Surat Textiles Mills Ltd., Surat V. The Dy.CIT, Circle-2(1)(2), Surat

ITA 3215/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1549 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Scheme of amalgamation; Capital receipt; Unabsorbed depreciation
• Section: 143(3); 153A; 115JB; 32; 263

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.3215/AHD/2015 / ASSTT. YEAR: 2012-2013 SURAT TEXTILE MILLS LTD. TULSI KRUPA ARCADE NR.AAI MATA CHOWK DUMBHAI, SURAT 395 010. PAN : AADCS 4562 M VS DCIT, CIR.2(1)(2) SURAT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI J.P. SHAH REVENUE BY : SHRI R.I. PATEL, CIT - DR / DATE OF HEARING : 05/05/2016 / DATE OF PRONOUNCEMENT: 23/05/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A)-II, SURAT DATED 30.10.2015 FOR THE ASSTT.YEAR 2012-13. 2. THOUGH THE ASSESSEE HAS TAKEN FIVE GROUNDS OF AP PEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE I.E. WHETHER THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING DEDU CTION OF ALLEGED ACCUMULATED UNABSORBED DEPRECIATION OF EARLIER YEAR S OF RS.27,36,90,817/- ITA NO.3215/AHD/2015 2 WHILE COMPUTING THE BOOK PROFIT OF RS.27,51,00,602/ - FOR THE PURPOSE OF SECTION 115JB OF THE INCOME TAX ACT, 1961 ? 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF POLYESTER CHIPS, POLYE STER YARN AND PROPERTY DEVELOPMENT. IT HAS FILED ITS RETURN OF INCOME ELEC TRONICALLY ON 29.9.2012 DECLARING NIL INCOME. THE RETURN OF INCOME WAS PRO CESSED UNDER SECTION 143(1) OF THE ACT, AND THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT, AND NOTICE UNDER SECTION 143(2 ) OF THE INCOME TAX ACT WAS ISSUED ON 8.8.2013 WHICH WAS SERVED UPON THE AS SESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESS EE HAS SHOWN ITS INCOME AS UNDER: PARTICULARS AMOUNT BUSINESS INCOME -1,68,97,684 LONG TERM CAPITAL GAIN 11,85,91,872 SHORT TERM CAPITAL GAIN 1,30,95,761 TOTAL 11,47,89,949 LESS: UNABSORBED DEPRECIATION 11,47,89,949 NET INCOME NIL WORKING OF BOOK PROFIT U/S.115JB OF THE ACT. PARTICULARS AMOUNT BOOK PROFIT AFTER ADJUSTMENT 27,36,90,817 LESS: ADJUSTMENT OF C/F LOSS OR UNABSORBED DEPRECIATION AS PER CLAUSE (III) OF THE EXPLANATION TO SECTION 115JB(2) OF THE ACT. -27,36,90,817 BOOK PROFIT NIL 4. ACCORDING TO THE AO, THE ASSESSEE HAS NOT CALCUL ATED BOOK PROFIT CORRECTLY. THEREFORE, HE ISSUED SHOW CAUSE NOTICE DATED 20.3.2015 AND DIRECTED THE ASSESSEE TO EXPLAIN WHY BOOK PROFIT SH OULD NOT BE CALCULATED AT ITA NO.3215/AHD/2015 3 RS.27,51,00,602/- INSTEAD OF NIL BOOK PROFIT SHOWN BY THE ASSESSEE. THE LD.AO HAS REPRODUCED THE SHOW CAUSE NOTICE IN PARA- 4 OF PAGE NO.2 OF THE ASSESSMENT ORDER. IN RESPONSE TO THE SHOW CAUSE NO TICE, THE ASSESSEE HAS FILED A REPLY WHICH HAS ALSO BEEN NOTICED BY THE AO ON PA GE NO.3 TO 18 OF THE ASSESSMENT ORDER. IN BRIEF, THE STAND OF THE ASSES SEE BEFORE THE AO WAS THAT THE ASSESSEE-COMPANY WAS CARRYING ON BUSINESS OF PO LYESTER CHIPS AND POLYESTER YARN AT ITS PLANT AT JOLWA, SURAT. BECAU SE OF UNAVOIDABLE BUSINESS CONDITIONS, THE COMPANY DURING THE F.Y.1997-98 MADE HUGE LOSS. THE NET WORTH OF THE COMPANY GOT WIPED OUT, AND THEREFORE, THE CASE OF THE ASSESSEE WAS REFERRED TO BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR FOR SHORT) UNDER SICK INDUSTRIAL COMPANIES (SPECIAL PRO VISIONS) ACT, 1985 (SICA FOR SHORT). THE ASSESSEE COMPANY WAS DECLA RED AS SICK INDUSTRIAL UNIT IN TERMS OF SECTION 3(1)(O) OF THE SICA. THE INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI FOR SHORT) WAS APPOINTED AS O PERATING AGENCY UNDER SECTION 17(3) OF THE SICA TO EXAMINE ITS VIABILITY AND FORMULATE THE REHABILITATION SCHEME OF THE ASSESSEE-COMPANY. VID E ITS ORDER DATED 22.2.2008, THE BOARD HAS SANCTIONED THE REHABILITAT ION SCHEME AND APPOINTED IDBI AS MONITORING AGENCY ON BEHALF OF THE BOARD TO OVERSEE THE IMPLEMENTATION OF THE SCHEME. IN THE F.Y.2007-08, RELEVANT TO THE ASSTT.YEAR 2008-09, A REHABILITATION ACCOUNT WAS OPENED TO GIV E EFFECT TO THE ORDER OF THE BIFR. IN REHABILITATION SCHEME ACCOUNT, ALL CREDIT AMOUNTS LYING IN VARIOUS ACCOUNTS, SUCH AS, EQUITY SHARE CAPITAL ACCOUNT, SH ARE PREMIUM ACCOUNT, RESERVES AND SURPLUS AND SECURED LOAN ACCOUNTS, WHI CH WERE OF CAPITAL NATURE WERE TRANSFERRED TO CREDIT OF REHABILITATION ACCOUN T, AND ULTIMATELY, THE CREDIT BALANCE IN THAT ACCOUNT WAS USED TO LIQUIDATE THE D EBIT BALANCE OF PROFIT & LOSS ACCOUNT BY WAY OF TRANSFER OF DEBIT BALANCE OF P&L ACCOUNT TO THE REHABILITATION SCHEME ACCOUNT TO THE EXTENT OF CRED IT BALANCE AVAILABLE THEREIN. APPRAISING THE AO WITH THE PROVISION OF SECTION 115 JB, IT WAS CONTENDED BY THE ASSESSEE THAT ADJUSTMENT OF DEBIT BALANCE OF PR OFIT AND LOSS ACCOUNT BY ITA NO.3215/AHD/2015 4 TRANSFERRING IT TO REHABILITATION SCHEME ACCOUNT TO THE EXTENT OF CREDIT BALANCE AVAILABLE THEREIN WAS MADE ON THE RECOMMENDATION OF THE BIFR. IT WAS NOT IN ACCORDANCE WITH THE SCHEDULE-VI OF THE COMPANIES AC T. THE AMOUNTS FOR THE PURPOSE OF COMPUTING UNDER SECTION 115JB, THE COMPU TATION OF BOOK PROFIT WAS REQUIRED TO BE MADE AS PER PART-II AND III OF S CHEDULE-VI OF THE COMPANIES ACT, WHICH IS TO BE PREPARED ON THE BASIS OF ACTUAL BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ADJUSTMENT OF DEBIT BALANCE IN THE PROFIT & LOSS ACCOUNT AGAINST THE CREDIT IN THE REHABILITATION SC HEME ACCOUNT DOES NOT HAVE STATUTORY BACKING, AND MERELY IT WAS DONE AS PART O F REHABILITATION SCHEME AS PER THE DIRECTIONS GIVEN BY THE BIFR. IT DID NOT I MPLY THAT IT WAS IN ACCORDANCE WITH THE ACCOUNTING STANDARD AND BOOKS O F