2022 (6) TMI 1012 - AT - Income Tax

Computation of profit u/s 115JB - scope of MAT provisions - inclusion/ exclusion of profits of sick industrial company - HELD THAT - We find the As per Explanation-1 to Sec.115JB(2), Book Profits means the profits as shown in the statement of Profit Loss Account. This amount is to be increased and reduced by specified items. One of the items that is to be reduced, as per clause-(iii), is the amount of loss brought forward or deprecation whichever is less as per Books of Accounts. For the purpose of this clause, loss does not include depreciation. Further, the provision of this clause shall not apply in case the amount of brought forward loss or depreciation is nil . Another reduction as provided by Clause (vii) profits of sick industrial company would be reduced to arrive at Book Profits - Applying the provisions of clause (vii), we find that the assessee has earned book-profits of Rs.195.59 Lacs for the year ending 31.03.2004 and book-profits of Rs.270.55 Lacs for the year ending 31.03.2006 and accordingly, these profits would be reduced while computing Book-Profits u/s 115JB - Book-Profits of these two years would be Nil. It is undisputed fact that the assessee was a sick company during both these years and was eligible to claim such deduction since sufficient documents, in that regard, has already been filed by the assessee during appellate proceedings and the same is also not under dispute. The logic of Ld. AO is that the Book-Profits of these two years, should first be adjusted by the amount of brought forward losses or depreciation as per clause (iii) and only thereafter, the profits should be reduced to nil as per Clause (vii). However, we find that this is not correct logic since profits of a sick company has specifically been excluded from the purview of Sec.115JB. The amount of brought forward business losses or depreciation would be allowable only when there is positive Book-Profits. Such positive Book-Profits start arising to the assessee only from year ending 31.03.2010 after it become non-sick company and accordingly, the adjustment of brought forward business losses or depreciation would start from that year only. The same is also supported by the fact that the assessee has accumulated losses of Rs.412 Lacs in the books of Accounts which is net-off of profits for the year ending 31.03.2004 31.03.2006. Therefore, the assessee, in our opinion, has correctly adjusted the brought forward losses and depreciation as tabulated above and lower authorities are not justified in disturbing the same. Accordingly, we direct Ld. AO to grant this adjustment as claimed by the assessee during the year. Assessee appeal allowed.

Summary

Issues Involved:

1. Interpretation of Explanation 1 to clause (vii) of Section 115JB regarding the exemption of profits of Sick Industrial Companies from MAT provisions.
2. Legality of setting off profits of sick years against brought forward book losses.
3. Misinterpretation of the CIT vs. Biomed Hitec Industries Limited judgment.
4. Calculation of book profits under Section 115JB.

Issue-wise Detailed Analysis:

1. Interpretation of Explanation 1 to clause (vii) of Section 115JB:

The assessee argued that as per Explanation 1 to clause (vii) of Section 115JB, the profits of Sick Industrial Companies are exempted from MAT provisions. The assessee contended that the profits arising when the company was a Sick Company should not be considered under MAT provisions. The Tribunal found that the assessee was indeed a sick company during the relevant years and was eligible to claim such deductions as sufficient documents were provided. It was concluded that the profits of sick industrial companies should be excluded from the purview of Section 115JB.

2. Legality of setting off profits of sick years against brought forward book losses:

The assessee claimed that setting off the profits of the years during which it was sick against brought forward book losses was not legally tenable. The Tribunal noted that the lower authorities had adjusted the book profits for the years ending 31.03.2004 and 31.03.2006 against brought forward losses, which the assessee argued would reduce the loss twice. The Tribunal agreed with the assessee, stating that the book profits of the sick years should be reduced to nil and should not be adjusted against brought forward losses.

3. Misinterpretation of the CIT vs. Biomed Hitec Industries Limited judgment:

The assessee argued that the CIT(A) had misinterpreted the judgment in the case of CIT vs. Biomed Hitec Industries Limited. The Tribunal found that the lower authorities had not properly considered this judgment, which supported the assessee's contention that the profits of the sick years should not be adjusted against brought forward losses.

4. Calculation of book profits under Section 115JB:

The Tribunal examined the calculation of book profits under Section 115JB. It was found that the assessee had correctly adjusted the brought forward losses and depreciation as per the provisions of Section 115JB. The Tribunal held that the lower authorities were not justified in disturbing the assessee's calculations and directed the AO to grant the adjustment as claimed by the assessee.

Conclusion:

The Tribunal allowed the appeal, stating that the assessee had correctly interpreted the provisions of Section 115JB and had properly adjusted the brought forward losses and depreciation. The Tribunal directed the AO to grant the adjustment as claimed by the assessee, thereby allowing the appeal in favor of the assessee.