DCIT, New Delhi V. M/s. Brentwoods International Ltd., New Delhi

ITA 5854/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4543 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 28-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Section: 143(3); 115JB; 263

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5854/DEL/2015 (ASSESSMENT YEAR: 2009 - 10 ) DCIT, CENTRAL CIRCLE - 18, ROOM NO. 102, ARA CENTRE, E - 2, JHANDEWALAN EXTN, NEW DELHI VS. BRENTWOODS INTERNATIONAL LTD, (FORMERLY KNOWN AS ORPHIC RESORT LTD), B - 204, ANSAL CHAMBER - 1, BHIKAJI CAMA PLACE, NEW DELHI PAN:AAACO1674P (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHRAVAN GOTRU, SR. DR ASSESSEE BY: SHRI RAKESH KUMAR, CA DATE OF HEARING 29/08 / 2017 DATE OF PRONOUNCEMENT 05 / 0 9 / 2017 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS IS AN APPEAL FILED THIS APPEAL IS PREFERRED BY REVENUE AGAINST THE ORDER OF THE LD. CIT (A) - 27, NEW DELHI DATED 31/08/2015 WHEREIN ADJUSTMENT MADE BY THE LD. ASSESSING OFFICER TO THE BOOK PROFIT OF THE ASSESSEE UNDER SECTION 115 JB OF THE INCOME TAX ACT WITH RESPECT TO THE PROVISION OF GRATUITY, PROVISION FOR LEAVE ENCASHMENT, AND ADJUSTMENT ON ACCOUNT OF ACCUM ULATED LOSSES ON ACCOUNT OF PROFIT OF SICK INDUSTRIAL COMPANY WAS DELETED. 2. THE REVENUE HAS TAKEN THE FOLLOWING TWO GROUNDS OF APPEAL BEFORE US. 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS OF THE CASE IN DELETING THE ADDITIO N OF RS. 350631/ - ON ACCOUNT OF PROVISIONS FOR GRATUITY AND RS. 118353/ - ON ACCOUNT OF PROVISIONS OF LEAVE ENCASHMENT MADE U/S 115JB OF THE ACT TO THE BOOK PROFIT, AS THEY WERE IN THE NATURE OF UNASCERTAINED LIABILITIES. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 95827635/ - ON ACCOUNT OF ACCUMULATED LOSSES ON ACCOUNT OF PROFIT OF SICK INDUSTRIAL COMPANY TO THE BOOK PROFIT U/S 115JB OF THE ACT. 3. THE ASSESSEE IS A LIMITED COMPANY WHO FILED ITS RETURN OF INCOME SHOWING NIL INCOME AND ASSESSMENT UNDER SECTION 143(3) WAS PASSED ON 30 / 11 / 2011 BY DETERMINING THE BOOK PROFIT OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 196 1. SUBSEQUENTLY, THE ACTION UNDER SECTION 263 OF THE ACT WAS TAKEN AND THE LD. COMMISSIONER OF INCOME TAX , CENTRAL II, NEW DELHI SET PAGE 2 OF 3 ASIDE THE ORDER DATED 30 / 11 / 2011 ASSESSMENT AFTER PROPER EXAMINATION ENQUIRY AND VERIFICATION OF THE ABOVE ITEMS. SUBSEQUE NTLY, THE LD. ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT ON 06/02/2015 WHEREIN HE HAS MADE AN ADDITION TO THE BOOK PROFIT OF THE ASSESSEE OF PROVISION FOR GRATUITY AND LEAVE ENCASHMENT. A FURTHER ADDITION OF RS. 95827635/ - WAS ALSO MADE ON ACCOUNT OF PROFIT OF SICK INDUSTRIAL COMPANY BECAUSE OF THE FACT THAT THE SAID COMPANY HAS POSITIVE NET WORTH AND ITS PAID - UP CAPITAL AND FREE RESERVE ARE AT RS. 16.30 CRORES . SINCE THE ACCUMULATED LOSSES ACCORDI NG TO THE LD. ASSESSING OFFICER ARE MUCH LESS THAN THE PAID - UP CAPITAL IN FREEBIES OF THE COMPANY CANNOT BE SAID TO BE A SICK COMPANY UNDER THE PROVISIONS OF SECTION HUNDRED AND 1 1 5JB OF THE INCOME TAX ACT , 1961 AND THEREFORE THE ABOVE ADJUSTMENT WAS MADE. ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT (A) WHO DELETED THE ABOVE ADJUSTMENT AND THEREFORE REVENUE IS IN APPEAL BEFORE US . 