The Income Tax Appellate Tribunal ( ITAT ) has directed the Assessing Officer ( AO ) to delete the addition of Rs. 4.71 crore after observing the AO’s failure to recompute book profit under Section 115JB of the Income Tax Act, 1961.
The assessee company, Golden Weaving Mills Pvt Ltd filed its return of income for the assessment year 2012-13 on 21.09.2012, admitting nil income under normal provisions of the Income-tax Act and book profit of Rs.91,35,086/- under Section 115JB of the Income-tax Act. The assessment has been completed under Section 143(3) on 19.02.2015 and accepted income returned by the assessee company.
The case has been subsequently reopened under Section 147 of the Income Tax Act, for the reasons recorded as per which income chargeable to tax has escaped assessment on account of incorrect computation of book profit under Section 115JB of the Income Tax Act and accordingly, notice under Section 148 dated 13.08.2016, was issued and served on the assessee.
In response to notice under Section 148, the assessee has filed return of income admitting nil income. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that, the assessee has claimed deduction towards interest weaver given by TIIC from the book profit computed under Section 115JB of the Income Tax Act. Therefore, called upon the assessee to explain as to why book profit under Section 115JB of the Income Tax Act, cannot be recomputed.
In response, the assessee submitted that net profit of the appellant as per the profit and loss account for the instant assessment year was at Rs. 5,28,46,464/-.
Mr. M.V. Prasad, representing the assessee submitted that the CIT(A) never disputed fact that the appellant was a sick industrial company in terms of BIFR order dated 22.01.2003, but rejected arguments of the assessee only on the ground that, the appellant failed to prove the conditions prescribed for claiming such deduction including the net worth of such company becomes equal to or exceeds the accumulated losses.
Mrs. ID. Hema Bhupal, representing JCIT, on the other hand supported the order of the CIT(A) submitted that, the assessee could not file necessary evidences before the AO to prove that net worth was equal to or exceeds the accumulated losses of the company for the relevant assessment year
The bench observed that the appellant company was declared as sick industrial company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 by the BIFR vide order, dated 22.01.2003. Since, the appellant company was a sick industrial company for the impugned assessment year, any profit derived from said industrial companies can be deducted while computing book profit
Further, the only condition required to be satisfied before claiming deduction towards profit from book profit is the net worth of said company should be equal to or accumulated losses should exceed the net worth of said company.
The bench noted that, in the present case, the appellant has satisfied the conditions prescribed for claiming deduction towards profit of sick industrial companies in terms of Clause (vii) of Explanation (1) to Section 115JB of the Income Tax Act, because the net worth of the company as on 31.03.2012 was at Rs. 37.5 lakhs as against this, the accumulated loss of the company was at Rs. 2.39 crores. In other words, the net worth of the company becomes equal to or the accumulated loss of the company for the year ending 31.03.2012 is in excess of net worth.
The two member bench of the tribunal comprising V. Durga Rao ( Judicial member) and Manjunatha G. ( Accountant member) observed that the Assessing Officer was completely erred in recomputing book profit under Section 115JB of the Income Tax Act, by making additions towards interest income credited to profit and loss account towards waiver of interest by TIIC. The CIT(A), without considering relevant facts has simply upheld recomputation of book profit by the Assessing Officer by following the decision of ITAT, Hyderabad Benches in the case of Singareni Collieries Company vs. ACIT even though the decision rendered in the said case is totally on different facts and not applicable to facts of the present case
Thus, the ITAT, set aside the order of the CIT(A) and directed the AO to delete additions made towards interest waiver of Rs. 4,71,82,883/-, while computing book profit under Section 115JB of the Income Tax Act and accept book profit as computed by the assessee. Accordingly, an appeal filed by the assessee was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