ACCOUNTS CONTAINING SUCH ADJUSTMENTS WERE IN CONFORMITY WITH THE REQUIR EMENT OF COMPANY LAW. THEREFORE, WHILE PREPARING THE ACCOUNTS, UNDER SCHE DULE-VI OF THE COMPANIES ACT, THE ASSESSEE HAS CONSIDERED THE BROUGHT FORWAR D LOSS AS WELL AS UNABSORBED DEPRECIATION, UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB (2) IT HAS REDUCED THE UNABSORBED DEPRECIATION OF E ARLIER YEARS. THE ASSESSEE HAS APPRAISED THE AO WITH REGARD TO THE AMOUNTS WHI CH WERE OF CAPITAL NATURE, AND IT WAS TRANSFERRED TO THE CREDIT OF REH ABILITATION ACCOUNT. THE AO HAS NOTICED SUCH DETAILS ON PAGE NO.9 OF THE ASSESS MENT ORDER. IT IS IMPERATIVE UPON US TO TAKE NOTE OF THESE DETAILS: ADDRESSING TO QUERY A) ABOVE, THE COMPANY SUBMITS THAT AS A CONSEQUENCE OF THE REHABILITATION SCHEME, THE ASSES SEE DURING THE FINANCIAL YEAR ENDING ON 31 ST MARCH, 2008 HAD TRANSFERRED THE FOLLOWING AMOUNTS WHICH WERE OF CAPITAL NATURE TO T HE CREDIT OF REHABILITATION ACCOUNT AND SHOWN IN ITS ANNUAL REPO RT UNDER THE HEAD EFFECT OF REHABILITATION SCHEME (RS.IN LACS) (I) REDUCTION OF SHARE CAPITAL 6,035.80 (II) SECURITIES PREMIUM ACCOUNT ADJUSTMENT OF LOSS 4,409.91 (III) CAPITAL RESERVE ACCOUNT 153.61 ITA NO.3215/AHD/2015 5 ADJUSTMENT OF LOSS (IV) CAPITAL REDEMPTION RESERVE ACCOUNT ADJUSTMENT LOSS 10.00 (V) SECURED LOANS BALANCE WAIVED RS.4,094.38 (VI) SHARE FORFEITURE ACCOUNT UNPAID ALLOTMENT MONIES AND CALL IN ARREARS WRITTEN OFF (3.95) TOTAL 14,699.75 8. ULTIMATELY THE CREDIT BALANCE IN REHABILITATION ACCOUNT WAS USED TO SET OFF DEBIT BALANCE OF RS. OF PROFIT & LOSS ACCOUNT BY WAY OF TRANSFERRING OF THE DEBIT BALANCE OF PROFIT & LOSS ACCOUNT TO THE REHABILITATION SCHEME ACCOUNT TO THE EXTENT OF CRED IT BALANCE AVAILABLE THEREIN. THUS IT IS NOT THE CASE THAT LOSS CEASES TO EXIST, BUT THE LOSSES WHICH HAVE BEEN ALREADY COMPUTED FOR YEARS AS SUCH AND AVAILABLE FOR CARRY FORWARD, WERE SET OFF FROM THE CAPITAL BALANC ES TRANSFERRED TO REHABILITATION SCHEME ACCOUNT. COPIES OF ACCOUNTS ARE ENCLOSED HEREWITH VIDE ANNEXURE-B SHOWING THE BOOK ENTRIES PASSED. 5. APART FROM ABOVE, THE ASSESSEE HAS CONTENDED THA T RIGHT FROM ASSESSMENT YEAR 2008-09, IT HAS BEEN REDUCING THE B ROUGHT FORWARD LOSS/ UNABSORBED DEPRECIATION, WHICHEVER IS LOWER, FROM T HE BOOK PROFIT AS PER CLAUSE (III) AND (VII) OF EXPLANATION TO SECTION 115JB (2) OF THE INCOME TAX ACT. THE AO HAS ALLOWED SUCH CLAIM OF THE ASSESSEE IN THE PAST. THE LD.AO WAS NOT SATISFIED WITH CONTENTIONS OF THE ASSESSEE. HE DID NOT DEAL WITH EACH EXPLANATION OF THE ASSESSEE ELABORATELY, RATHER, IN SWEEPING MANNER, HE HAS OBSERVED THAT THE ASSESSEE OUGHT TO HAVE COMPUTED N IL UNABSORBED DEPRECIATION, AND IT IS NOT ENTITLED FOR REDUCTION OF THE BOOK PROFIT BY AN AMOUNT OF RS.27,36,90,817/-, WHICH IS CLAIMED AS UN ABSORBED DEPRECIATION. ACCORDINGLY, THE AO HAS DETERMINED THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB AT RS.27,51,00,602/- OF THE INCOME TA X ACT. 6. DISSATISFIED WITH THE ACTION OF THE AO, THE ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) HAD CON CURRED WITH THE AO AND OBSERVED THAT AS FAR AS THE PRINCIPLE OF CONSISTENC Y IS CONCERNED, RES JUDICATA ITA NO.3215/AHD/2015 6 IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS, AN D IF THE AO IS ABLE TO POINT OUT SPECIFIC CIRCUMSTANCES, WHICH CAN DEMONSTRATE T HAT EARLIER YEARS VIEW WAS CONTRARY TO LAW, THEN, HE WAS JUSTIFIED TO TAKE A DIFFERENT VIEW IN SUBSEQUENT YEAR. ON MERIT, HE WAS OF THE OPINION T HAT ONCE UNABSORBED DEPRECATION/LOSS WERE FORM PART OF THE PROFIT & LOS S ACCOUNT, AND SUCH DEBIT BALANCE WAS SET OFF AGAINST THE CREDIT BALANCE AVAI LABLE IN THE REHABILITATION ACCOUNT, THEN NOTHING REMAINED WITH THE ASSESSEE IN THE BOOKS OF ACCOUNTS, WHICH CAN BE CLAIMED AS REDUCTION WHILE COMPUTING T HE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE INCOME TAX ACT. 7. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE HAS R EITERATED THE STAND OF THE ASSESSEE AS WAS RAISED BEFORE THE REVENUE AUTHORITI ES. FOR BUTTRESSING HIS PROPOSITION THAT IN EARLIER YEARS, THE AO HIMSELF A LLOWED REDUCTION OF BOOK PROFIT BY THE ALLEGED UNABSORBED DEPRECIATION OR LO SS, WHICHEVER WAS LOWER UNDER CLAUSE (III) OF THE EXPLANATION TO SECTION 115JB(2) OF THE ACT, HE PUT RELIANCE UPON THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES, REPORTED IN 358 ITR 295. HE FURTHER CONTENDED THAT IN ASSTT.YEAR 2010-11, THE AO HAS ALLOWED REDUCTION OF SUCH UNABSORBED DEPRECIATION FROM THE BOOK PROFIT FOR THE PURPOSE O F SECTION 115JB. THIS ACTION OF THE AO WAS SET ASIDE BY THE COMMISSIONER WHILE EXERCISING POWER UNDER SECTION 263 OF THE INCOME TAX ACT. THE ASSES SEE CHALLENGED THE ORDER OF THE COMMISSIONER IN APPEAL BEFORE THE TRIBUNAL V IDE ITA NO.1469/AHD/2015. THIS APPEAL OF THE ASSESSEE HAS BEEN ALLOWED BY THE TRIBUNAL, AND ORDER OF THE COMMISSION HAS BEEN QUAS HED. IN OTHER WORDS, THE ORDER OF THE AO PASSED UNDER SECTION 143(3) HAS BEE N RESTORED. COPY OF THIS ORDER HAS BEEN PLACED IN THE COMPILATION OF CASE LA WS AT PAGE NO.67. 8. WITH REGARD TO THE ADMISSIBILITY OF CLAIM OF THE ASSESSEE FOR REDUCTION OF BOOK PROFIT BY UNABSORBED DEPRECATION, HE RELIED UPON THE WRITTEN ITA NO.3215/AHD/2015 7 SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE LD.CIT (A) AS WELL AS BEFORE THE AO. HE POINTED OUT THAT BOTH THESE AUTHORITIES HAV E REPRODUCED THE WRITTEN SUBMISSION FILED BY THE ASSESSEE. COPY OF THE WRIT TEN SUBMISSIONS FILED BEFORE THE CIT(A) IS AVAILABLE AT PAGE NOS.268 TO 2 97. HE ALSO POINTED OUT THAT THE ASSESSEE SOUGHT AN OPINION ON THIS ISSUE F ROM G.K. CHOKSHI & COMPANY, AND THIS COMPANY HAS RENDERED ITS OPINION ON THE QUERIES OF THE ASSESSEE. COPY OF THE OPINION DATED 27.6.2009 IS F IELD AT PAGE NO.69 TO 89 OF THE PAPER BOOK. HE TOOK US THROUGH THIS OPINION AS WELL AS SUBMISSIONS OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND RELIED UP ON THEM. 9. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORD ER OF THE CIT(A) AND CONTENDED THAT THOUGH THE AO HAS NOT EXAMINED THE I SSUE SO ELABORATELY, BUT THE LD.CIT(A) HAS CONSIDERED ALL POSSIBLE ANGLES BE FORE CONCURRING WITH THE CONCLUSIONS OF THE AO. 10. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. IN OUR OPINION, THE CONTROVERSY REQUIRE D TO BE SILENCED AT THE END OF THE TRIBUNAL, IS WHETHER RESTRICTING CREDITS CREDIT ED TO THE PROFIT & LOSS ACCOUNT AGAINST ACCUMULATED PROFIT & LOSS DEBIT BAL ANCE WOULD MEAN THAT THE ALLEGED ACCUMULATED LOSS HAVE BEEN ABSORBED, AND NO T AVAILABLE TO THE ASSESSEE FOR CLAIMING DEDUCTION UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB (2). SECTION 115JB HAS A DIRECT BEARING ON TH E CONTROVERSY, THEREFORE, IT IS IMPERATIVE UPON US TO TAKE NOTE OF THE RELEVANT PART OF THIS SECTIONS, WHICH READS AS UNDER: SECTION 115JB SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COM PANIES. (2) [EVERY ASSESSEE, (A) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE (B), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE IT S PROFIT AND LOSS ITA NO.3215/AHD/2015 8 ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF 97PART II OF SCHEDULE VI TO THE COMPA NIES ACT, 1956 (1 OF 1956); OR (B) EXPLANATION [1].FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION ( 2), AS INCREASED BY (A) (B) (C) (D) (E) (F) (G) (H) I) IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY, (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSO RBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY I F THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; (VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMP ANY FOR THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESSMENT YEAR REL EVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION 1713 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH TH E ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS T HE ACCUMULATED LOSSES. 11. AS OBSERVED EARLIER THE ASSESSEES NET WORTH WA S WIPED OUT DUE TO HUGE LOSS AND ITS CASE WAS REFERRED TO BIFR UNDER THE PR OVISIONS OF SICA. THE REHABILITATION SCHEME WAS SANCTIONED BY THE BOARD V IDE ORDER DATED ITA NO.3215/AHD/2015 9 22.1.2008. THE IDBI WAS APPOINTED AS OPERATING AGE NCY. AFTER SANCTION OF THE SCHEME, THE IDBI WOULD WORK AS MONITORING AGENC Y ON BEHALF OF THE BOARD TO OVERSEE THE IMPLEMENTATION OF SCHEME. FAC TS TO THIS EXTENT ARE NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT BY VIRT UE OF CLAUSE (VII) OF EXPLANATION TO 115JB, THE ASSESSEE WAS NOT UNDER OBLIGATION TO PAY TAX ON BOOK PROFIT UNDER SECTION 115JB TILL MARCH, 2008, BECAUSE, UPTO THIS DATE, ITS NET WORTH WAS IN NEGATIVE. DUE TO THIS REASON, IN THE ASSTT. YEAR 2008-09, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.21,77,733/- FROM THE BO OK PROFIT UNDER CLAUSE (VII) OF EXPLANATION APPENDED TO SECTION 115JB OF THE ACT. THE AO HAS ALLOWED THIS DEDUCTION IN AN ASSESSMENT ORDER PASSE D UNDER SECTION 143(3) R.W.S. 153A OF THE INCOME TAX ACT. FROM THE ASSTT. YEAR 2009-10, THE ASSESSEE HAD EXPECTED TO COME OUT FROM THE PROVISIO NS OF SICA, BECAUSE, ITS NET-WORTH WAS GOING TO BE POSITIVE, AND THEREFORE, IT WILL NOT BE ENTITLED TO EXEMPTION UNDER CLAUSE (VII) OF EXPLANATION TO SECTION 115JB OF THE INCOME TAX ACT. IT IS ALSO PERTINENT TO MENTION HERE THAT IN THE ASSTT.YEAR 2009-10, THE ASSESSEE HAS REDUCED THE BOOK PROFIT BY MAKING AN ADJUSTMENT UNDER SECTION 115JB OF THE ACT AT RS.6,92,38,861/-. SIM ILAR ADJUSTMENTS HAVE BEEN ACCEPTED BY THE AO IN AN ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE ACT. 12. PARTIES ARE NOT DISPUTED ABOUT THE APPLICABILIT Y OF SECTION 115JB. THERE DISPUTE IS ONLY QUA QUANTIFICATION OF BOOK PROFIT FOR THE PURPOSE OF S ECTION 115JB. A BARE PERUSAL OF CLAUSE (III) OF EXPLANATION TO SECTION 115JB (2) WOULD INDICATE THAT THIS CLAUSE AUTHORISES AN ASSES SEE TO REDUCE THE AMOUNT OF BOOK PROFIT BY THE AMOUNT OF BROUGHT FORWARD LOSS O R DEPRECIATION WHICHEVER IS LOWER. THERE IS NO DISPUTE BETWEEN THE PARTIES QUA THIS INTERPRETATION ALSO. CLAUSE (A) OF SUB-SECTION (2) OF SECTION 115JB CONT EMPLATES THAT EVERY ASSESSEE BEING A COMPANY, OTHER THAN REFERRED TO C LAUSE (B) SHALL FOR THE PURPOSE OF THIS SECTION, PREPARE ITS PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH ITA NO.3215/AHD/2015 10 THE PROVISIONS OF PART-II AND PART-III OF SCHEDULE- VI OF THE COMPANIES ACT, 1956. THE AREA OF DISPUTE BETWEEN THE PARTIES LIES HERE. IN OTHER WORDS, THE CONTROVERSY BOILS DOWN TO THE ISSUE WHETHER THE RES TRUCTURING CREDITS ARE REQUIRED TO BE CREDITED TO THE PROFIT & LOSS ACCOUN T IN TERMS OF PART-II AND III OF SCHEDULE-VI OF THE COMPANIES ACT, WHICH WILL WIP E OUT OR EXTINGUISH THE DEBIT BALANCE AVAILABLE IN THE PROFIT & LOSS ACCOUN T. THE CASE OF THE AO IS THAT ONCE THE ASSESSEE HAS MADE CREDITS IN THE PROF IT & LOSS ACCOUNT BY WAY OF RESTRUCTURING, THEN, THE DEBIT BALANCE WOULD BE CON SIDERED AS WIPE OUT FROM THE PROFIT & LOSS ACCOUNT, AND THEREFORE, NO LOSS/U NABSORBED DEPRECATION ARE AVAILABLE FOR REDUCTION UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB (2). IN OTHER WORDS, THE ACCUMULATED LOSS HAS BEEN REDUC ED FROM THE RESTRUCTURING CREDITS IN THE PROFIT & LOSS ACCOUNTS AND CAN BE SA ID THAT THERE ARE NO LOSSES AS PER THE BOOKS OF ACCOUNTS. THE LD.REVENUE AUTHORIT IES BELOW HAVE NOT MADE REFERENCE TO PART-II AND III OF SCHEDULE-VI TO THE COMPANIES ACT SPECIFICALLY FOR HARBOURING SUCH A BELIEF. THE LD.AO HAS NOT BA CKED HIS VIEW POINT ON ANY PROVISIONS OR RULES. HE PROCEEDED WITH LAYMANS ANGLE. AS FAR AS REASONS GIVEN BY THE LD.CIT(A) ARE CONCERNED, WE WILL REVER T TO THEM IN THE LATER PART OF THIS ORDER, BECAUSE WE HAVE TO DEAL WITH THE STA ND OF THE ASSESSEE FIRST. 13. BEFORE ADVERTING TO THE EXPLANATION OF THE ASSE SSEE, IT IS PERTINENT TO TAKE NOTE OF PRIMARY PURPOSE OF PREPARING PROFIT & LOSS ACCOUNT AS CONTEMPLATED IN THE INITIAL PROVISIONS OF PART-II O F SCHEDULE-VI, WHICH READS AS UNDER: PART II REQUIREMENTS AS TO PROFIT AND LOSS ACCOUNT 1.THE PROVISIONS OF THIS PART SHALL APPLY TO THE IN COME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB-SECTION (2) OF SECTION 2 10 OF THE ACT, IN LIKE MANNER AS THEY APPLY TO A PROFIT AND LOSS ACCOUNT, BUT SUBJECT TO THE MODIFICATION OF REFERENCES AS SPECIFIED IN THAT SUB -SECTION. ITA NO.3215/AHD/2015 11 2.THE PROFIT AND LOSS ACCOUNT - (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT ; AND (B) SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDIN G CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-R ECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATU RE. 3. THE PROFIT AND LOSS ACCOUNT SHALL SET OUT THE VA RIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPA NY ARRANGED UNDER THE MOST CONVENIENT HEADS ; AND IN PARTICULAR, SHAL L DISCLOSE THE FOLLOWING INFORMATION IN RESPECT OF THE PERIOD COVE RED BY THE ACCOUNT :- .. (XII)(A) (B)PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NA TURE, IF MATERIAL IN AMOUNT. 14. APART FROM THE ABOVE, WE HAVE PURSED THE GUIDAN CE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON THE REVISED SCHEDULE-VI TO THE COMPANIES ACT, 1956. IT HAS BEEN LAID DOWN IN THE GUIDANCE NOTE AT SERIAL NO.9, PAGE NO.56 THAT WHILE PREPARING THE STATEMENT OF PROFIT & LOSS ACCOUNT, UNDER PART-II OF THE SCHEDULE VI, COMPANY HAS TO DI SCLOSE THE ITEMS OF REVENUE EXPENSES, OTHER DETAILS AND PROFIT & LOSS E TC. THERE IS A LIST OF DIFFERENT HEADS FROM I TO XVI UNDER WHICH DETAILS A RE TO BE DISCLOSED. IT PROVIDES THAT THE EXPRESSION INCOME OR REVENUE IS TO BE CONSIDERED AS INCREASE IN ECONOMIC BENEFIT DURING THE ACCOUNTING PERIOD IN THE FORM OF INFLOWS OR ENCASHMENT OF ASSETS OR DECREASE OF LIAB ILITIES THAT RESULT IN INCREASE IN EQUITIES, OTHER THAN RELATING TO CONTRIBUTIONS F ROM EQUITY PARTICIPANTS. SIMILARLY, EXPRESSION EXPENSES HAS BEEN DEFINED T O MEAN DECREASE IN ECONOMIC BENEFITS DURING THE ACCOUNTING PERIOD IN T HE FORM OF OUTFLOWS, THE DEPLETION OF ASSETS OR INCREASE OF LIABILITIES THAT RESULT IN DECREASES IN EQUITIES, ITA NO.3215/AHD/2015 12 OTHER THAN THOSE RELATING TO DISTRIBUTIONS TO EQUIT Y PARTICIPANTS. THIS GUIDANCE NOTE PROVIDES THAT WHILE PREPARING STATEMENT OF PRO FIT & LOSS ACCOUNT UNDER PART-II, ONE HAS TO IDENTIFY REVENUE FROM OPERATION S WHICH WILL INCLUDE SALE OF PRODUCTS, SALE OF SERVICES, OTHER OPERATING REVENUE , LESS EXCISE DUTY. THE NEXT ITEM IS OTHER INCOME. UNDER THE HEAD OTHER INCO ME, THE COMPANY HAS TO SHOW INTEREST INCOME, DIVIDEND INCOME, NET GAIN/LOS S ON SALE OF INVESTMENTS, OTHER NON-OPERATING INCOME. THE NEXT ITEM IS SHARE OF PROFIT & LOSS IN PARTNERSHIP FIRM, SHARE OF PROFIT/LOSSES IN LIMITED LIABILITY PARTNERSHIP. FIFTH ITEM IS EXPENSES. UNDER THE HEAD EXPENSES, TH E COMPANY HAS TO SHOW COST OF MATERIAL CONSUMED, PURCHASES OF STOCK-IN-TR ADE, CHANGE IN INVENTORIES OF GOODS, WORK-IN-PROGRESS, EMPLOYEE BENEFITS EXPEN SES, FINANCIAL COSTS, DEPRECIATION AND AMORTIZATION AND OTHER EXPENSES. UNDER THE NEXT TWO HEADS, EXCEPTIONAL ITEMS OR EXTRA-ORDINARY ITEMS ARE TO BE REPORTED. SIMILARLY, TAX EXPENSES ARE TO BE SHOWN. THUS, EMPHASIS OF THE ASSESSEE WAS THAT PRIMARY PURPOSE OF PREPARING THE PROFIT AND LOSS ACCOUNT IS PROPERLY SERVED, IF A COMPANY ENSURES, AS FAR AS POSSIBLE, NOT TO ACCOUNT TO THE CREDIT OF THE PROFIT AND LOSS ACCOUNT ANYTHING WHICH IS NOT CONCERNED WI TH THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE PROFIT AND LOSS ACCOUNT. 15. A PERUSAL OF THE VARIOUS HEADS, UNDER WHICH INF ORMATION ARE TO BE REPORTED BY THE ASSESSEE UNDER PART-II OF SCHEDULE- VI WOULD INDICATE THAT COMPANIES ARE NOT REQUIRED TO ACCOUNT ANYTHING WHIC H CANNOT BE REGARDED AN INCOME OR PROFIT/GAIN. AS FAR AS EXCEPTIONAL OR EX TRA-ORDINARY ITEMS ARE CONCERNED, THEY ARE NON- RECURRING ITEMS, WHICH ARE LIKELY TO DISTORT TRUE INCOME OF THE COMPANY DURING THE PERIOD COVERED BY THE PROFIT & LOSS ACCOUNT. PART-II OF THE SCHEDULE VI PROVIDES PRES ENTATION OF SUCH EXTRA ORDINARY ITEMS BY WAY OF A SEPARATE DISCLOSURE. TH E CASE OF THE ASSESSEE IS THAT IF BY WAY OF ANY MISTAKE OR FOR SOME OTHER REA SONS, IF ANY PART, WHICH IS ITA NO.3215/AHD/2015 13 NOT OPERATING INCOME OF THE ASSESSEE, IS ACCOUNTED IN THE PROFIT & LOSS ACCOUNT, THEN, THOSE PROVISIONS DO NOT REQUIRE THAT THESE ITEMS MUST BE ACCOUNTED IN THE PROFIT AND LOSS FOR THE PURPOSE OF SECTION 115JB. IN OTHER WORDS, THE CASE OF THE ASSESSEE IS THAT PART-II OF THE SCHEDULE, NOWHERE CONTEMPLATES THAT ANYTHING RECORDED ON TRANSACTION OF EXCEPTIONAL NATURE IS TO BE DEBITED OR CREDITED TO THE PROFIT & LOSS ACCOUNT . IN ORDER TO BUTTRESS THIS STAND POINT, SHRI J.P.SHAH, LD. COUNSEL FOR THE ASS ESSEE DREW OUR ATTENTION TOWARDS AS-9 WHICH PROVIDES THE METHOD OF REVENUE R ECOGNITION. 16. WE HAVE MADE ANALYSIS OF GUIDANCE NOTE ISSUED B Y INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON SCHEDULE-VI, PROV ISIONS OF PART-II OF SCHEDULE-VI AND AS-9. AT THE COST OF REPETITION, W E WOULD REFER CLAUSE (3) OF PART-II. 3. THE PROFIT AND LOSS ACCOUNT SHALL SET OUT THE V ARIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPA NY ARRANGED UNDER THE MOST CONVENIENT HEADS ; AND IN PARTICULAR, SHAL L DISCLOSE THE FOLLOWING INFORMATION IN RESPECT OF THE PERIOD COVE RED BY THE ACCOUNT :- THIS CLAUSE CONTEMPLATES THAT THE PROFIT & LOSS WOU LD SHOW VARIOUS ITEMS, RELATING TO INCOME AND EXPENDITURE, AS ALSO APPENDE D IN THE GUIDANCE NOTE. THESE ITEMS WERE TO BE ARRANGED IN SERIATIM AGAINST WHOM INFORMATION SHOULD BE DISCLOSED IN PARTICULAR. THUS PROFIT & LOSS ACC OUNT IS TO CONTAIN THE INCOME AND EXPENDITURE OF A COMPANY IN RESPECT OF ACCOUNTI NG PERIOD COVERED. THERE CANNOT BE ANY QUESTION FOR INCLUDING CAPITAL SURPLUS WHICH CANNOT BE REGARDED AS INCOME. AT THIS STAGE, WE WOULD LIKE T O REFER THE ORDER OF THE ITAT, JAIPUR BENCH, (AS RELIED UPON BY THE LD.COUNS EL FOR THE ASSESSEE) IN THE CASE OF ACIT VS. SHREE CEMENT LTD. RENDERED IN ITA NO.635/JP/2010 AND OTHERS. IN THIS CASE, THE ASSESSEE HAS RECEIVED CA PITAL SUBSIDY. THE ASSESSEE EXCLUDED CAPITAL RECEIPTS FROM PROFIT & LOSS ACCOUN T. THE AO HAS INCLUDED IT FOR THE PURPOSE OF SECTION 115JB. THE TRIBUNAL OBS ERVED AS UNDER: ITA NO.3215/AHD/2015 14 13.2 OUR ABOVE VIEW ALSO FINDS SUPPORT FROM THE DEC ISION OF HONBLE APEX COURT IN THE CASE OF PADMARAJE R. KADAMBANDE V S. CIT (1992) 195 ITR 877 (SC), WHEREIN IT HAS BEEN HELD BY THE A PEX COURT THAT CAPITAL RECEIPTS ARE NOT INCOME WITHIN THE DEFINITI ON OF SEC 2(24) OF THE ACT AND HENCE ARE NOT AT ALL CHARGEABLE UNDER THE I .T.ACT. A RECEIPT WHICH IS NEITHER PROFIT NOR INCOME AND WHICH DO ES NOT HAVE ANY ELEMENT THEREOF EMBEDDED THEREIN, CANNOT BE PART OF PROFIT AS PER PROFIT & LOSS ACCOUNT PREPARED IN TERMS OF PART II OF SCHEDULE VI TO COMPANIES ACT. 17. IN PARA-4 ON PAGE NO.4 OF THIS ORDER, WE HAVE N OTICED THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN THE F.Y. ENDING ON 31.3.2008 IN CONSEQUENCE OF REHABILITATION SCHEME UNDER THE HEAD EFFECT OF REHABILITATION SCHEME. APART FROM THE SEVEN ITEMS DISCLOSED BY T HE ASSESSEE, IT HAS APPENDED NOTE NO.7 & 9 OF SCHEDULE-II TO THE ANNUAL ACCOUNT. AT THE COST OF REPETITION, WE WOULD LIKE TO NOTE THE ITEMS DISCLOS ED BY THE ASSESSEE ON THIS NOTE. THEY READ AS UNDER: (RS.IN LACS) (I) REDUCTION OF SHARE CAPITAL 6,035.80 (II) SECURITIES PREMIUM ACCOUNT ADJUSTMENT OF LOSS 4,409.91 (III) CAPITAL RESERVE ACCOUNT ADJUSTMENT OF LOSS 153.61 (IV) CAPITAL REDEMPTION RESERVE ACCOUNT ADJUSTMENT LOSS 10.00 (V) SECURED LOANS BALANCE WAIVED RS.4,094.38 (VI) SHARE FORFEITURE ACCOUNT UNPAID ALLOTMENT MONIES AND CALL IN ARREARS WRITTEN OFF (3.95) TOTAL 14,699.75 ' 7, 39,570 EQUITY SHARES ON WHICH CALL MONEY AN D ALLOTMENT-MONEY WERE IN ARREAR, FORFEITED AND THE AMOUNT OF RS. 3.9 5 LAKHS DUE AFTER GIVING EFFECT TO THE-REDUCTION IN SHARES CAPITAL HA S BEEN WRITTEN OFF TO THE PROFIT AND LOSS ACCOUNT. ITA NO.3215/AHD/2015 15 9. THE COMPANY IS REGISTERED AS A SICK COMPANY; WIT H THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) UNDE R THE SICK INDUSTRIAL COMPANIES. (SPECIAL PROVISIONS) ACT 1985 . THE HON'BLE BOARD, HAS SANCTIONED A REHABILITATION SCHEME RESTI NG WITH ITS ORDER DATED 22ND JANUARY, 2008 ENVISAGING VARIOUS RELIEF AND CONCESSIONS (REHABILITATION SCHEME) FURTHER, THE SANCTIONED REHABILITATION SCHEME INTE RALIA PROVIDES FOR RESTRUCTURING OF DEBTS THROUGH ONE TIME SETTL EMENT (OTS) WITH THE SECURED LENDERS, WRITE DOWN (REDUCTION) OF THE EXISTING EQUITY CAPITAL U/S 18(2(F) OF SICA , BY 90%, ISSUE OF FRES H EQUITY SHARE CAPITAL ON A PREFERENTIAL BASIS IN FAVOUR OF THE PROMOTERS AND FRESH INFUSION OF FUNDS BY THE PROMOTERS AS 'ADDITIONAL WORKING CAPI TAL ARID SOFT LOAN FOR REVIVAL OF THE COMPANY. IN ACCORDANCE WITH THE ONE TIME SETTLEMENT (OTS) TE RMS, THE COMPANY HAS PAID OFF RS.40,83 CRORES TO 'THE SECURED LENDER S TOWARDS THE AGGREGATE LIABILITY (PRINCIPAL AND INTEREST) AMOUNT ING, TO RS.81.77 CRORES. AS PER THE APPROVED REHABILITATION SCHEME, THE DUES OF SECURED CREDITORS HAVE BEEN COMPLETELY SETTLED AND THE SECURED CREDITORS HAVE WAIVED-OFF THE AGGREGATE: BALANCE R S. 40.94 CRORES ON PRINCIPAL, INTEREST, PENAL INTEREST AND OTHER CHARG ES UPON REPAYMENT BF OTS AMOUNT.. THE PROMOTERS HAVE CONTRIBUTED RS.3.67 CRORES TOWARDS ADDITIONAL WORKING CAPITAL. IN ACCORDANCE WITH THE REHABILITATION SCHEME THE CO MPANY-HAS ISSUED 15,50,00,000 FRESH EQUITY SHARES OF RE.1/- EACH .FU LLY PAID UP ON A PREFERENTIAL BASIS IN FAVOUR OF THE PROMOTER GROUPS FOR AN AMOUNT AGGREGATING TO RS, 15.50 CRORES. IN ADDITION, THE P ROMOTERS OF THE COMPANY HAVE, BROUGHT IN RS.29.00 CRORES BY WAY OF A SOFT LOAN TO THE' COMPANY. THE SOFT LOAN FROM THE PROMOTERS IS INTERE ST FREE AND SUBORDINATED TO BANKS/FINANCIAL INSTITUTIONAL LOANS AND SHALL, NOT BE WITHDRAWN TILL THE END OF THE SCHEME PERIOD. THE EFFECTS OF REHABILITATION SCHEME, IN TERMS OF W RITE-DOWN IN SHARE CAPITAL, UTILIZATION OF RESERVES AND-WAIVER OF DUES BY SECURED CREDITORS ARE AS DISCLOSED IN THE PROFIT & LOSS ACCOUNT UNDER 'EFFECT REHABILITATION SCHEME. 18. A PERUSAL OF THE ABOVE WOULD INDICATE THAT NOT A SINGLE ITEM OF ALLEGED RESTRUCTURING CREDIT WAS OF INCOME NATURE. IF THAT BE SO, THEN, HOW THE LOSS CAN BE SET OFF AGAINST SUCH CREDITS. THE LOSS OR DEBIT BALANCE OF COMPANY CAN BE ITA NO.3215/AHD/2015 16 SET OFF AGAINST THE INCOME. THE INCOME, ON OTHER W ORDS, MEANS PROFIT/GAINS OF THE BUSINESS OR PROFESSION. WE HAVE NOTICED THE DE FINITION OF INCOME GIVEN IN PART-II OF THE SCHEDULE-VI. IT CONTEMPLATES THAT TH E INCOME IS INCREASE IN ECONOMIC BENEFITS DURING THE ACCOUNTING PERIOD IN T HE FORM OF INFLOWS OR ENHANCEMENT OF ASSETS, DECREASES OF LIABILITY THAT RESULT IN INCREASE IN EQUITY, OTHER THAN THOSE RELATING TO CONTRIBUTIONS FROM EQU ITY PARTICIPANTS. THIS DEFINITION ALSO EXCLUDES THOSE EQUITIES WHICH CAME FROM THE CONTRIBUTION OF THE EQUITY PARTICIPANTS. IN OTHER WORDS, IF THE VA LUE OF EQUITY ENHANCES BY VIRTUE OF INFLOWS OR DECREASE OF LIABILITIES, ONLY THAT COMPONENTS IS TO BE CONSIDERED AS INCOME. IF THE VALUE OF EQUITY INCRE ASES BY VIRTUE OF FRESH CAPITAL CONTRIBUTION FROM THE EQUITY PARTICIPANTS, THEN THAT WOULD NOT BE TREATED AS INCOME. THE ITEMS IN THE RESTRUCTURING CREDIT CAME FROM THE RESERVE, CAPITAL CONTRIBUTION OF THE EQUITY PARTICI PANTS ETC. THEREFORE, THERE WAS NO ELEMENT OF INCOME INVOLVED IN THE ALLEGED RE STRUCTURING CREDIT. IN SUCH SITUATION, THE LOSS CANNOT BE SET OFF IN THE A CCOUNTS, WHICH ARE TO BE PREPARED AS PER PART-II AND III OF THE SCHEDULE-VI. THIS ASPECT HAS BEEN CONSIDERED BY THE ITAT, MADRAS IN THE CASE OF PRITH VI SOFTECH LTD., IN ITA NO.797/MDS/2010. COPY OF THIS ORDER HAS BEEN PLACE D ON PAGE NO.1 TO 14 OF THE CASE COMPILATION. THE COMPANY HAS BUSINESS LOS S AS WELL AS UNABSORBED DEPRECIATION IN F.Y.2000-01 TO 2003-04. IT HAS CLA IMED SET OFF OF LOSSES AS DEDUCTION, WHILE COMPUTING THE BOOK PROFIT AS PER T HE CLAUSE (3) OF EXPLANATION TO SECTION 115JB(2). THE FACTS ON THE BASIS OF WHICH THIS CLAIM WAS DISALLOWED BY THE AO WAS THAT AS PER SCHEME OF AMALGAMATION APPROVED BY THE SHAREHOLDER AND THE HONBLE MADRAS HIGH COUR T, THE COMPANY REDUCED THE PAID-UP CAPITAL, WHICH IS NOT REPRESENTED BY TH E ASSETS, BECAUSE THE COMPANY HAD INCURRED LOSSES IN EARLIER YEARS. ACCO RDINGLY, THE COMPANY HAS TRANSFERRED THE ENTIRE BALANCE OF PROFIT AND LOSS A CCOUNT AMOUNTING TO RS.3,58,75,731/- TO PAID-UP EQUITY CAPITAL ACCOUNT. THE AMOUNT CREDITED TO PROFIT & LOSS ACCOUNT IS NOT INCOME OF THE YEAR AND ONLY REPRESENTED REDUCTION ITA NO.3215/AHD/2015 17 OF PAID-UP CAPITAL. THE LD.REVENUE AUTHORITIES HAV E REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT SINCE THE ASSESSEE HAS SET OFF ITS DEBIT BALANCE AGAINST THE ALLEGED PAID-UP CAPITAL TRANSFERRED TO THE PROFIT & LOSS ACCOUNT. IN SUBSEQUENT YEARS, IT IS NOT TO BE EXAMINED, THE MAN NER AND PURPOSE IN WHICH THE SAID EARLIER BUSINESS LOSS/DEPRECIATION HAD BEE N ADJUSTED BY THE ASSESSEE AGAINST ITS CAPITAL ASSET. WHEN THE DISPUTE TRAVEL LED TO THE TRIBUNAL, THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE, AND DISCUSSION MADE BY THE TRIBUNAL READS AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. WE FIND THAT IN THE INSTANT CASE, THE ORIGINAL ASSESSMENT WAS COMPL ETED U/S 143(3) ON 28.12.2007 WHEREIN BOOK PROFIT U/S 115JB WAS COMPUT ED AT NIL AFTER ALLOWING SET OFF OF BROUGHT FORWARD LOSS OR DEPRECI ATION OF RS. 1,13,01,457/-. THE SAID ORDER OF ASSESSMENT WAS REV ISED BY THE LD. CIT VIDE IMPUGNED ORDER PASSED U/S 263 OF THE ACT. THE LD. CIT WAS OF THE OPINION THAT THERE WAS NO AMOUNT WHICH COULD BE ALL OWED AS DEDUCTION UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB( 2) OF THE ACT AS THERE WAS NO LOSS BALANCE IN THE PROFIT AND LOSS ACCOUNT. IT IS NOT IN DISPUTE IN THE INSTANT CASE THAT THE ASSESSEE COMPANY SUFFERED LOSS CONTINUOUSLY SINCE F.Y. 2000-01 TILL THE IMMEDIATELY PRECEDING P REVIOUS YEAR. HOWEVER, THE ASSESSEE ADJUSTED THE FIGURE OF ACCUMU LATED LOSS OF RS. 3,58,75,731/- WITH THE PAID UP CAPITAL AND BALANCE IN PROFIT AND LOSS ACCOUNT WAS NOT REFLECTING ANY LOSS. THE ASSESSEE S UBMITTED YEAR-WISE POSITION AS UNDER BEFORE THE LD. CIT WHICH WAS NOT CONTROVERTED BY THE LD. CIT OR BY THE LD. D.R: F.Y. BUSINESS LOSS UNABSORBED DEPRECIATION TOTA L 2000-01 6,516,294 5,038,745 11,555,039 2001-02 8,616,502 4,568,920 13,185,422 2002-03 8,300,582 4,658,373 12,958,955 2003-04 2,971,925 2,971,925 8. IT IS NOT IN DISPUTE THAT THE ABOVE FIGURES ARE AS PER AUDITED BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDI NG FOUR YEARS. FROM THE ABOVE, IT IS OBSERVED THAT THE ASSESSEE HAS CON TINUOUSLY SUFFERED LOSS AS PER ITS BOOKS FOR THE LAST FOUR YEARS AND O UT OF WHICH IN THE FIRST YEAR THE ENTIRE LOSS WAS ON ACCOUNT OF DEPRECIATION , AND IN THE ITA NO.3215/AHD/2015 18 REMAINING THREE YEARS, THERE WAS ALSO LOSS MORE THA N DEPRECIATION, I.E., CASH LOSS. IN SPITE OF THE ABOVE, TO SAY THAT THERE WAS NO BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION AS PER BOOK S IN THE CURRENT YEAR IS, IN OUR CONSIDERED OPINION, AN ABSURDITY. I T SEEMS THAT THE LD. CIT IS OF THE OPINION THAT UNLESS THERE IS A DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE CANNOT BE ALLOWED TH E BENEFIT OF CLAUSE (III) EXPLANATION TO SECTION 115JB(2). IN OUR CONSI DERED VIEW, THE PHRASE LOSS BROUGHT FORWARD AND PHRASE DEBIT BAL ANCE IN PROFIT AND LOSS ACCOUNT ARE TWO DIFFERENT AND DOES NOT CONVEY THE SAME MEANING. THE ABOVE POSITION BECOMES EVIDENT WHEN ONE LOOKS I NTO THE EXAMPLE GIVEN BY THE CBDT IN ITS CIRCULAR NO. 495 DATED 22. 9.1987. A READING OF PARA 36.3 AND 36.5 THEREOF SHOWS THAT BY VIRTUE OF THE SAID CLAUSE, BROUGHT FORWARD LOSSES OR UNABSORBED DEPRECIATIO N, WHICHEVER IS LESS, COULD BE REDUCED IN ARRIVING AT BOOKS PROFITS . IT REQUIRES WORKING OUT SEPARATE AMOUNT OF LOSSES AND UNABSORBED DEPREC IATION IN EACH YEAR FROM THE BOOKS OF ACCOUNT AND THEIR SET OFF, I F ANY, AGAINST SUBSEQUENT YEARS BOOK PROFIT FOR DETERMINING THE A MOUNT TO BE CARRIED FORWARD OR THE AMOUNT REMAINING UNABSORBED. THE LOS S OR UNABSORBED DEPRECIATION IS TO BE DETERMINED WITH REFERENCE TO BOOKS OF ACCOUNT IN CONTRA-DISTINCTION TO THE LOSS OF UNABSORBED DEPREC IATION ARRIVED AT FROM NORMAL COMPUTATION OF TOTAL INCOME UNDER SECTI ONS 72 TO 74A OF THE ACT OR U/S 32 OF THE ACT. HEREIN, IT MAY BE NOT ED THAT PHRASE USED IS BOOKS OF ACCOUNT AND NOT PROFIT AND LOSS ACCOUNT OR BALANCE SHEET. PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND BOOKS O F ACCOUNT ARE DIFFERENT AND DISTINCT TERMS AND IN A GIVEN CIRCUMS TANCE, MAY NOT CARRY THE SAME MEANING. THOUGH PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ARE NORMALLY DRAWN UP FROM THE BOOKS OF ACCO UNT AND THE AMOUNT REFLECTED THEREIN AGREE WITH THE BALANCE SHE ET AS PER BOOKS OF ACCOUNT, BUT BOOKS OF ACCOUNT ALSO CONTAIN MANY DET AILS AND BREAK UP OF BALANCES WHICH ARE DISCLOSED IN A SUMMARIZED MAN NER IN THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AND HENCE, A FIG URE WHICH MAY BE AVAILABLE AS PER BOOKS OF ACCOUNT MAY NOT ALWAYS BE NECESSARILY APPARENTLY VISIBLE FROM EITHER THE PROFIT AND LOSS ACCOUNT OR BALANCE SHEET. THE SAID CLAUSE (III) CANNOT BE READ TO MEAN THAT IF THE LOSS SUFFERED IN A YEAR AND UNABSORBED DEPRECIATION OF T HAT YEAR ARE NOT KEPT SEPARATELY AND SHOWN DISTINCTLY IN THE BALANCE SHEET, THEN NO DEDUCTION FOR THE SAID LOSS OR DEPRECIATION CAN BE ALLOWED IN THE SUCCEEDING YEARS IN COMPUTING THE BOOK PROFIT. THER E IS NO SUCH FURTHER LEGAL REQUIREMENT THAT THE LOSS SHOULD APPEAR IN TH E BALANCE SHEET OF THE SUCCEEDING YEAR ALSO AND HENCE SUCH REQUIREMENT CANNOT BE IMPOSED BY ANY AUTHORITY. IN OUR CONSIDERED OPINION , THE LOSS OR UNABSORBED DEPRECIATION OF ONE YEAR CAN BE SET OFF AGAINST THE PROFIT OF THE SUBSEQUENT YEAR ONLY AND TILL SUCH SET OFF, THE AMOUNTS ARE CARRIED ITA NO.3215/AHD/2015 19 FORWARD TO THE SUBSEQUENT YEAR, OR IN OTHER WORDS, ARE BROUGHT FORWARD IN THE SUBSEQUENT YEAR FROM EARLIER YEAR AND ARE AV AILABLE FOR SET OFF AS PER PROVISIONS OF CLAUSE (III) OF SECTION 115JB(2) OF THE ACT. IN THE INSTANT CASE, IT IS OBSERVED THAT THE ASSESSEE HAS SUFFERED LOSS CONTINUOUSLY IN THE LAST FOUR YEARS. NO MATERIAL HA S BEEN BROUGHT ON RECORD THAT SUCH LOSS WAS SET OFF AGAINST ANY PROFI T OF THE SUBSEQUENT YEAR IN DETERMINING THE BOOK PROFIT OF THE ASSESSEE COMPANY AFTER THE YEAR IN WHICH SUCH LOSS WAS SUFFERED. THUS IN OUR C ONSIDERED OPINION, SUCH LOSS WAS AVAILABLE FOR SET OFF DURING THE YEAR UNDER CONSIDERATION FOR DETERMINING THE BOOK PROFIT AS PER PROVISIONS O F CLAUSE (III) OF SECTION 115JB(2) OF THE ACT. IN VIEW OF THE ABOVE, IN OUR CONSIDERED OPINION, THERE WAS NO ERROR IN THE ORDER OF THE ASS ESSMENT AS PASSED BY THE ASSESSING OFFICER IN SO FAR AS IT ALLOWED DEDUC TION OF RS. 1,13,01,457/- AS PER THE PROVISIONS OF SECTION 115J B(2) OF THE ACT IN DETERMINING THE BOOK PROFIT OF THE YEAR UNDER CONSI DERATION. OUR ABOVE VIEW ALSO FINDS SUPPORT FROM THE DECISION OF THE HO N'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUMI MOTHERSON INNOVAT IVE ENGINEERING LTD. [2010] 195 TAXMAN 353 [DEL]. 19. NOW LET US DEAL WITH THE REASONING GIVEN BY THE LD.CIT(A). THE FIRST REASON ASSIGNED BY THE LD.CIT(A) IS THAT THE ASSESS EE HAS CLAIMED MAINTENANCE OF SEPARATE LEDGER FOR GIVING EFFECT THE CREDITS IN THE REHABILITATION SCHEME. BUT ACCORDING TO THE LD.CIT(A) AUDITORS HAVE NOT GI VEN ANY SUCH FINDING NOR PROVIDED THAT TWO SETS OF PROFIT & LOSS ACCOUNT ARE BEING MAINTAINED. THEREFORE, ACCORDING TO THE LD.COUSNEL FOR THE ASSE SSEE, ONCE THE ASSESSEE HAS ACCOUNTED THE ALLEGED RESTRUCTURING CREDITS IN THE ACCOUNTS AND SET OFF THE LOSSES, THEN, IN SUBSEQUENT PERIOD, IT CANNOT CLAIM REDUCTION OF SUCH LOSS UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB(2). WITH REGARD TO THIS OBJECTION , WE ARE OF THE VIEW THAT SICA HAS NO OVERRIDING EFFE CT ON THE COMPANIES ACT. THE ASSESSEE IN ITS COMPUTATION OF INCOME HAS CLAIM ED REDUCTION OF UNABSORBED DEPRECIATION FROM THE BOOK PROFIT AS PER CLAUSE (III) OF EXPLANATION TO SECTION 115JB(2). THE CONTENTION OF THE ASSESS EE, AS DISCUSSED EARLIER WAS THAT ACCOUNTS FOR THE PURPOSE OF GIVING EFFECT THE SCHEME OF BIFR WERE NOT REQUIRED TO BE FINALIZED IN CONSO NANCE WITH PART-II AND III ITA NO.3215/AHD/2015 20 OF SCHEDULE-VI. THEREFORE, EVEN IF THE ASSESSEE HA S SHOWN THE ALLEGED SET OFF OF DEBIT BALANCE AGAINST THE RESTRUCTURING CREDITS BROUGHT IN THE ACCOUNTS, FOR THE PURPOSE OF BALANCE SHEET AND PRESENTATION, THAT DOES NOT MEAN THAT THE ASSESSEE HAS BEEN DENUDED TO SAY THAT ITS ACCOUNTS FOR SUBSEQUENT PERIOD WOULD NOT BE PREPARED ON THE BASIS OF ANNUAL AFFAIR S OF THE COMPANY IN TERMS OF PART-II AND III OF SCHEDULE-VI. ON OTHER WORDS, THE MAINTENANCE OF ACCOUNTS UNDER PART-II AND III OF SCHEDULE-VI IS AN INDEPENDENT EXERCISE WHICH IS TO BE PREPARED IN CONSEQUENT TO THE REQUIR EMENT UNDER THESE PROVISIONS. PART-II AND III OF SCHEDULE-VI NOWHERE ENVISAGE THAT THE ITEMS WHICH ARE NOT OF INCOME IN NATURE ARE REQUIRED TO B E RECOGNIZED UNDER THE HEAD INCOME IN THE PROFIT & LOSS ACCOUNT. THE SI MPLE LOGIC IS HOW AN ENTITY OR PERSON CAN BE PUT UNDER A TAX LIABILITY ON ITS O WN ON CAPITAL CONTRIBUTION ? IF SOMEBODY HAS A RESERVE AND SURPLUS AND FOR THE P URPOSE OF AVAILING LOAN OR FOR SOME OTHER REASONS, DEMONSTRATE THE SET OFF OF LIABILITY, WOULD THAT MEAN THAT DEPARTMENT WOULD TREAT THAT RESERVE AND SURPLU S AS INCOME AND PUT THE ENTITY UNDER THE TAX LIABILITY ? 20. THE NEXT REASON ASSIGNED BY THE LD.CIT(A) IS TH AT IN THE RETURN OF INCOME, THE ASSESSEE ITSELF ADMITTED THAT MAT CALCU LATION IS NOT AS PER THE BOOKS OF ACCOUNTS. IF THAT BE SO, THEN, SUCH A CLA IM IS NOT ADMISSIBLE. IN OUR OPINION, THIS REASON IS NOT SUSTAINABLE, BECAUSE SU B-CLAUSE (A) OF SECTION 115JB(1) CONTEMPLATES THAT BOOK PROFIT OUGHT TO HAV E BEEN WORKED OUT AS PER THE PART-II AND PART-III OF SCHEDULE-VI. IF THAT HAS NOT BEEN WORKED OUT, THEN, THE AO HAS RIGHT TO TINKER WITH THE COMPUTATION OF BOOK PROFIT AND COMPUTE IT IN ACCORDANCE WITH PART-II AND PART-III OF SCHEDULE -VI OF THE COMPANIES ACT. THUS, INSTEAD OF HARPING UPON THE ALLEGED DISCLOSUR E IN THE COLUMN, ONE HAS TO FIND WHETHER THE BOOK PROFIT COMPUTED BY THE ASSESS EE AND CLAIMED ALONG WITH RETURN IS IN CONSONANCE WITH PART-II AND PART-III O F SCHEDULE-VI TO THE COMPANIES ACT. ITA NO.3215/AHD/2015 21 21. NEXT REASON ASSIGNED BY THE LD.COMMISISONER IS THAT ACTUAL BOOK OF ACCOUNTS SHOW SEPARATE LEDGER ACCOUNTS IN RESPECT O F THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION. ACCORDING TO THE LD.C IT(A), THE ADJUSTMENT OF DEBIT BALANCE IN THE PROFIT & LOSS ACCOUNTS CREDITS IN THE REHABILITATION SCHEME, OUGHT TO HAVE BEEN GIVEN FULL EFFECT BY THE ASSESSE E IN THE ACCOUNTS. IT IS NOT OPEN FOR THE ASSESSEE TO OPT FOR INCONSISTENT METHO D OF ACCOUNTING. AS OBSERVED EARLIER, THE OBJECT OF LEVY OF TAX UNDER S ECTION 115JB IS THAT BOOK PROFIT OUGHT TO BE COMPUTED AS PER PART-II AND PART -III OF THE SCHEDULE-VI. WHAT OTHER ACCOUNTING TREATMENT HAS BEEN GIVEN BY T HE ASSESSEE FOR THE PURPOSE OF ANY OTHER SCHEME IS TOTALLY IRRELEVANT, BECAUSE SICA HAS NO OVERRIDING EFFECT ON THE COMPANIES ACT. IT COULD B E EXPLAINED BY SIMPLE EXAMPLE. DEPRECIATION UNDER THE COMPANIES ACT CAN BE CLAIMED ACCORDING TO THE STRAIGHT-LINE METHOD OR AS PER WDV. BUT FOR TH E PURPOSE OF COMPUTATION OF INCOME UNDER THE INCOME TAX ACT, DEPRECIATION IS TO BE WORKED OUT AS PER THE WDV. THE RATE OF DEPRECIATION UNDER THE INCOME TAX ACT IS HIGHER THAN THE ONE PRESCRIBED UNDER THE COMPANIES ACT. CAN TH E LD.COMMISSIONER ALLEGE THAT SINCE YOU HAVE CLAIMED A LOWER DEPRECIATION, A CCORDING TO THE STRAIGHT- LINE METHOD, WHILE PREPARING THE ACCOUNTS UNDER PAR T-II AND PART-III OF SCHEDULE-6, THEREFORE, YOU ARE NOT ENTITLED FOR HIG HER RATE OF DEPRECIATION AS PER WDV METHOD WHILE ASSESSING THE INCOME OF THE AS SESSEE UNDER REGULAR PROVISION ? ALL THESE ACTS OPERATE INDEPENDENTLY I N THEIR FIELD. AS FAR AS PLEA OF THE ASSESSEE THAT PRINCIPLE OF CONSISTENCY OUGHT TO BE APPLIED IS CONCERNED, THIS PLEA HAS BEEN JETTISONED BY THE LD.COMMISISONE R SIMPLY FOR THE REASON THAT RES JUDICATA IS NOT APPLICABLE IN THE INCOME TAX PROCEEDINGS. BUT THIS ASPECT HAS BEEN CONSIDERED BY THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. (SUPRA) AND RADHASOAMI SA TSANG VS. CIT, 193 ITR 321 (SC). IN A NUMBER OF AUTHORITATIVE PRONOUNCEM ENTS, IT HAS BEEN HELD THAT ITA NO.3215/AHD/2015 22 THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT STRICTLY APPLICABLE IN THE INCOME TAX PROCEEDINGS, BUT WHERE THE FACTS RUNNING IN DIFFERE NT ASSESSMENT YEARS HAVE NOT CHANGED, THEN, CONSISTENT APPROACH OUGHT TO BE ADOPTED. THE INCOME TAX OFFICER IS FREE TO TAKE DIFFERENT OPINIONS IN DIFFE RENT ASSESSMENT YEARS, BUT HE SHOULD HAVE DISCLOSED THE REASONS WHY HE IS TAKING A DIFFERENT STAND IN DIFFERENT YEARS. IN THE PRESENT CASE ALSO, THE LD. CIT(A) FAILED TO JUSTIFY WHY A DIFFERENT STAND HAS BEEN TAKEN IN THIS ASSESSMENT Y EAR, WHERE IN THE PREVIOUS TWO ASSESSMENT YEARS, CONSISTENTLY, THE AO HAS ALLO WED REDUCTION OF UNABSORBED LOSS/DEPRECIATION UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB WHILE CALCULATING THE BOOK PROFIT. IN THE AS STT.YEAR 2010-11, THE AO HAS GRANTED REDUCTION. THE ORDER OF THE AO WAS SOU GHT TO BE REVISED BY THE LD.COMMISSIONER BY EXERCISE OF POWER UNDER SECTION 263 OF THE ACT. HOWEVER, THE CONCLUSIONS OF THE LD.COMMISSIONER DID NOT GET APPROVAL FROM THE TRIBUNAL, AND THAT ORDER HAS BEEN SET ASIDE. T HE ASSESSMENT ORDER IN ASSTT.YEAR 2010-11 HAS BEEN RESTORED. CONSIDERING ALL THESE FACTORS IN THEIR SETTING AS A WHOLE, WE ARE OF THE VIEW THAT RESTRUC TURING CREDITS BROUGHT BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT AGAINST ACCUM ULATED PROFIT AND LOSS/DEBIT BALANCE, WHILE GIVING EFFECT TO THE SCHEME SANCTION ED BY THE BIFR WOULD NOT EXTINGUISH ALLEGED LOSS AND DEPRECIATION FROM THE A CCOUNTS OF THE ASSESSEE IN ACTUAL TERMS. SUCH LOSS WOULD BE AVAILABLE TO THE ASSESSEE AS PER THE ACCOUNTS PREPARED UNDER PART-II AND III OF SCHEDULE-VI, AND THE ASSESSEE WILL BE ENTITLED TO CLAIM REDUCTION OF LOSS/UNABSORBED DEPR ECIATION, WHICHEVER IS LOWER, FROM THE BOOK PROFIT UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB, WHILE MAKING SUCH COMPUTATION FOR THE PURPOS E OF SECTION 115JB. WE ALLOW THE APPEAL OF THE ASSESSEE AND SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. WE DIRECT THE LD.AO TO GRANT DEDUCTION OF UNABSORBED DEPRECIATION AMOUNTING TO RS.27,36,90,81 7/- FROM THE BOOK PROFIT ITA NO.3215/AHD/2015 23 UNDER CLAUSE (III) OF EXPLANATION TO SECTION 115JB(2) OF THE INCOME TAX ACT, 1961. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 23 RD MAY, 2016 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER