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Laxmi Automatic Loom Works Ltd. Versus Deputy Commissioner of Income Tax (Recovery) And Another

[2017] 390 ITR 150 - SIC company - Benefit of exemption from Capital Gains Tax - granting extension of the time for set off the carry forward losses - whether claim can be denied to an undertaking sought to be revived by the BIFR - Held that:- There is no denial of the fact that the company has shown profitability. Its liability to redeem the preference shares is in the future. In the circumstances, the possibility of its incurring losses in the event of payment of capital gains tax cannot be ru .....

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based upon fresh assessment of the facts and circumstances on each occasion. Having regard to these peculiar facts, a direction is issued to the respondents not to charge interest or penalty on the capital gains tax amounts in the circumstances of the case for the duration that the matter remained pending in these proceedings and all prior proceedings. - The writ petition is allowed in terms of the directions in the preceding paragraph even while upholding the liability to pay capital gains .....

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by giving unwarranted importance and weightage to the fact that the Petitioner's net worth has turned positive without considering that the Company's carried-over losses as on 31.03.2015 amounts to ₹ 887.23 lakhs and the fact that it has to create Capital Redemption Reserve of ₹ 850 lakhs out of profits for redemption of 6% cumulative redeemable preference shares due by year 2018-19, i.e. in the three years following 2014-15. 2. The petitioner, which is engaged in textile mac .....

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during 2006. These projections remained unfulfilled, however, and there was a sharp decrease in the company's net-worth due to which it could not generate the necessary internal accruals. The Petitioner contends that this was inasmuch as it could not take any positive steps for the sale of its assets, as contemplated in the scheme of 2003; and it could also not reach an amicable settlement with the Employees Union in respect of BIFR's package and the terms of voluntary retirement; it co .....

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09, BIFR passed an order allowing that application. It directed the Directorate of Income Tax (Recovery) to consider the Petitioner company s request for exemption from payment of capital gains tax on the sale of assets. In the BIFR's proceedings/order dated 09.11.2009 a new Para 10.7 was included in Modified Scheme 2009, as quoted below: "The Board on consideration of the material on record and also the submissions made noted that although the Bench passed an order directing DIT (RECOV .....

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. (2) To consider to exempt the company from Capital gains tax on sale of assets" 3. This order was made after hearing the advocate appearing for the DIT (Recovery). The petitioner highlights that the DIT (Recovery) had no grievance against the said direction of the BIFR dated 09.11.2009 and, therefore, did not prefer any appeal against the said direction, but allowed the same to become final. The DIT (Recovery), therefore, clearly accepted the position that if the facts and circumstances w .....

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writ petition, being W.P.(C) 4367/2013 before this Court challenging the legality and validity of the said order of the Joint Director dated 29.11.2012. Since the return of income for the AY 2010-11 was due by 15.10.2010, the Petitioner, pending the receipt of the order of the DIT (Recovery) filed its return of income for the AY 2010-11 on 22.09.2010 without subjecting the capital gains to tax based on the sanctioned scheme, recommending the relief of capital gains tax as well as the sanctioned .....

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onsider the request for grant of exemption on capital gains arising from the transfer of assets under the scheme. The order of this Court, disposing of the writ petition is as follows: It is stated that the Assessing Officer accepted the Petitioner's contention. The learned counsel for Petitioner states that in the circumstances there is no surviving grievance and seeks liberty to approach the Court in case the authority pass any adverse orders subsequently. Liberty granted. The Petition is .....

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erence between the projections and the actuals to the detriment of the proposer, that would have to be absorbed by the proposer. Learned counsel for the Respondents drew the attention of the Court to the order passed by the Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'). That order requires the Income Tax Department to accept or reject the plea for grant of a concession or relief in terms of the Scheme presented before the BIFR. The AAIFR observed that "th .....

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gures should be absorbed by the Petitioner. 3. Consequently, while setting aside the order dated 29thNovember 2012 W.P(C) No. 1568/2015 passed by the Directorate of Income Tax ('DIT') Recovery, the Court requires the DIT (Recovery) to once again consider the proposed scheme and the question of entitlement of the Petitioner to concession as sought for by the Petitioner. A fresh decision based on the actual figures submitted by the Petitioner will be taken. It is open to the Department to .....

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pital gains exemption, through the impugned order of 19.04.2016. The said impugned order reads as follows: 7. In compliance with the direction of Hon'ble High Court, the Directorate sent a letter dated 02-03-2016 giving opportunity to the company to file documents/ submissions either in writing and/or in person, The company filed its replies vide letters dated 26-02-2016, 04-03-2016, 07-03-2016 (letter dated 07-03-2016 was filed by the company's representative in person on 09-03-2016) an .....

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earlier through letter dated 11-12-2015 and other information available on record have been considered earlier, All the actual financial results, wherever available, have been taken into consideration. 9. It is noted that: 9.1 The actual figures of actual sales/ other income/ cash accruals are less than 50% of the projected figures shown in the modified rehabilitation scheme as sanctioned by the Hon'ble BIFR. However, it is the company which is solely and wholly responsible for such a situa .....

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ally as well astechnically. It is a settled principal that one cannot be given benefit of one's own default. 9.2 It is further noted that the coin actual figures i.e. upto F.Y. 2014-15, financials for which have, been audited adopted and income tax returns filed, were not furnished by the company and were obtained from the field authorities. A perusal of it these shows that the company is running very well in all respects, operational as Well as financial. As on 31.02.2015,company is having .....

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to be in need of any relief from the Income Tax Department and it can very well survive without grant of any Income Tax relief. In fact, the company has already attained an advanced stage of its revival and there is no need to exempt the Capital Gain Tax liability at all because it will be against public interest to grant such exemption of tax liability. Accordingly, relief relating to Capital Gain tax has not been granted to the company. 6. The petitioner contends and its senior Counsel, Mr. S. .....

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from capital gains tax to the Petitioner. Mr. Ganesh further argues that the impugned order does not consider the financial and liquidity strain, which the Petitioner Company would be subjected to, if the Petitioner was compelled to pay the amount of capital gains tax. It is submitted that, having regard to the fact that this is the third round of litigation, no purpose whatsoever would be served in merely setting aside the impugned order and remanding the matter for fresh consideration and for .....

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lakhs and the net worth though has become positive as on 31.03.2010, the Company has not wiped out its losses fully as on 31.03.2015. The Company is required to create Capital Redemption Reserves of ₹ 850 Lakhs to redeem its 6% Cumulative Redeemable Preferences Share of ₹ 100/- each in February 2020. It is stated that no funds outflow was sanctioned in the Modified sanctioned scheme in view of the capital gains tax waiver contemplated. The capital gains tax liability of ₹ 331. .....

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recovery. The denial of the requested exemption is neither in the interests of the company, nor for that matter, in the interests of the revenue, because the alternative, i.e payment would result in bankrupting the company, deprivation of employment and deprivation of future revenues that would accrue as taxes. 8. It is argued on behalf of the revenue that the profitability of the company has been steadily on the rise; it is submitted, in this context that the total income reported (before sett .....

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ity to absorb the Capital Gain Tax liability, the relief on account thereof was not allowed. The figures of Income, surplus cash and current assets as culled out from the Audited Accounts for the F. Y. 2013-14 and 2014-15 obtained from the Assessing Officer reinforced this conclusion. It is argued that on going through the returns of income and Audited Accounts of the petitioner company for the F.Y. 2011-12 onwards, it was found that the petitioner company was earning huge profits and was out of .....

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Provisions) Act, 1985 [hereafter the Act which provides for the rehabilitation of sick companies under orders of the BIFR], clearly states that any direction issued by that authority would have an overriding effect notwithstanding any other provision or any law with a few exceptions. In the present case, para 17(i) (c) of the BIFR s order requested the Director of Income (Recovery) to consider grating extension of time for set-off of carry forward losses up to 31.03.2013 as against 31.03.2009. I .....

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19.58 crores relating to AY 1998-99 to 2011-12. The projected profit of the assessment year in the rehabilitation period, i.e. AY 2009-10 to 2013-14 amounted to ₹ 29.34 crores. The respondent revenue permitted stay of brought forward business losses against the projected profit for 8 years and allowed set-off of balance forward business losses of ₹ 5.48 crores, i.e. ₹ 19.58 crores (-) ₹ 14.09 crores of AY 2009-10 and 2011-12 within the normal period of three years. The or .....

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income tax authorities were at liberty to elicit all necessary fresh figures and documents in this regard. The impugned order is premised on the opinion that the actual sales and other cash accruals were less than 50% of the projected figures, within the figures projected in the rehabilitation scheme. The order also notes that this was on account of the assessee petitioner s own functioning and for which revenue could not be blamed or faulted. The order also noted that actual figures up to FY 2 .....

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ut the company might become sick. The petitioner also has placed on record the annual report for 2014-15 in support of its argument that it has large component of liability, i.e. claims for refund of security deposit and further liability of ₹ 8.5 crores towards the 6% cumulative redeemable preference shares. Section 32 of the Act confers primacy upon the orders of BIFR. In the present case, the BIFR directed income authorities to consider granting relief on two aspects - carry forward bus .....

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grant of relief took place on 29.12.2012 by the income tax authorities when they actually took note of the projections. It is a matter of record that the company achieved net worth and had in fact moved out of the rehabilitation phase in 2011. That was the rationale for this Court s decision on 15.02.2016 that those actual figures should be taken note of. It is here that the company s functioning became material. The income tax authorities now feel that whilst the decision of carry forward was j .....

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