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TMI Blog2018 (12) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 73,36,264/- and claimed the same to be allowed to be carried forward u/s 74 of the Act to the subsequent assessment years. The assessee has paid taxes under the provisions of section 115JB on the book profit arrived at Rs. 79,743/-. During the course of assessment proceedings from the notes on accounts, forming part of financial statements, the Assessing Officer (AO) found that for the year ending 31.03.2013, the assessee has shown profit of Rs. 4,33,66,168/- relating to sale of the land at sale price of Rs. 4,33,85,000/- reduced by proportionate cost of Rs. 18,832/-. The site sold was located at head office at Mangalagiri Road, Guntur (Vaishnavi Wholesale Cloth Merchants Society, Guntur) and the entire profit on sale of the site was taken to capital reserve in the balance sheet without routing it through the profit and loss account. The AO has asked the assessee as to why such profit on sale of asset was not taken to Profit & Loss account and taken to Capital Reserve and why the same should not be considered for MAT u/s 115JB of the Act. The assessee filed explanation stating that the company became sick industrial company as the accumulated losses as per balance sheet and Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to MAT tax, the AO observed that when an industrial company has become a sick industrial company it should make reference to the BIFR. The Board of Directors of the Company, shall within, sixty days from the finalization of the audited accounts of the company for the financial year, as at the end of which the company has become a sick industrial company make a reference to the BIFR for determination of the measures which shall be adopted with respect to the company. The BIFR may make such inquiry u/s 16(1) of SICA as it may deem fit for determining whether any industrial company has become a sick industrial company, upon receipt of a reference with respect to such company u/s 15 or upon information received from such company or upon its own knowledge as to the financial condition of the company. As per section 17(1) of SICA, if after making an enquiry u/s 16, the BIFR is satisfied that a company has become a sick company, the BIFR after considering all relevant facts and circumstances of the case decide as soon as may be by order in writing, whether it is practicable for a company to make its net worth exceed the accumulated losses within a reasonable time. The BIFR shall by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB is possible since the said profit was not credited to the Profit & Loss account. The Ld.AR relied on the decision of ITAT Mumbai in the case of Income Tax Officer-3(1)(2), Mumbai Vs. Bhagwan Industries Ltd. in I.T.A. No.6665/Mum/2008 for the A.Y. 2004-05 dated 08.09.2014 which was affirmed by the Hon'ble High Court of Bombay in ITA No.436 of 2015 dated 18.07.2017. The Ld.AR submitted that the AO relied on the decision of special bench in the case of Rain Commodities Ltd. V.s Dy.CIT (2010) [40 SOT 265], wherein the Special Bench has rendered the judgment with regard to capital profit credited to the Profit &Loss account but not taken to the reserves directly. The Ld.AR argued that having credited the capital profit to the Profit & Loss account there is no case for excluding the same from the P&L account for the purpose of computing the Book profit. Thus, the Hon'ble ITAT special bench delivered the decision holding that for the purpose of determining the book profit, capital profit cannot be reduced. Whereas in the instant case, the capital profit was not credited to the Profit and Loss account but directly taken to the balance sheet thus, the case law relied upon by the AO is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, argued that the AO has rightly made the addition which was confirmed by the Ld.CIT(A) and the order of the Ld.CIT(A) required to be upheld. The Ld.DR relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs.Veekaylal Investment Co.(P) Ltd. [249 ITR 0597]. 7. Responding to the argument of the Ld.DR, the Ld.AR submitted that the Ld.DR relied on the order of CIT Vs. Veekaylal Investment Co.(P) Ltd. (2001) 116 Taxman 0104. In the said case, the Ld.AR argued that the profits were first credited to the Profit & Loss account and subsequently reduced from the profit declared by the assessee for the purpose of MAT tax. Therefore, the case law is distinguishable and is not applicable in the assessee's case. The Ld.AR further argued that as per the decision of Hon'ble High Court of Bombay in the case of Veekaylal Investment Co.(P) Ltd., Hon'ble High Court held that while computing the book profits, the assessee is required to take into account the capital gains u/s 45 of the Act. In the instant case, the capital gains admitted by the assessee was loss of Rs. 73,36,264/- and the AO did not allow the carry forward loss, even after assessment the capital gains asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company was certified by the Board of Directors of the of the company, in terms of decision by the Hon'ble Supreme Court in the Apollo Tyres Ltd. (supra), the A.O. was not justified in twinkling the P&L account prepared by the assessee. The adjustments so made by AO. does not fall within any of the clauses of Explanation provided below section 1 15JA. We find that the issue raised before us has already been considered and decided by the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT[255 ITR 273). In that case, the assessee had claimed arrears of depreciation in the P&L Account prepared under the Companies Act. The AO held that the accounts prepared were not in accordance with Part-II and Part-III of Schedule- VI of the Companies Act and, therefore, disallowed the arrears of depreciation which had been upheld up to the level of the High Court. The Hon'ble Supreme Court observed that Section 115J provisions of which were similar to those of 115JB was introduced in the Income Tax Act with a deeming provision which made Companies liable to pay tax at least 30% of book profit as shown in its own accounts. For the said purpose, the section 115J made income re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are maintained in accordance with the requirements of the Companies Act. Sub-section (IA) of Section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." 8.1. The above order of the ITAT Mumbai was affirmed by the Hon'ble High Court of Bombay in I.T.T.A. No.436 of 2015, the Hon'ble High Court held as under : "3. Tribunal while passing the impugned Order observed that while computing the book profit under Section 115JB of the Income-Tax Act, the Assessing Officer added the sum of Rs. 2,84,84,000/- in the book profit. The Commissioner of Income-Tax (Appeals) deleted the addition. The Tribunal referring to the Judgment of the Apex Court in a case of Apollo Tyres Ltd. v. CIT reported in 255 ITR 273 and judgement of this Court in case of Akshay Textiles Trading and Agencies PVT. Ltd. reported in 304 ITR 401 has observed as under : "Respectfully following the decision of Hon'ble Bombay High Court in the case of Adbhut Trading Co. Pvt. Ltd. (supra) and in the case of Akshay Textiles Trading and Agencies Pvt. Ltd. (supra), we do not find any infirmity in the order of the Ld.CIT(A) for dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth and has become sick under the repealed Act- Sick Industrial Companies (Special Provisions) Act, 1985. 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 Ld.CIT(A) for a certificate under that Act is not proper. Since the provisions of Section I JSJB have not been amended, to that extent the repealed SICA Act is applicable so it has to be applied. Therefore, under these circumstances, 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."
9.1. Respectfully following the decisions of the Hon'ble Bombay High court in Bhagwan Industries Ltd, and the decision of coordinate bench of ITAT, Hyderabad we hold that there is no case for making adjustment s u/s 115JB of the act and the assessee is entitled for relief, therefore, we set aside the orders of the lower authorities and allow the appeal of the assessee.
10. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 12th December, 2018. X X X X Extracts X X X X X X X X Extracts X X X X
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