Book profit exclusion for sick industrial company ends once net worth turns positive under section 115JB.

Under clause (vii) of Explanation 1 to section 115JB, the exclusion from book profit computation for a sick industrial company applies only up to the assessment year in which the company's entire net worth becomes equal to or exceeds its accumulated losses. The assessee had been under rehabilitation, but its net worth turned positive during the relevant year and it was discharged from the sick industrial company regime. In the absence of any provision in the Income-tax Act, 1961 or the Sick Industrial Companies (Special Provisions) Act, 1985 allowing the benefit to continue beyond that point, the exclusion ceased to operate. The assessee was therefore not entitled to the claimed exclusion for that year, and the Assessing Officer's adjustment was sustained.

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Issues: Whether the assessee, a sick industrial company under rehabilitation, was entitled to exclusion of its profits from book profit computation under section 115JB of the Income-tax Act, 1961 after its net worth became positive during the relevant assessment year.

Analysis: The assessee had been declared a sick industrial company and a rehabilitation scheme had been sanctioned, but it was later discharged from the sick industrial company regime after its net worth turned positive. Under clause (vii) of Explanation 1 to section 115JB, the exclusion from book profit applies only up to the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. As the assessee's net worth had become positive in the relevant year, the statutory condition for continued exclusion ceased to operate. The record disclosed no provision in the Income-tax Act, 1961 or the Sick Industrial Companies (Special Provisions) Act, 1985 permitting continuation of the benefit beyond that point.

Conclusion: The assessee was not entitled to exclusion from book profit computation under section 115JB for the relevant year and the addition made by the Assessing Officer was .

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