4. THE 1 ST GROUND OF APPEAL OF THE REVENUE IS AGAINST THE ADDITION OF RS. 350631/ - ON ACCOUNT OF PROVISION FOR GRATUITY AND RS. 1 18 353/ ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT PAID UNDER SECTION 115 JB OF THE INCOME TAX ACT TO THE BOOK PROFIT BY THE LD. ASSESSING OFFICER DELETED BY THE LD. CIT (A) . 5. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LD. AO AND LD. A UTHORISED REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. CIT (A) . 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD. CIT(A) HAS DELETED THE ABOVE ADDITION BECAUSE OF THE REASON THAT THE PROVISION OF LEAVE ENCASHMENT AS WELL AS THE PROVISION OF TH E GRATUITY ARE MEANT ON THE ACTUARIAL VALUATION AS PER THE ACCOUNTING STANDARD 15 OF MINISTRY OF CORPORATE AFFAIRS AND BOTH THE LIABILITIES ARE ASCERTAINED LIABILITY AND THEREFORE THEY CANNOT BE STATED TO BE AN UNDERSTATED LIABILITY. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN DELETING THE ABOUT DISALLOWANCE. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 7. GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS WITH RESPECT TO THE DELETION OF ADDITION TO THE BOO K PROFIT OF THE ASSESSEE OF RS. 95827635 / - . THE LD. CIT (A) DELETED THE ABOVE ADDITION. FOR THE REASON THAT AS ON 31/03/2009 THE NET WORTH OF THE COMPANY WAS RS. 45545258/ - AND NOT RS. 163089419/ . ACCORDING TO THE LD. CIT (A) , THE NET WORTH OF THE COMPANY T URNED POSITIVE. DURING THE YEAR UNDER CONSIDERATION AFTER IT WAS ALREADY SICK THEREFORE ITS PROFIT OF RS. 95827635 / - SHALL BE REDUCED UNDER CLAUSE (VII) OF THE EXPLANATION TO SECTION HUNDRED AND 1 1 5JB OF THE ACT. 8. LD. DR RELIED UPON THE ORDER OF THE LD. A O WHEREAS THE LD. AR RELIED UPON THE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT THE ASSESSEE HAS POSITIVE NET WORTH PAGE 3 OF 3 DURING THE YEAR ONLY AND THEREFORE ACCORDING TO THE PROVISIONS OF SECTION 115 JB OF THE ACT THE ABOVE ADJUSTMENT SHOULD HAVE BEEN ALLOWED TO THE ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ACCORDING TO THE PROVISIONS OF CLAUSE (VII) OF EXPLANATION 1 OF SECTION HUNDRED AND 15 JB OF THE INCOME TAX ACT PROVIDES THAT THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY FOR THE ASS ESSMENT YEAR COMMENCING ON AND FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME SICK INDUSTRIAL COMPANY UNDER SUBSECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES WAS REQUIRED TO BE REDUCED FROM THE PROFIT UNDER SECTION HUNDRED AND 1 15 JB OF THE ACT . THEREFORE, APPARENTLY, IF THE ASSESSEES NET WORTH HAS BECOME POSITIVE DURING THE YEAR THEN ASSESSEE IS ELIGIBLE FOR THE DEDUCTION OF THE PROFITS OF SICK INDUSTRIAL COMPANIES WHICH LD. CIT (A) IS GRANTED. HOWEVER, THE LD. CIT (A) HAS NOTED THAT THERE ARE CERTAIN ERRORS IN NOTING OF THE FIGURES OF T HE PROFIT, NET WORTH OF THE ASSESSEE COMPANY. THEREFORE, IN THE INTEREST OF JUSTICE WE SET ASIDE THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO VERIFY THE FIGURES THAT WHEN THE NET WORTH OF THE COMPANY HAS BECOME POSITIVE AND ACCORDINGLY, IF IT HAS BECOME SO DURING THE YEAR, THEN GRANT THE DEDUCTION OF THE ABOVE AMOUNT. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS ALLOWED AND SET ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE COMPUTATION OF NET WORTH. 10. IN T HE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN COURT ON 0 5 / 0 9 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 0 5 / 0 9 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI