2015 (6) TMI 317 - AT - Income Tax

Applicability of clause (vii) to the Explanation 1 of S.115JB(2) - disallowance to reduce an amount of profit of sick industrial appellant company from the net profit to determine book profit u/s 115JB - Held that - the profit of the sick industrial undertaking is to be reduced from the book profit beginning with the year in which the Company becomes a sick industrial company and such exemption would be available till the year in which for the first time the net worth of the Company exceeds the accumulated losses. Accordingly for the year under consideration i.e. Assessment Year 2007-08 the net profit of the sick industrial undertaking is to be reduced while computing the book profit. We direct the Assessing Officer to re-compute the book profit accordingly. See DCIT vs. Steelco Gujarat Limited 2010 (5) TMI 792 - ITAT AHMEDABAD and ACIT vs. M/s. Praga Tools Ltd 2013 (12) TMI 1412 - ITAT HYDERABAD - Decided in favour of assessee. Addition on Interest waived by the State Bank of Saurashtra and State Bank of Indore - Held that - we set aside the orders of the authorities below with regard to addition of Rs. 77, 81, 667/- made by the Assessing Officer on the presumption that it was the interest waived by State Bank of Saurashtra. We direct the Assessing Officer to verify whether it is waiver of interest or its conversion of interest into loan. Conversion of interest into loan does not amount to waiver of interest because ultimately the interest is to be paid by the assessee. The only benefit assessee gets on conversion of interest into loan is more time for the payment. The Assessing Officer will re-adjudicate the issue in accordance with law keeping in view our observation above. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of Rs. 2,47,05,000/- made by the Assessing Officer to the book profit under Section 115JB regarding waiver of interest by the Bank.
2. Assessee's liability to be assessed under Section 115JB(2) in light of Explanation-1, Clause (vii) of Section 115JB.
3. Confirmation of part addition of Rs. 77,81,667/- out of Rs. 2,50,14,190/- being interest waiver.

Issue-wise Detailed Analysis:

1. Deletion of Rs. 2,47,05,000/- to the Book Profit under Section 115JB:
The Revenue appealed against the deletion of Rs. 2,47,05,000/- made by the Assessing Officer to the book profit for the purpose of Section 115JB concerning the waiver of interest by the Bank. The Tribunal found that the issue raised in the cross-objection by the assessee was a pure legal issue and condoned the delay of 317 days in filing the cross-objection, admitting it for hearing.

2. Assessee's Liability under Section 115JB(2) and Explanation-1, Clause (vii):
The assessee argued that as a sick unit, its net profit should be excluded from the book profit calculation under Explanation-1, Clause (vii) of Section 115JB. The Tribunal referenced previous ITAT decisions, including DCIT vs. Steelco Gujarat Limited and others, which supported the exclusion of the profit of a sick industrial company from book profit until the year the company's net worth exceeds its accumulated losses. The Tribunal directed the Assessing Officer to re-compute the book profit accordingly, thus allowing the cross-objection of the assessee.

3. Confirmation of Part Addition of Rs. 77,81,667/- out of Rs. 2,50,14,190/-:
The assessee appealed against the confirmation of part addition of Rs. 77,81,667/- out of Rs. 2,50,14,190/-, which was presumed by the Assessing Officer to be interest waived by the banks. The Tribunal noted the assessee's argument that this amount was not waived but converted into a loan by the bank. The Departmental Representative agreed that this contention required verification. Consequently, the Tribunal set aside the orders of the authorities below and directed the Assessing Officer to verify whether the amount was a waiver of interest or a conversion into a loan. The Assessing Officer was instructed to re-adjudicate the issue in accordance with the law and provide the assessee with adequate opportunity to be heard.

Conclusion:
The Tribunal allowed the assessee's cross-objection, deemed the assessee's appeal allowed for statistical purposes, and dismissed the Revenue's appeal as infructuous. The decision emphasized the necessity of verifying the nature of the Rs. 77,81,667/- and re-computing the book profit considering the exclusion of profit from a sick industrial unit.