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2018 (6) TMI 281 - AT - Income TaxExemption from the provisions of Section 115JB being a sick company - MAT provision applicability - Reopening of assessment - Held that - Issuance of certificate u/s. 17 of the SICA does not arise as the Board stand dissolved consequent to repeal of the Act. So, the insistence of AO and the CIT(A) for a certificate under that Act is not proper. Since the provisions of Section 115JB have not been amended, to that extent the repealed SICA Act is applicable so it has to be applied. Therefore, it is to be considered that assessee is covered by Section 17 of SICA and therefore, the company is exempt from the provisions of Section 115JB, being a sick company. This contention of assessee is accepted. The amount added to the P&L A/c being capital receipt should not have been brought to tax there are Co-ordinate Bench decisions on the issue having held that the amount of capital receipt which otherwise not taxable cannot be taxed u/s 115JB. The recent one is in the case of M/s. JSW Steel Limited Vs. ACIT 2017 (4) TMI 47 - ITAT MUMBAI relied upon by assessee. There is merit in assessee s contention but that becomes academic only as there are contradicting views on this subject and we need not go into that issue for the simple reason that assessee being a sick company, provisions of Section 115JB are not applicable. The Coordinate Bench has already held so in earlier proceedings. Why AO has to reopen the assessment is not understandable. Considering the facts of the case, we hold that assessee-company is not covered by the provisions of Section 115JB and therefore, the grounds raised by assessee are accordingly allowed.
Issues:
1. Applicability of Section 115JB on a sick company. 2. Requirement of certificate under the Sick Industrial Companies (Special Provisions) Act, 1985. 3. Taxability of capital credit like credit balance written-off under Section 115JB. Analysis: Issue 1: Applicability of Section 115JB on a sick company The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the applicability of Section 115JB on the assessee, who had filed a return of income declaring NIL income. The CIT(A) held that as per the material on record, the appellant was a sick company for the year in question, and the provisions of Section 115JB were not applicable. The ITAT 'A' Bench Hyderabad also upheld this decision, stating that the assessing officer cannot address debatable issues under Section 143(1) of the Act. However, in a reassessment proceeding, the AO assessed the income under Section 115JB as the company failed to provide evidence of being a sick industrial company. The CIT(A) confirmed this action, but the ITAT held that the appellant was exempt from Section 115JB as a sick company with negative net worth. Issue 2: Requirement of certificate under the Sick Industrial Companies Act The CIT(A) and AO requested a certificate under the Sick Industrial Companies (Special Provisions) Act, 1985, which was repealed in 2003. The Board under this Act was dissolved, making it impossible to obtain such a certificate. The ITAT acknowledged the company's negative net worth and sick status under the repealed Act, concluding that the insistence on a certificate was improper. The repealed SICA Act was still relevant for the applicability of Section 115JB, leading to the exemption of the company from its provisions. Issue 3: Taxability of capital credit like credit balance written-off The AO added an amount to the P&L A/c as income under Section 115JB, which the company contested as a capital receipt not taxable under normal provisions. The ITAT agreed with the company, citing previous decisions that capital receipts not otherwise taxable should not be taxed under Section 115JB. However, as the company was deemed a sick company, the provisions of Section 115JB were held inapplicable, rendering the discussion on the taxability of capital receipts academic. In conclusion, the ITAT allowed the appeal of the assessee, holding that the company was not covered by Section 115JB due to its status as a sick company with negative net worth, thereby exempting it from the tax liability under that section.
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