The Hyderabad bench of ITAT last week held that the provisions of Section 115JB of the Income Tax Act, 1961 is not applicable to a sick company.
In the instant case, the assessee filed returns electronically for the F.Y 2009-10 on 23-09-2010 declaring nil income. The return was processed under Section 143(1) and the total income was determined under Section 115JB of the Income Tax Act, 1961. Aggrieved by the same, the assessee filed an appeal before CIT(A). The CIT(A) disapproved the intimation made by A.O. and held that on perusal of the records, the appellant being a sick company for the year under challenge and the net income has become negative for the year and in such circumstances provisions of Section 115JB are not applicable. Aggrieved by the same, the department appealed to the Co-ordinate bench of ITAT, Hyderabad. The Co-ordinate bench deleted the tax demand raised under Section 115JB as it comes outside the purview of Section 143(1) of the act.
Thereafter, the AO issued notice under Section 148 of the act and in re-assessment proceedings, the assessee claimed that it is a sick company on the basis of it’s negative net wealth figure. AO required the assessee to furnish the order if any issued by the Board of Industrial and Financial Restricting to consider the status of the assessee as to whether it is a sick industrial company. Since assessee failed to produce any evidence, the AO invoking Section 115JB assessed income under the same. Aggrieved by the order, assessee preferred an appeal before CIT(A). The CIT(A) confirming the action of AO held that provisions under Section 115JB are special provisions and unless otherwise, such provisions enable, AO can neither add or deduct any of the receipts or expenditures.
Accepting the contention of the assessee, ITAT accepted that the company has a negative net worth and has become sick under the Sick Industrial Companies Act, 1985. The ITAT added that the insistence of AO and Ld.CIT(A) for a certificate under the act is not proper as the board stands dissolved consequent to the repeal of the act. The ITAT held “considering the facts of the case we hold that the assessee company is not covered by the provisions of Section 115JB and therefore, the grounds raised by the assessee are accordingly allowed.”