M/s. Binny Engineering Limited, CHENNAI V. ACIT, CHENNAI

ITA 1918/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57957 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: B RAMAKRISHNAN
• Section: 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1918/MDS/2011 (ASSESSMENT YEAR : 2006-07) M/S BINNY ENGINEERING LTD., P.O. BOX NO.8677, CHENNAI - 600 114. PAN : AAACB1965C (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI - 600 034 . (RESPONDENT) APPELLANT BY : SHRI B. RAMAKRISHNAN, CA RESPONDENT BY : SHRI R.B. NAIK, CIT DATE OF HEARING : 10.02.2012 DATE OF PRONOUNCEMENT : 17.02.2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY ASSESSEE FOR THE ASSESSM ENT YEAR 2006- 2007 AGAINST THE ORDER DATED 28.10.2011 OF COMMISSI ONER OF INCOME TAX [APPEALS], CHENNAI. I.T.A. NO. 1918/MDS/2011 2 2. GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 3. GROUND NO. 2 READS AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN CONFIRMING THE BOOK PROFIT COMPUTED BY THE ASSESSIN G OFFICER WITHOUT CONSIDERING EXPLANATION VII OF SUB-SECTION 2 OF SECTION 115JB OF THE ACT. 4. THE LD. CIT(A) HAS DECIDED THIS ISSUE BY OBSERVI NG AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE LD. AR. I HAVE ALSO CAREFULLY GO NE THROUGH THE PROVISION OF SECTION 115JB OF THE ACT. AS EXPL AINED BY THE LD. AR, THE APPELLANT COMPANY WAS THE ENGINEERING D IVISION OF M/S BINNY LTD AND WAS HIRED OFF AS A SEPARATE COMPA NY DURING THE PREVIOUS YEAR 1995-96 RELEVANT TO A.Y. 1996-97. M/S BINNY LTD WAS DECLARED A SICK INDUSTRIAL COMPANY U/ S 3(1)(O) OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISION ) ACT, 1985 IN 1993. SUBSEQUENTLY, HOWEVER, BIFR REJECTED THE SCHEME FOR REHABILITATION OF BOTH COMPANIES. ON APPEAL, T HE LEARNED AAIFR UPHELD THE ORDER OF BIFR. M/S BINNY LTD FILE D A WRIT PETITIONS IN THE HIGH COURT OF MADRAS AGAINST THE O RDER OF I.T.A. NO. 1918/MDS/2011 3 AAIFR. THE HONBLE HIGH COURT, IN ITS JUDGMENT DAT ED 24.09.2003 SET ASIDE THE ORDERS OF THE BIFR DATED 2 4.2.2003 AND THE AAIFR DATED 9.5.2003 AND, INTER ALIA, GAVE VARIOUS DIRECTIONS INCLUDING DIRECTION THAT M/S BINNY LTD W OULD SUBMIT TECHNO-ECONOMIC VIABLE SCHEME FOR M/S BINNY ENGINEERING LTD (BEL) WHICH WOULD BE SUBMITTED TO T HE BOARD FOR ITS APPROVAL WITHIN 30 DAYS FROM THE DATE OF SA NCTION OF SCHEME OF BL. THE ORDER OF THE BIFR IN CASE NO.48/ 93 IN RE: BINNY LTD (BL) DATED 22.10.2003 (ISSUED ON 23.10.20 03) HAS DISCUSSED THE ABOVE FACT AND HAS ALSO ENCLOSED COPY OF THE SANCTIONED SCHEME (SS). AS PER THE SALIENT FEATURE S OF THE REHABILITATION SCHEME (RS) UNDER THE SANCTIONED SCH EME, UNDER CLAUSE E, IT HAS BEEN STATED AS UNDER: BEL WILL BE DELINKED FROM THE REVIVAL SCHEME OF BL . SUBJECT TO THE VIABILITY OF BEL BEING ESTABLISHED BY AN IND EPENDENT CONSULTANT, A SEPARATE ACCEPTABLE SCHEME FOR BEL WO ULD BE FORMULATED & SUBMITTED TO THE BOARD THROUGH IDBI (O A) WITHIN 30 DAYS FROM THE DATE OF SANCTION OF THE SCH EME FOR BINNY LTD THE LD. AR ADMITTED THAT NOTHING HAS HAPPENED WITHI N 30 DAYS AS REQUIRED UNDER THE AFORESAID CLAUSE OR THER EAFTER TILL DATE. HE HAS ALSO NOT SUBMITTED ANY OTHER SUPPORTIN G DOCUMENTS OR RELEVANT DETAILS TO ESTABLISH THAT THE APPELLANT