There is no dispute with the fact that the company has negative networth and has become sick under the repealed Act- Sick Industrial Companies (Special Provisions) Act, 1985.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 Since the provisions of Section 115JB have not been amended, to that extent the repealed SICA Act is applicable so it has to be applied.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.
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.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-Tirupati, dated 29-10-2015.
2. The facts in brief qua the issue raised in the grounds are that assessee filed its return of income electronically for the AY. 2009-10 on 23-09-2009, declaring NIL income. This return was processed u/s. 143(1) of the Act and the total income was determined at Rs. 69,19,580/- u/s. 115JB of the Act. Aggrieved by the intimation sent u/s. 143(1), assessee filed an appeal before the CIT(A), Guntur. By an order dt. 09-03-2012, the CIT(A) held that “as per the material on record the appellant is a sick company for the year under challenge and the net worth has become negative for the year under report. In such circumstances, the provisions of section 115JB are not applicable and as such the intimation made by the AO is not approved and he is directed accordingly”.
2.1. On the department’s appeal, the Co-ordinate Bench of ITAT, ‘A’ Bench Hyderabad in its order in ITA No. 1056/Hyd/2012, dt. 23-01-2013 held that “we do not find any infirmity in the order of the CIT(A) in this behalf, and in any event, the assessing officer cannot take up the issues which are debatable while dealing with the returns in terms of Section 143(1) of the Act”. The Co-ordinate Bench deleted the tax demand raised u/s. 115JB of the Act as it is outside the purview of Section 143(1) of the Act.
2.2. Thereafter, AO issued a notice u/s. 148 of the Act on 10-06-2013 and in the re-assessment proceedings, assessee claimed that it is a sick company on the basis of its negative net wealth figure. AO required assessee to furnish the order, if any, issued by the Board of Industrial and Financial Restricting to consider the status of assessee as to whether it is a sick industrial company. But assessee could not produce any evidence in this regard as required by AO. Since assessee could not prove its claim, AO invoked the provisions of Section 115JB and assessed its income under that section. Aggrieved against that order, assessee preferred an appeal before the CIT(A).
3. Before the Ld.CIT(A) it was pleaded that the Balance Sheet show the negative net worth of Rs. (-) 36,70,953/- and company has become sick company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Accordingly, the provisions of Section 115JB are not applicable. It was also contended that assessee-company has credited an amount of Rs. 71,48,250/- being credit balance written-off which is not an income and not even taxable u/s. 41(1) of the IT Act. It was never claimed as deduction earlier and so the credit is not taxable under normal provisions and so the same cannot be income for the purposes of Section 115JB. It further relied on the order of ITAT on an appeal against the intimation u/s. 143(1) on the same issue.
4. CIT(A) did not agree and confirmed the action of AO for the following reason:
“4. The appellant’s submissions are considered. It is clear from the copy of audited statements and statements filed for the assessment year 2009-10 that the appellant has shown two receipts as income viz Credit Balance Written off in the name of B.V.Reddy & Sons (Finance) at Rs.71,48,250/-and Interest income of Rs200/- which constituted the total receipts at Rs.71,48,450/-. Against it, after claiming all the expenditures, the net profit for the year is shown at Rs.69,19,579/-. Now, the provisions of section 115JB of the Income Tax Act,1961 are a special provisions. Unless otherwise such provisions enable, the AO can neither add nor deduct any of the receipts or expenditures. The appellant could not show specifically as to how its claim could be deducted from the admitted income within the provisions of Explanation 1 of section 115 JB of the Act. When, the entry (ies) pleaded by the appellant do not fall in any of the clauses of the Explanation 1 of section 115 JB of the Act, the AO’s action could not be found fault with. Similarly, the provisions of Section 17 of the Sick Industrial Companies (Special Provisions) Act 1985 (1 of 1986) are also from a Special Act and it is extracted as under:
17. Powers of Board to make suitable order on the completion of inquiry. –
(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to 2(make its net worth exceed the accumulated losses) within a reasonable time.
(2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to 2(make its net worth exceed the accumulated losses) within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or condition as may be specified in the order, give such company as it may deem fit to 2(make its net worth exceed the accumulated losses.)
(3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to (make its net worth exceed the accumulated losses) within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.
(4) The Board may. _
(a) If any of the restrictions or conditions specified in an order made under sub-section (2) are not complied with by the Company concerned, 3(or if the Company fails to revive in pursuance of the said order,) review such order on a reference in that behalf from any agency referred to in sub-section (2) of section 15 or on its own motion and pass a fresh order in respect of such company under sub-section (3);
(b) If the operating agency specified in an order made under sub-section (3) makes submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
From the above, it is clear that only the Board constituted under this Act can declare as to whether this appellant is a sick industrial Company or not. In this regard, the appellant could not produce any such order so that the AO could give due effect under section 115 JB of the Act. Thus, the addition made by him is within the scope of the provisions of section 115 JB of the Act and hence it is sustained. The appeal grounds are treated as dismissed”.
5. Contesting the above, it was the submission of Ld. Counsel that assessee has become sick company by having negative net worth and this fact was acknowledged even by the ITAT in earlier proceedings. It was further submitted that the SICA was repealed w.e.f. 2003 and the Board stands dismissed. So the question of getting certificate from Board as demanded by AO/CIT(A)does not arise.
5.1. Referring to the provisions of Section 115JB, it was the submission that the capital credit like credit balance written-off cannot be considered as income and submitted that the deduction claimed in normal computation was accepted. Further, it was submitted that the capital receipts cannot be brought to tax u/s. 41(1) and relied on the decision of Hon’ble Bombay High Court in the case of Mahindra and Mahindra which was recently upheld by the Hon’ble Supreme Court. Ld. Counsel relied on the following cases in support:
i. NCL Industries Vs. JCIT [88 ITD 150] (Hyd);
ii. M/s. Vista Pharmaceuticals Ltd., Vs. DCIT [ITA No. 840/Hyd/2011, dt. 17-02-2012];
iii. M/s. JSW Steel Limited (Formerly known as Jindal Vijaynagar Steel Limited) Vs. ACIT, ITA No. 923/Bang/2009, dt. 13-01-2017;
6. Ld.DR, however, reiterated the reasoning of AO and CIT(A) and submitted that the annual statements prepared by assessee-company were accepted and AO has no power to exclude any amount u/s. 115JB as reiterated by the Hon’ble SC in the case of Apollo Tyres Ltd., Vs. CIT [255 ITR 273] (SC). His prayer is to restore it to AO for fresh examination.
7. We have considered the rival contentions and perused the Paper Book and case law relied on. There is no dispute with the fact that the company has negative networth 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 115JB 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.
8. Coming to the other contention that 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 in ITA No. 923/Bang/2009, dt. 13-01-2017, 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.
9. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 30th May, 2018