2010 (5) TMI 792 - AT - Income Tax

Tribunal excludes sick industry profit from book profit calculation under Section 115JB.

The Tribunal held in favor of the assessee, excluding the profit of the sick industrial undertaking while computing book profit under Section 115JB, ... - Issues Involved:1. Allowance of carried forward depreciation u/s 115JB.2. Application of provisions of Section 115JB on a Sick Company registered with BIFR.3. Adjustment of extraordinary items against unabsorbed depreciation and brought forward business loss.4. Set off of brought forward book loss and unabsorbed depreciation against book profit.5. Disallowance of business loss on account of write-off of advance given for business purposes.6. Allowance of loss as trading/business loss u/s 28 or as bad debt u/s 36(1)(vii).7. Disallowance of depreciation amounting to Rs. 16,12,886.8. Charging of interest u/s 234B & 234C.Summary:Issue 1: Allowance of Carried Forward Depreciation u/s 115JBThe Revenue's appeal contended that the CIT(A) erred in directing the AO to allow the benefit of carried forward depreciation of Rs. 6,00,23,859 while calculating income u/s 115JB. The Tribunal held that the profit of the sick industrial undertaking should be excluded from the book profit for the year under consideration, making the book profit nil. Consequently, the Revenue's ground became infructuous and was rejected.Issue 2: Application of Provisions of Section 115JB on a Sick Company Registered with BIFRThe assessee argued that as per Section 115JB Explanation 1(vii), the profit of a sick industrial company should be excluded while computing book profit. The Tribunal agreed, stating that the exemption is available up to the year the net worth exceeds accumulated losses. For the year under consideration, the profit of the sick industrial undertaking was to be excluded, making the book profit nil.Issue 3: Adjustment of Extraordinary Items Against Unabsorbed Depreciation and Brought Forward Business LossThe Tribunal found that since the profit of the sick industrial undertaking was not chargeable to tax u/s 115JB, the book profit was nil. Thus, the grounds related to the computation of book profit became infructuous and were rejected.Issue 4: Set Off of Brought Forward Book Loss and Unabsorbed Depreciation Against Book ProfitSimilar to Issue 3, the Tribunal concluded that the book profit was nil, rendering the grounds related to set off of losses and depreciation infructuous and rejected.Issue 5: Disallowance of Business Loss on Account of Write-Off of Advance Given for Business PurposesThe assessee claimed a deduction of Rs. 52,18,507 as bad debt. The AO disallowed it, stating the conditions u/s 36(2) were not met. The CIT(A) allowed the claim for Rs. 19,30,259 related to Steel Authority of India Ltd. but disallowed the rest as capital loss. The Tribunal remanded the matter back to the AO for re-examination.Issue 6: Allowance of Loss as Trading/Business Loss u/s 28 or as Bad Debt u/s 36(1)(vii)The Tribunal directed the AO to re-examine the facts regarding advances given to Ganpati Capitals Ltd. and Gujarat Nippon Bimetals Pvt. Ltd. and re-adjudicate the issue in accordance with the law.Issue 7: Disallowance of Depreciation Amounting to Rs. 16,12,886The Tribunal noted that the issue was covered in favor of the assessee by a previous ITAT decision, which held that waiver of loan does not reduce the cost of fixed assets for depreciation purposes. The AO was directed to allow depreciation on the WDV as brought forward from the earlier year.Issue 8: Charging of Interest u/s 234B & 234CThe Tribunal held that the charging of interest is consequential and directed the AO to recompute the interest, if any, after determining the income as per the Tribunal's order.Conclusion:The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The order was pronounced in open court on 14th May 2010.