I.T.A. NO. 1918/MDS/2011 4 WAS A SICK INDUSTRIAL COMPANY WITHIN THE AMBIT OF REHABILITATION BY BIFR. THE LD. AR HAS ALSO NOT CO UNTERED THE FINDINGS OF THE AO THAT THE APPELLANT HAS COME OUT OF THE STATUS OF SICK INDUSTRIAL COMPANY AS ON 30.9.2005. FURTHER, IN THE ANNUAL REPORT OF THE CURRENT YEAR ALSO, IT IS S TATED THAT THE COMPANY IS NO LONGER SICK AND HAS BEEN REMOVED FROM THE CATEGORIZATION WAY BACK IN 2005. THE APPELLANT HAS ALSO NOT GIVEN ANY DETAILS TO PROVE THAT DURING THE PREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR, THE ENTIRE NET WORTH OF THE COMPANY WAS LESS THAN THE ACCUMULATED LOSS. IN VIEW OF THE ABOVE FACTS, THE GROUND IS DISMISSED. 5. THE LD. A.R. FOR THE ASSESSEE REFERRED TO PAGE 4 9 OF THE PAPER BOOK WHEREIN BALANCE SHEET OF THE ASSESSEE COMPANY IS PLACED. HE POINTED OUT FROM THIS BALANCE SHEET THAT IT WILL BE OBSERVED AS ON 31.3.2006 SHAREHOLDERS FUND WAS RS. 600 LAKHS AND T HE CARRIED FORWARD LOSS TO THE BALANCE SHEET WAS RS. 3610.04 L AKHS. HENCE HE SUBMITTED THAT AS THE NET WORTH OF THE ASSESSEE COM PANY WAS FULLY ERODED AND THEREFORE THE ASSESSEE WAS A SICK COMPAN Y AS PER SICK INDUSTRIAL COMPANIES ACT AND ITS INCOME WAS REQUIRE D TO BE EXCLUDED UNDER EXPLANATION VII TO SUB-SECTION (2) T O SECTION 115JB I.T.A. NO. 1918/MDS/2011 5 OF THE ACT. HE SUBMITTED THAT AT PAGE 48 OF THE PB IS PLACED ANNEXURE TO THE AUDITORS REPORT AND POINT (X) READ S AS FOLLOWS: (X) IN OUR OPINION, THE ACCUMULATED LOSSES OF THE COMPANY ARE MORE THAN FIFTY PERCENT OF ITS NET WORTH. THE COMPANY HAS INCURRED CASH LOSSES DURING THE FINANCIAL YEAR COVERED BY OUR AUDIT. HOWEVER, IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR THE COMPANY HAS NOT INCURRED A CASH LOSS. 6. THUS, FROM THIS IT WILL BE SEEN THAT THE LOSSES OF THE COMPANY ARE MORE THAN 50% OF ITS NET WORTH AND THEREFORE TH E ASSESSEE IS A SICK COMPANY. HE FURTHER REFERRED TO PAGE 79 OF TH E PB WHEREIN SANCTION SCHEME AS PER BOARD FOR INDUSTRIAL AND FIN ANCIAL RECONSTRUCTION IN CASE NO. 48/93 IN BINNY LIMITED D ATED 23.10.2003 IS PLACED. HE POINTED OUT THAT SALIENT FEATURE E READS AS UNDER: E. BINNY ENGINEERING LTD (BEL): BEL WILL BE DE-LINKED FROM THE REVIVAL SCHEME OF BL . SUBJECT TO THE VIABILITY OF BEL BEING ESTABLISHED BY AN IND EPENDENT CONSULTANT, A SEPARATE ACCEPTABLE SCHEME FOR BEL WO ULD BE FORMULATED & SUBMITTED TO THE BOARD THROUGH IDBI (O A) I.T.A. NO. 1918/MDS/2011 6 WITHIN 30 DAYS FROM THE DATE OF SANCTION OF THE SCH EME FOR BINNY LIMITED. 7. HE ALSO REFERRED TO PAGE 58 OF THE PB AND SUBMIT TED THAT THE ORDER OF BOARD OF INDUSTRIAL AND FINANCIAL RECONSTR UCTION IN THE CASE OF M/S BINNY LIMITED BIFR CASE NO. 48/93 DATED 7.10 .2005 READS AS UNDER: 12. THE BOARD, ON CONSIDERATION OF THE FACTS, MERI TS OF THE CASE AND THE MATERIALS ON RECORD, NOTES THAT M/S B INNY ENGINEERING LTD (BEL), ONE OF THE UNIT OF M/S BINNY LTD AND REVIVAL OF M/S BEL WAS ONLY A PART OF REVIVAL SCHE ME SANCTIONED BY THE BOARD ON 22.10.03 (SS-03) FOR REH ABILITATION OF THE SICK COMPANY M/S BL. THE BOARD FURTHER NOTE S THAT THE PROMOTER(S) OF THE SICK COMPANY M/S BL FAILED T O REVIVE THE COMPANY M/S BL OR EVEN M/S BEL, PRIMARILY BECAU SE OF LACK OF THEIR SERIOUSNESS/RESOURCEFULNESS FOR IMPLE MENTATION OF THE PRESCRIBED PROVISIONS OF THE SS-03. THE BOA RD HEREBY CLARIFIES THAT, IN VIEW OF THE ACQUISITION OF THE A SSETS OF THE COMPANY M/S BINNY LTD BY THE INDIAN BANK AS PER PRO VISION U/S 13(4) OF THE SARFAESI ACT, 2002, THE BOARD HAS NO LONGER ANY JURISDICTION TO DEAL WITH THE CASE OF M/S BINNY LTD I.T.A. NO. 1918/MDS/2011 7 INCLUDING CONSIDERATION OF ANY FRESH REVIVAL SCHEME FOR M/S BINNY ENGINEERING LTD IN ISOLATION. 