ACIT, CHENNAI V. M/s. Biomed Hitech Industries Limited, CHENNAI

ITA 2001/CHNY/2011

• Counselvise Citation: 200121714 RSA 2011
• Duration Of Justice: 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: S SWAMINATHAN
• Keywords: Depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.2001/MDS/2011 ASSESSMENT YEAR: 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI 600 034. VS. M/S. BIOMED HITECH INDUSTRIES LIMITED, NO. 475, OLD MAHABALIPURAM ROAD, SHOLINGANALLUR, CHENNAI 600 119. [PAN:AAACB1953G] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT DR RESPONDENT BY : SHRI S. SWAMINATHAN, C.A. DATE OF HEARING : 2 0 . 1 1 .201 2 DATE OF PRONOUNCEMENT : 22.11.2012 ORDER PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL CHALLENGES THE CORRECTNESS O F THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI D ATED 08.09.2011 IN ITA NO. 584/09-10/A.III FOR THE ASSESSMENT YEAR 2007-08 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. 2. THE EFFECTIVE GROUNDS, INTER ALIA, RAISED IN TH E INSTANT APPEAL READ AS FOLLOWS: 2.1 THE CIT(A) ERRED IN HOLDING THAT THE IMPAIRMEN T LOSS ON ASSETS CANNOT BE ADDED TO BOOK PROFITS U/S 115JB. 2.2 TO 2.8 XXXXXXXXXXXX I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 2 3.1 THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE I S A SICK INDUSTRIAL COMPANY AND THEREFORE, AS PER CLAUSE (VII) TO EXPL. TO SEC. 115JB(2), THE PROFIT HAS TO BE REDUCED IN COMPUTING THE BOOK PROFIT U/S 115JB. 3.2 TO 3.5 XXXXXXXXXXXXX 4.1 THE CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF REMISSION OF THE PRINCIPAL AMOUNT DUE TO OTS CANNOT BE CHARGED TO TA X. 4.2 TO 5 XXXXXXXXXXXXXX GROUND NO. 2.1 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING MEDICAL CONSUMABLES. IT HAD FILED ITS RETURN ON 16.10.2007 AND ADMITTING INCOME OF ` . NIL AFTER SETTING OFF BROUGHT FORWARD LOSSES OF ` .5,48,26,949/-. IT HAD ALSO STATED INCOME FROM OTHE R SOURCES OF ` .13,50,328/- WHICH HAD BEEN SET OFF AGAINST UNABSOR BED DEPRECIATION. THE SAME WAS FOLLOWED BY A REVISED RE TURN ON 10.09.2008. 4. DURING SCRUTINY PROCEEDINGS, THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAD ALTERED ITS BOOK PROFITS. IN HIS OPINI ON, THE SAID RECOURSE HAD BEEN TAKEN BY THE ASSESSEE SO AS TO AVOID PAYMENT O F TAXES UNDER SECTION 115JB BY CLAIMING LOSS OF IMPAIRMENT AS EXPENDITURE FOR THE COMPUTATION OF BOOK PROFITS. IN SUPPORT OF ITS SETTING OFF, THE AS SESSEE, INTER ALIA, CONTENDED BEFORE THE ASSESSING OFFICER THAT IT HAD COMPUTED B OOK PROFITS IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT AND RELEVANT A CCOUNTING STANDARDS AND CLARIFIED THAT BEING A SICK INDUSTRIAL COMPANY IN T HE RELEVANT ASSESSMENT YEAR; AND IN VIEW OF THE FACT THAT ITS NET WORTH WA S STILL NEGATIVE, THE BOOK I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 3 PROFITS WERE NOT TAXABLE UNDER SECTION 115JB EXPLAN ATION 1 (VII). IT FURTHER PLEADED THAT IN VIEW OF THE PROVISIONS, THE TAXATIO N OF BOOK PROFITS WAS NOT CALLED FOR. IN SUPPORT, IT PRODUCED BEFORE THE ASSE SSING OFFICER COPY OF THE BIFR ORDER DATED 18.07.2003 TO PROVE ITS STATUS AS A SICK INDUSTRY. 5. THE ASSESSING OFFICER WAS NO CONVINCED WITH THE ASSESSEES EXPLANATION ABOVE SAID. THEREFORE, VIDE ASSESSMENT ORDER DATED 24.12.2009, AFTER VERIFYING THE STATUS OF ASSESSEE S CASE PENDING BEFORE BIFR THAT REFERENCE BEFORE BIFR HAD ABATED ON 26.08 .2005, HE HELD THAT SINCE THE ASSESSEE HAD COME OUT OF BIFR, ITS STATUS AS A SICK UNDERTAKING DOES NOT EXIST ANYMORE. IN HIS OPINION, THE ASSESSE E HAD UNDERTAKEN EXERCISE OF REALIZING THE VALUE OF ASSETS ON PUTTIN G THE SAME TO SALE, THEREFORE, ITS CLAIM AS A SICK UNDERTAKING STOOD NEGATIVED. THE ASSESSING OFFICER ALSO HELD THAT THE ASSESSEE DID NOT BELONG TO EXEMPT CATEGORY UNDER SECTION 115JB(2) AND ACCORDINGLY PROCEEDED TO TAX T HE ENTIRE BOOK PROFITS OF THE COMPANY IN THE IMPUGNED ASSESSMENT YEAR AS ` .24,22,84,159/-. 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. VIDE THE IMPUGNED ORDER AND AFTER CONSIDERING THE RELEVANT PROVISIONS I.E. SECTION 115JB(2) EXPLANATION 1 (VII), THE CIT(A) HAS HELD THAT NO RE STRICTION WAS THERE THAT ONCE AN UNDERTAKING IS DECLARED SICK IN THE PROVI SIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985, IT HAS TO REMAINS AS SUCH FOR ALL TIMES TO COME. PER CIT(A), THE ONLY REQUIREMENT IS THAT ONCE AN UNDERTAKING I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 4 IS DECLARED SICK, THE REQUIREMENT IS THAT THE BOO K PROFITS CANNOT BE TAXED TILL THE CONCERN ASSESSEES NET WORTH BECOME EQUAL OR EX CEEDS THE LOSSES ALREADY ACCUMULATED. THEREAFTER HE PROCEEDED TO CON SIDER THE STATUS OF ASSESSEES CASE IN BIFR AND ITS ABATEMENT (SUPRA) A ND HELD THAT THE ABATEMENT WAS IN VIEW OF ATTACHMENT PROCEEDINGS UND ER THE PROVISIONS OF SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSE TS AND ENFORCEMENT OF SECURITY INTEREST ACT (SARFESI ACT) AND THE SAME DO ES NOT IN ANY WAY ALTER ASSESSEES SICK STATUS. THE CIT(A) HAS ALSO CONSI DERED THE SHARE CAPITAL AND RESERVE OF ASSESSEE WHICH WAS OF ` .27.47 CRORES AND ITS LOSS STOOD AT ` .50.14 CRORES. HENCE, IT HAS BEEN HELD THAT THE ASS ESSEES NET WORTH AS ON THE CLOSING DAY I.E. ON 31.03.2007 WAS NEGATIVE I.E . NOT EQUAL OR IN EXCESS TO THE LOSS. THEREFORE, HE HELD THAT THE PROFITS ARE T O BE REDUCED FOR THE PURPOSE OF COMPUTING BOOK PROFIT. IN THIS MANNER, THE ASSES SEES GROUND STANDS ACCEPTED. THEREFORE, THE REVENUE IS AGGRIEVED. 7. ON BEHALF OF THE REVENUE, THE DR HAS VEHEMENTLY ARGUED THAT THE CIT(A) HAS NOT CONSIDERED THE FACTS AND CIRCUMSTANC ES OF THE CASE AS PER LAW AND THEREFORE, ERRED IN INTERFERING WITH THE WE LL REASONED ASSESSMENT ORDER. ACCORDINGLY, HE PRAYED FOR RESTORING THE FIN DINGS OF THE ASSESSING OFFICER. 8. ON THE OTHER HAND, THE ARGUMENTS ADVANCED BY TH E ASSESSEE SUPPORT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 5 THE ORDER OF THE CIT(A) AND FINDINGS CONTAINED THER EIN. 9. WE HAVE HEARD BOTH SIDES AT LENGTH AND ALSO PER USED THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AS WELL AS CIT(A) . UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED A CASE IN BIFR FOR DECLARING IT AS A SICK UNDERTAKING. THERE IS NO QUARREL BETWEEN THE PARTIE S THAT ON 05.02.2003, THE ASSESSEE WAS DECLARED AS A SICK INDUSTRY UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT ABOVE SAID AND IDBI WAS APPOINTED AS OPERATING AGENCY SO AS TO EXAMINE THE VIABILITY OF THE COMPANY. DURING THE PENDENCY OF THE ABOVE SAID CASE , THE ICICI BANK INFORMED BIFR THAT THE ASSESSEE HAS FAILED TO COMPL Y WITH ITS NOTICE UNDER THE PROVISIONS OF SARFESI ACT. IN THE LIGHT THEREOF , THE BIFR ABATED PROCEEDINGS IN VIEW OF SECTION 15(1) OF THE SICA AC T, HOLDING THAT IT COULD NOT PROCEED FURTHER. IT IS ON THE BASIS OF THIS ABATEME NT ORDER; (PLACED ON RECORD BY THE AR DATED 26.08.2005) THAT THE ASSESSEE IS ST ILL CLAIMING IT IS TO BE A SICK INDUSTRY; WHICH IS OPPOSED BY THE REVENUE. AT THIS STAGE, WE DEEM IT APPROPRIATE TO REPRODUCE THE STATUTORY PROVISIONS I .E. SECTION 115JB (2) TO EXPLANATION 1 (VII) WHICH AS HEREUNDER: '(VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COM PANY FOR THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSME NT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986), AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE EN TIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMU LATED LOSSES. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 6 EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE, 'NET WORTH' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA) OF SUB-SECTIO N (1) OF SECTION OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986)' AFTER PERUSING THE ABOVE REPRODUCED PROVISION INCOR PORATED BY THE LEGISLATURE IN THE ACT, WE FIND THAT THE ASSESSEE S CLAIM HAS RIGHTLY BEEN ACCEPTED BY THE CIT(A). WE NOTICE THAT NOWHERE THE PROCEEDINGS UNDER SARFESI ACT FIND MENTION TO AFFECT THE STATUS OF A SICK INDUSTRY. IN OUR OPINION, THE ACT IS A COMPLETE SELF-EXHAUSTIVE CO DE IN ITSELF. IN OUR VIEW, ONCE THE PROVISION ITSELF IN THE ACT CONTAINING N OTWITHSTANDING CLAUSE, WE HOLD THAT OTHER LEGISLATURES (IN THIS CASE SARFESI ACT) DO NOT AFFECT OR ALTER THE OPERATION OF THE ACT AND PROVISIONS THEREIN. FURTHER, THE LANGUAGE OF SECTION 115JB (2) EXPLANATION 1 CLAUSE (VII) ITSELF IS VERY MUCH CLEAR THAT TILL THE CONCERNED SICK INDUSTRYS ENTIRE NET WORTH BECO ME EQUAL OR EXCESS OF ACCUMULATED LOSS, IT IS ENTITLED TO CLAIM THE RELIE F IN QUESTION. HENCE, WE UPHOLD THE FINDINGS OF THE CIT(A) AND DECIDE THE GR OUND AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. GROUND NO. 3.1 AND 4.1 10. IN THESE GROUNDS, THE GRIEVANCE OF THE REVENUE IS MAINLY THAT AFTER HOLDING THAT THE ASSESSEE IS A SICK UNIT, THE CIT (A) HAS WRONGLY GRANTED IT BENEFIT OF PROFITS REDUCED UNDER SECTION 115JB AND OTS PRINCIPLE AMOUNT DUE. AFTER DECIDING THE GROUND OF LEGALITY OF ASSESSEES RELIEF CLAIMED UNDER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2001 2001 2001 2001/M/ /M/ /M/ /M/11 1111 11 7 SECTION 115JB (2) EXPLANATION 1 (VII), WE FIND THAT THESE GROUNDS DEAL WITH MERITS OF THE CASE. ACCORDINGLY, WE HOLD THAT SINCE THE MAIN GROUND ITSELF HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE HEREINABOVE, IN OUR OPINION, THESE PLEADINGS ONLY CARRY ACADEMIC SIGNIFICANCE. ACCORDI NGLY, THESE GROUNDS ARE ALSO DECIDED AGAINST THE REVENUE AND THE CIT(A)S O RDER IS UPHELD. 11. ACCORDINGLY, WE DISMISS THE APPEAL FILED BY TH E REVENUE. ORDER PRONOUNCED ON THURSDAY, THE 22 ND OF NOVEMBER, 2012 AT CHENNAI. SD/ - SD/ - (DR. O.K. NARAYANAN) VICE-PRESIDENT (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 22.11.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.