Ita/1256/2009 Of The Commissoner Of Income Tax v. P T L Enterprises Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS FRIDAY, THE 23 DAY OF JULY 2021 / 1ST SRAVANA, 1943 ITA NO. 1256 OF 2009 AGAINST THE ORDER IN ITA 291/Coch/2007 DATED 13.3.2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: THE COMMISSONER OF INCOME TAXCOCHIN.BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: P T L ENTERPRISES LTD.(PREMIER TYRES LTD.) KALAMASSERY.BY ADVS.SRI.K.P.ABDUL AZEESSRI.V. ABRAHAM MARKOSSRI. BINU MATHEWSRI. JOSEPH MARKOSE SR.SRI.B.J. JOHN PRAKASHSRI. MATHEWS K.UTHUPPACHANSRI. TERRY V.JAMESSRI. TOM THOMAS KAKKUZHIYIL OTHER PRESENT: SR ADV JOSEPH MARKOS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT S.V.Bhatti, J. The Commissioner of Income Tax, Cochin/Revenue is theappellant. PTL Enterprises Ltd./Assessee is the respondent. The revenue,being aggrieved by the order of the Income Tax Appellate Tribunal in ITANo.291/Coch/07 dated 13.3.2008, has filed the present appeal underSection 260A of the Income Tax Act, 1961 (for short 'the Act'). It isrelevant to note at the outset that the Commissioner of Income Tax,Cochin through order dt. 15.3.2007 made order under Section 263 of theAct, directed the Assessing Officer (AO) to re-do assessee's assessment,after considering the applicability of Section 115JA and levy MAT onassessee in accordance with law. 2. The assessee on 30.11.2000 filed return for the assessment year2000-01 declaring total income as 'Nil'. The assessee, for arriving at 'nil'income, has set off brought forward business loss and unabsoreddepreciation of previous years. The AO processed the return underSection 143(1) on 25.3.2002. The assessment was re-opened under Section148 and assessment under Section 143(3) read with Section 147 was ITA No.1256 of 2009 3 completed on 16.12.2004 determining the total income ofRs.1,88,38,380/-. The assessee filed appeal before the CIT (Appeals) andthe appeal was allowed and the total income of assessee was reduced toRs.7,82,920/-. The AO made effect order Annexure-C dated 31.3.2005 andheld that the assessee is entitled to refund of Rs.24,43,292/-. In thesecircumstances, the CIT, Cochin exercised the power vested in him underSec.263 of the Act, namely, revision of orders prejudicial to revenue andmade the order dt. 15.3.2007. By exercising substantially suo motu poweravailable to the CIT, the CIT proposed to revise the effect order dated31.3.2005. The Commissioner, through his order under 263, has held thatthe assessee is not entitled to the benefit of clause-vii of explanation toSection 115JA(2) of the Act. Therefore it is held that the petitioner is notentitled to the benefit of clause-vii of explanation to Section 115JA of theAct for the assessment year 2000-01. The order of the Commissionerreads thus: "I have carefully considered the submissions of the assessee.Since the assessee company had turned net worth positiveduring the previous year relevant to assessment year 2000-01(as recorded in page 9 of the audit report), the company wasnot remaining as a Sick Industrial Company within themeaning of Section 3(1) of the Sick Industrial CompaniesAct, 1985. Hence Clause (vii) of Explanation to Section115JA is not applicable to the assessee in the assessment year2000-01. Under the above circumstances, I hold that the order passed by the Assessing Officer dtd.31.3.2005 giving effect tothe order of the CIT(A) is erroneous in so far as it isprejudicial to the interests of revenue. The above referredorder is therefore st aside. The Assessing Officer is directedto redo the same after considering the above aspects, andlevying MAT in accordance with law." 3. Assessee, aggrieved by the order in Annexure-D, filed ITA Under the above circumstances, I hold that the order passed by the Assessing Officer dtd.31.3.2005 giving effect tothe order of the CIT(A) is erroneous in so far as it isprejudicial to the interests of revenue. The above referredorder is therefore st aside. The Assessing Officer is directedto redo the same after considering the above aspects, andlevying MAT in accordance with law." 3. Assessee, aggrieved by the order in Annexure-D, filed ITA No.291/Coch/07 before the Income Tax Appellate Tribunal, CochinBench. The Appellate Tribunal through the order in Annexure-E dated31.3.2008 allowed the appeal. Hence the instant appeal under Sec.260A of the Act. The Revenue raises the following substantial questions of law: 1.Whether, on the facts and in the circumstances of thecase and after having found as a fact that "the order passedby him in giving effect to the order of learned CIT(A) waserroneous and prejudicial to the interests of the Revenue.Show cause notice under Section 263 was given", the Tribunalis right in law and fact in considering the revisional order ofCommissioner as one revising an intimation under Section143(1)(a) and holding the same as without jurisdiction? 2.Whether on the facts and in the circumstances of thecase and in the light of Clause (vii) of Explanation to Section115JA(2) of the I.T.Act and also in view of the fact that thenet worth exceeded the accumulated loss during the year_ i) Can the company remain as a Sick IndustrialCompany from the assessment year 2000-2001 onwards? ii) The Tribunal is right in law in holding that clause(vii) to Explanation under Section 115JA(2) is applicable upto the Asst.year 2000-01? iii) The Tribunal is right in law in holding that theCIT was not justified in directing the Assessing Officer tocompute book profits under Section 115JA. 4. Learned Standing Counsel Mr.Jose Joseph argues that the assesseeas on 31.3.2000 had become positive net worth for the first time eversincethe company was declared as a sick company and rehabilitation schemehas been implemented. The benefit under clause (vii) of Explanation toSec.115 JA(2), therefore, according to him, is applicable upto 31.3.2000but not to the assessment year 2000-01. 5. Per contra, learned Senior Counsel Mr.Joseph Markose arguesthat clause-vii of explanation to Section 115JA(2) provides for the startingpoint and the ending period during which the sick company is entitled tothe benefit of clause (vii) of Explanation to Sec.115JA(2). Referring tothe relevant years it is stated on 30.11.2000 the assessee has filed returnfor the assessment year 2000-01 for the previous year ending 31.3.2000 i.e.for the financial year 1.4.1999 to 31.3.2000. The profit of a company isnot decided either on month to month basis, week to week basis or dayto day basis. The profitability, particularly, net worth of a company isarrived at the end of the financial year, in the case on 31.3.2000. Thereturn for the previous year ending 31.3.2000 was made on 30.11.2000.Therefore, for the purpose of availing benefit under clause-vii ofexplanation to Section 115JA(2), the assessment year is the criteria andnot the previous year ending 31.3.2000. The interpretation of the ITA No.1256 of 2009 6 department is contrary to the plain and simple language employed inclause-vii of explanation to Section 115JA(2). 6. By inviting our attention to the reasoning of the Commissioner, it is argued that the Commissioner has not actually decided theapplicable assessment year. There is no reasoning whatsoever exceptdirecting the AO to re-do the assessment by giving effect to minimumalternate tax provision. He argues that the Tribunal, though has verybriefly adverted to the controversy, has kept in mind the applicable yearsfor which the explanation is operated and allowed the appeal. He praysfor dismissing the appeal. ITA No.1256 of 2009 6 department is contrary to the plain and simple language employed inclause-vii of explanation to Section 115JA(2). 6. By inviting our attention to the reasoning of the Commissioner, it is argued that the Commissioner has not actually decided theapplicable assessment year. There is no reasoning whatsoever exceptdirecting the AO to re-do the assessment by giving effect to minimumalternate tax provision. He argues that the Tribunal, though has verybriefly adverted to the controversy, has kept in mind the applicable yearsfor which the explanation is operated and allowed the appeal. He praysfor dismissing the appeal. 7. The substantial question No.2 in the appeal deals with theapplicability of clause -vii of explanation to Section 115JA(2). Forimmediate reference, we excerpt relevant clause(vii) which reads thus: "(vii) the amount of profits of sick industrial companyfor the assessment year commencing from the assessment yearrelevant to the previous year in which the said company hasbecome a sick industrial company under sub-section (1) ofSection 17 of the Sick Industrial Companies (SpecialProvisions) Act, 1985 (1 of 1986) and ending with theassessment year during which the entire net worth of suchcompany becomes equal to or exceeds the accumulatedlosses." 8. Clause-vii refers to assessment year commencing from the ITA No.1256 of 2009 7 assessment year relevant to previous year in which the said company hasbecome a sick industrial company and ending with the assessment yearduring which the entire net worth of such company becomes equal to orexceeds the accumulated losses. The criteria, in plain understanding ofclause-vii, is that it prescribes starting point and ending point withassessment year only. What is important in the second limb whichdetermines the ending period i.e. ending with the assessment year.Therefore, the benefit is available to the assessee ending with theassessment year during which the net worth has turned positive. Theconsideration of the issue by the CIT is by referring to the previous yearduring which it is noted that the assessee has attained net positive worth.The explanation refers to assessment year, therefore, either for startingpoint or for ending the period during which the benefit ceases to haveapplicability to an assessee is determinative only on the basis ofassessment year but not by referring to the previous year. The firstquestion is dependant subject to the outcome of substantial questionNo.2 viz. whether in favour of revenue or assessee. Had it been in favourof revenue, the necessity to examine the point raised under Section 263of the Act would have arisen for our consideration. Substantial questionNo.2 is answered in favour of assessee and against revenue. Substantial ITA No.1256 of 2009 8 question No.1 does not arise for decision in view of our answer to other questions. Appeal fails and dismissed. No order as to costs. sd/- S.V.BHATTI Judge sd/- BECHU KURIAN THOMAS Judge css/ ITA No.1256 of 2009 9 APPENDIX OF ITA 1256/2009 PETITIONER ANNEXURE ANNEXURE ACOPY OF ASSESSMENT ORDER DATED 16.12.2004 FORTHE ASSESSMENT YEAR 2000-01. ANNEXURE BCOPY OF ORDER DATED 29.3.2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE CCOPY OF THE ORDER DATED 31.3.2005 OF THE ASSESSING OFFICER GIVING EFFECT TO APPEALLATEORDER. ANNEXURE DCOPY OF ORDER U/S. 263 OF INCOME TAX ACT DATED 15.3.2007. ANNEXURE ECOPY OF THE ORDER DATED 13.3.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.291/COCH/2007.