8. HE SUBMITTED THAT A READING OF THE ABOVE WILL SH OW THAT THE COMPANY WAS COVERED UNDER REHABILITATION SCHEME OF BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION SINCE 1993 AND THAT THE ASSESSEE COMPANY COULD ONLY COME OUT OF THE ABOVE B IFR SCHEME WHEN ITS NET WORTH EXCEEDED THE LOSSES, OR, IN OTHE R WORDS, THE NET WORTH OF THE COMPANY BECAME POSITIVE. 9. AS POINTED OUT FROM PAGE 49 OF THE PAPER BOOK FR OM THE BALANCE SHEET OF THE ASSESSEE COMPANY THAT NET WORT H OF THE ASSESSEE DURING THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION WAS NEGATIVE AND THEREFORE, THE ASSESSEE CONTINUED TO BE GOVERNED UNDER THE SCHEME OF BIFR AND HENCE THE ASSESSING OF FICER AS WELL AS THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE I S NOT A COMPANY COVERED UNDER BIFR AND DENYING EXEMPTION UNDER EXPL ANATION 7 OF SUB-SECTION (2) OF SECTION 115JB OF THE ACT. I.T.A. NO. 1918/MDS/2011 8 10. THE LD. D.R., ON THE OTHER HAND, FULLY JUSTIFIE D THE ORDERS OF THE LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED ORDERS OF THE LOWER AUTHORITIES. THE ASSESSEE COMPANY CLAIMED DE DUCTION FROM THE BOOK PROFITS OF THE ENTIRE AMOUNT OF PROFIT IN VIEW OF CLAUSE (VII) OF SECTION 115JB(2) ON THE GROUND THAT THE ASSESSEE COMPANY IS A SICK INDUSTRIAL COMPANY DURING THE YEAR UNDER CONSI DERATION. THE ASSESSING OFFICER NEGATED THE CLAIM OF THE ASSESSEE COMPANY ON THE GROUND THAT THE ASSESSEE COMPANY HAS COME OUT OF TH E STATUS OF SICK COMPANY ON 30.9.2005 ON THE BASIS OF A NOTE IN CONS OLIDATED ACCOUNT OF M/S BINNY LIMITED. 12. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR THE REASONS QUOTED ABOVE IN THIS ORDER. 13. WE FIND THAT CLAUSE (VII) OF SECTION 115JB READ S AS UNDER: I.T.A. NO. 1918/MDS/2011 9 THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY F OR THE A.Y. COMMENCING ON AND FROM THE A.Y. RELEVANT TO TH E PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUBSECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES [SPECIAL PROVISIONS] ACT, 1985 [1 OF 1986] AND ENDING WITH THE A.Y. DURING WHICH THE ENT IRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS T HE ACCUMULATED LOSSES. 14. WE FIND FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.3.2006 PLACED AT PAGE 49 OF THE PAPER BOOK THAT TOTAL CAPITAL OF THE ASSESSEE COMPANY WAS RS. 600 LAKHS AND ACCUMUL ATED LOSSES OF THE ASSESSEE COMPANY WAS RS. 3610.04 LAKHS. THUS IT IS OBSERVED THAT THE ACCUMULATED LOSSES OF THE ASSESSEE COMPANY WERE MORE THAN THE NET WORTH OF THE ASSESSEE COMPANY AS ON 31 .3.2006. THUS, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WA S NOT JUSTIFIED IN OBSERVING THAT DURING THE RELEVANT PREVIOUS YEAR TH E NET WORTH OF THE ASSESSEE COMPANY BECAME POSITIVE. FURTHER, UND ER THE SCHEME OF THE I.T. ACT, A COMPANY IS DISTINCT AND SEPARATE PERSON FROM THE HOLDING COMPANY. THUS, IF THE NET WORTH OF THE HOL DING COMPANY OR GROUP TAKEN AS TOGETHER BECAME POSITIVE, IT WILL NO T IMPLY THAT THE I.T.A. NO. 1918/MDS/2011 10 ASSESSEE COMPANYS NET WORTH HAS ALSO BECOME POSITI VE. WE FIND THAT THE ADVERSE INFERENCE OF THE ASSESSEE COMPANY WAS DRAWN BY THE LOWER AUTHORITIES ON THE BASIS OF NOTED IN THE ANNUAL REPORT OF THE HOLDING COMPANY I.E. M/S BINNY LIMITED OR ON TH E BASIS OF NOTES OF THE CONSOLIDATED ACCOUNTS OF M/S BINNY LIMITED. IN OUR CONSIDERED OPINION, THE STATUS OF THE ASSESSEE COM PANY AS STAND- ALONE COMPANY SHOULD HAVE BEEN CHECKED AND VERIFIED BY THE LOWER AUTHORITIES ASCERTAINING WHETHER DEDUCTION UNDER CL AUSE (VII) OF SECTION 115JB(2) IS ALLOWABLE TO THE ASSESSEE COMPA NY OR NOT. AS NONE OF THE LOWER AUTHORITIES HAVE VERIFIED THE SAM E, IN OUR CONSIDERED OPINION IT SHALL BE IN THE INTEREST OF J USTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE R FOR ADJUDICATION AFRESH AS PER LAW AFTER NECESSARY VERIFICATION AS D ISCUSSED ABOVE. NEEDLESS TO MENTION THAT THE ASSESSING OFFICER SHA LL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE B EFORE ADJUDICATING THE ISSUE AFRESH AS TO WHETHER THE ASS ESSEE COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY U/S 17 (1) OF THE SICK INDUSTRIES COMPANY [SPECIAL PROVISIONS] ACT, 1985 A T ANY TIME ON OR BEFORE THE RELEVANT PREVIOUS YEAR AND WHETHER AT TH E END OF ANY I.T.A. NO. 1918/MDS/2011 11 EARLIER A.Y. NET WORTH OF SUCH COMPANY AFTER BECOMI NG SICK INDUSTRIAL COMPANY BECAME EQUAL TO OR EXCEEDED THE ACCUMULATED LOSSES. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THIS GROUND OF APPEAL FOR STATISTICAL PUR POSES. 15. GROUND NO. 3 OF THE APPEAL READS AS UNDER: 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE TREATMENT OF RE- COMPUTATION OF TOTAL INCOME AS RS.23,32,86,007 BY APPLYING THE PROVISIONS OF SECTION 115JB WITHOUT REDUCING THE BROUGHT FORWARD UNABSORBED DEPRECIATIO N LOSS OR BOOK LOSS WHICHEVER IS LESS. 16. THE RELEVANT GROUND RAISED BY THE ASSESSEE BEFO RE THE LD. CIT(A) WAS DISMISSED BY THE CIT(A) NOT ON MERITS AF TER VERIFICATION FROM RECORDS BUT ON THE GROUND THAT CALCULATION SHE ET WAS NOT FURNISHED BY THE ASSESSEE. AS WE HAVE ALREADY REST ORED GROUND NO. 1 OF THE APPEAL TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH ADJUDICATION, WE ALSO RESTORE THIS ISSUE BACK TO TH E FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION AND TH EREAFTER ADJUDICATE AFRESH AS PER LAW. I.T.A. NO. 1918/MDS/2011 12 17. GROUND NO. 4 OF THE APPEAL READS AS UNDER: 4. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D IN CONFIRMING THE INTEREST U/S 234B OF THE ACT. 18. NO SUBMISSION WAS MADE BY THE LD. A.R. OF THE A SSESSEE ON THIS GROUND OF APPEAL TAKEN BY THE ASSESSEE. WE HOLD TH AT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCORDINGLY DISPOSE O F THIS GROUND OF APPEAL OF THE ASSESSEE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 17.02.2012 . SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH FEBRUARY, 2012. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI. (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE