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TMI Blog2016 (6) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not extinguish alleged loss and depreciation from the accounts of the assessee in actual terms. Such loss would be available to the assessee as per the accounts prepared under Part-II and III of Schedule-VI, and the assessee will be entitled to claim reduction of loss/unabsorbed depreciation, whichever is lower, from the book profit under clause (iii) of Explanation to Section 115JB, while making such computation for the purpose of section 115JB. We allow the appeal of the assessee and set aside the orders of the Revenue authorities on this issue. We direct the ld.AO to grant deduction of unabsorbed depreciation amounting to ₹ 27,36,90,817/- from the book profit under clause (iii) of Explanation to Section 115JB(2) of the Income Tax Act, 1961. - Decided in favour of assessee - ITA.No.3215/Ahd/2015 - - - Dated:- 23-5-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER For The Assessee : Shri J.P. Shah For The Revenue : Shri R.I. Patel, CIT-DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: The assessee is in appeal against the order of the ld.CIT(A)-II, Surat dated 30.10.2015 for the Asstt.Year 2012-13. 2. Though the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice, the assessee has filed a reply which has also been noticed by the AO on page no.3 to 18 of the assessment order. In brief, the stand of the assessee before the AO was that the assessee-company was carrying on business of polyester chips and polyester yarn at its plant at Jolwa, Surat. Because of unavoidable business conditions, the company during the F.Y.1997-98 made huge loss. The net worth of the company got wiped out, and therefore, the case of the assessee was referred to Board for Industrial and Financial Reconstruction ( BIFR for short) under Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA for short). The assessee company was declared as sick industrial unit in terms of section 3(1)(o) of the SICA. The Industrial Development Bank of India ( IDBI for short) was appointed as operating agency under section 17(3) of the SICA to examine its viability and formulate the rehabilitation scheme of the assessee-company. Vide its order dated 22.2.2008, the Board has sanctioned the rehabilitation scheme and appointed IDBI as monitoring agency on behalf of the Board to oversee the implementation of the scheme. In the F.Y.2007-08, relevant to the Asstt.Year 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transferred the following amounts which were of capital nature to the credit of Rehabilitation account and shown in its annual report under the head effect of Rehabilitation Scheme (Rs.in lacs) (i) Reduction of share capital 6,035.80 (ii) Securities Premium Account adjustment of loss 4,409.91 (iii) Capital Reserve Account Adjustment of loss 153.61 (iv) Capital Redemption Reserve Account Adjustment loss 10.00 (v) Secured loans balance waived Rs.4,094.38 (vi) Share forfeiture account unpaid allotment monies and call in arrears written off (3.95) Total 14,699.75 8. Ultimately the credit balance in Rehabilitation Account was used to set off debit balance of Rs. of profit loss account by way of transferring of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears, the AO himself allowed reduction of book profit by the alleged unabsorbed depreciation or loss, whichever was lower under clause (iii) of the Explanation to section 115JB(2) of the Act, he put reliance upon the judgment of the Hon ble Supreme Court in the case of CIT Vs. Excel Industries, reported in 358 ITR 295. He further contended that in Asstt.Year 2010-11, the AO has allowed reduction of such unabsorbed depreciation from the book profit for the purpose of section 115JB. This action of the AO was set aside by the Commissioner while exercising power under section 263 of the Income Tax Act. The assessee challenged the order of the Commissioner in appeal before the Tribunal vide ITA No.1469/Ahd/2015. This appeal of the assessee has been allowed by the Tribunal, and order of the Commission has been quashed. In other words, the order of the AO passed under section 143(3) has been restored. Copy of this order has been placed in the compilation of case laws at page no.67. 8. With regard to the admissibility of claim of the assessee for reduction of book profit by unabsorbed deprecation, he relied upon the written submissions filed by the assessee before the ld.CIT(A) as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is less as per books of account. Explanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; (vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 1713 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. 11. As observed earlier the assessee s net worth was wiped out due to huge loss and its case was referred to BIFR under the provisions of SICA. The rehabilitation scheme was sanctioned by the Board vide order dated 22.1.2008. The IDBI was appointed as operating agency. After sanction of the scheme, the IDBI would work as monitoring agency on behalf of the Board to oversee the implementation of scheme. Facts to this extent are not in dispute. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be considered as wipe out from the profit loss account, and therefore, no loss/unabsorbed deprecation are available for reduction under clause (iii) of Explanation to section 115JB (2). In other words, the accumulated loss has been reduced from the restructuring credits in the profit loss accounts and can be said that there are no losses as per the books of accounts. The ld.Revenue authorities below have not made reference to Part-II and III of Schedule-VI to the Companies Act specifically for harbouring such a belief. The ld.AO has not backed his view point on any provisions or rules. He proceeded with layman s angle. As far as reasons given by the ld.CIT(A) are concerned, we will revert to them in the later part of this order, because we have to deal with the stand of the assessee first. 13. Before adverting to the explanation of the assessee, it is pertinent to take note of primary purpose of preparing profit loss account as contemplated in the initial provisions of Part-II of Schedule-VI, which reads as under: PART II Requirements as to Profit and Loss Account 1.The provisions of this Part shall apply to the income and expenditure account refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er operating revenue, less excise duty. The next item is other income . Under the head other income , the company has to show interest income, dividend income, net gain/loss on sale of investments, other non-operating income. The next item is share of profit loss in partnership firm, share of profit/losses in limited liability partnership. Fifth item is expenses . Under the head expenses , the company has to show cost of material consumed, purchases of stock-in-trade, change in inventories of goods, work-in-progress, employee benefits expenses, financial costs, depreciation and amortization and other expenses. Under the next two heads, exceptional items or extra-ordinary items are to be reported. Similarly, tax expenses are to be shown. Thus, emphasis of the assessee was that primary purpose of preparing the Profit and Loss Account is properly served, if a Company ensures, as far as possible, not to account to the credit of the Profit and Loss Account anything which is not concerned with the result of the working of the Company during the period covered by the Profit and Loss Account. 15. A perusal of the various heads, under which information are to be reported by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital subsidy. The assessee excluded capital receipts from profit loss account. The AO has included it for the purpose of section 115JB. The Tribunal observed as under: 13.2 Our above view also finds support from the decision of Hon ble Apex Court in the case of Padmaraje R. Kadambande Vs. CIT (1992) 195 ITR 877 (SC), wherein it has been held by the Apex Court that Capital Receipts are not income within the definition of Sec 2(24) of the Act and hence are not at all chargeable under the I.T.Act. A receipt which is neither Profit nor Income and which does not have any element thereof embedded therein, cannot be part of profit as per Profit Loss account prepared in terms of Part II of schedule VI to Companies Act. 17. In para-4 on page no.4 of this order, we have noticed the accounting treatment given by the assessee in the F.Y. ending on 31.3.2008 in consequence of rehabilitation scheme under the head Effect of Rehabilitation Scheme. Apart from the seven items disclosed by the assessee, it has appended Note No.7 9 of Schedule-II to the Annual account. At the cost of repetition, we would like to note the items disclosed by the assessee on this note. They read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards additional working capital. In accordance with the rehabilitation scheme the Company-has issued 15,50,00,000 fresh equity shares of Re.1/- each .fully paid up on a preferential basis in favour of the promoter groups for an amount aggregating to Rs, 15.50 crores. In addition, the promoters of the Company have, brought in ₹ 29.00 crores by way of a soft loan to the Company. The soft loan from the promoters is interest free and subordinated to banks/financial institutional loans and shall, not be withdrawn till the end of the Scheme period. The effects of Rehabilitation Scheme, in terms of write-down in Share Capital, utilization of reserves and-waiver of dues by secured creditors are as disclosed in the Profit Loss account under Effect Rehabilitation Scheme . 18. A perusal of the above would indicate that not a single item of alleged restructuring credit was of income nature. If that be so, then, how the loss can be set off against such credits. The loss or debit balance of company can be set off against the income. The income, on other words, means profit/gains of the business or profession. We have noticed the definition of income given in Part-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e against its capital asset. When the dispute travelled to the Tribunal, the Tribunal has allowed the claim of the assessee, and discussion made by the Tribunal reads as under: 7. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. We find that in the instant case, the original assessment was completed u/s 143(3) on 28.12.2007 wherein book profit u/s 115JB was computed at NIL after allowing set off of brought forward loss or depreciation of ₹ 1,13,01,457/-. The said order of assessment was revised by the ld. CIT vide impugned order passed u/s 263 of the Act. The ld. CIT was of the opinion that there was no amount which could be allowed as deduction under clause (iii) of Explanation to section 115JB(2) of the Act as there was no loss balance in the profit and loss account. It is not in dispute in the instant case that the assessee company suffered loss continuously since F.Y. 2000-01 till the immediately preceding previous year. However, the assessee adjusted the figure of accumulated loss of ₹ 3,58,75,731/- with the paid up capital and balance in profit and loss account was not reflecting any los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to books of account in contra-distinction to the loss of unabsorbed depreciation arrived at from normal computation of total income under sections 72 to 74A of the Act or u/s 32 of the Act. Herein, it may be noted that phrase used is books of account and not profit and loss account or balance sheet . Profit and loss account, balance sheet and books of account are different and distinct terms and in a given circumstance, may not carry the same meaning. Though profit and loss account and balance sheet are normally drawn up from the books of account and the amount reflected therein agree with the balance sheet as per books of account, but books of account also contain many details and break up of balances which are disclosed in a summarized manner in the profit and loss account and balance sheet and hence, a figure which may be available as per books of account may not always be necessarily apparently visible from either the profit and loss account or balance sheet. The said clause (iii) cannot be read to mean that if the loss suffered in a year and unabsorbed depreciation of that year are not kept separately and shown distinctly in the balance sheet, then no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that SICA has no overriding effect on the Companies Act. The assessee in its computation of income has claimed reduction of unabsorbed depreciation from the book profit as per clause (iii) of Explanation to Section 115JB(2). The contention of the assessee, as discussed earlier was that accounts for the purpose of giving effect the scheme of BIFR were not required to be finalized in consonance with Part-II and III of Schedule-VI. Therefore, even if the assessee has shown the alleged set off of debit balance against the restructuring credits brought in the accounts, for the purpose of balance sheet and presentation, that does not mean that the assessee has been denuded to say that its accounts for subsequent period would not be prepared on the basis of annual affairs of the company in terms of Part-II and III of Schedule-VI. On other words, the maintenance of accounts under Part-II and III of Schedule-VI is an independent exercise which is to be prepared in consequent to the requirement under these provisions. Part-II and III of Schedule-VI nowhere envisage that the items which are not of income in nature are required to be recognized under the head income in the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Companies Act. Can the ld.Commissioner allege that since you have claimed a lower depreciation, according to the straightline method, while preparing the accounts under Part-II and Part-III of Schedule-6, therefore, you are not entitled for higher rate of depreciation as per WDV method while assessing the income of the assessee under regular provision ? All these Acts operate independently in their field. As far as plea of the assessee that principle of consistency ought to be applied is concerned, this plea has been jettisoned by the ld.Commisisoner simply for the reason that res judicata is not applicable in the income tax proceedings. But this aspect has been considered by the Hon ble Supreme Court in the case of CIT Vs. Excel Industries Ltd. (supra) and Radhasoami Satsang Vs. CIT, 193 ITR 321 (SC). In a number of authoritative pronouncements, it has been held that though the principle of res judicata is not strictly applicable in the income tax proceedings, but where the facts running in different assessment years have not changed, then, consistent approach ought to be adopted. The Income Tax Officer is free to take different opinions in different assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X
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