

The High Court concluded that the entitlement to relief for an industrial unit cannot be refused simply because the company was discharged from the Sick Industrial Companies Act, 1985. The court emphasized that benefits outlined in the scheme should not be denied by the Income Tax Department due to a positive net worth. Referring to the Delhi High Court judgment, the court highlighted that the sanctioned scheme must be implemented, and any departmental grievances should be addressed through legal enforcement of the scheme. The court set aside the communication rejecting the petitioner's claim and remitted the matter to be reconsidered in line with the Delhi High Court's observations and relevant laws.