Gujarat Metal Cast Industries Ltd.,, ... vs Department Of Income Tax

ITA No. 2459/Ahd/2010 & CO No.176/Ahd/2011 िनधा रण वष /Assessment Year: 2007-08 DCIT, Vs M/s. Gujarat Metal Cast Circle-1(1), Industries Ltd., Baroda 2, Panchranta Building, Ground Floor, Subhanpura, Road, Baroda PAN : AAACG 8433 G

ITA No.266/Ahd/2011 िनधा रण वष /Assessment Year: 2005-06 M/s. Gujarat Metal Cast DCIT, Industries Ltd., Circle-1(1), PAN : AAACG 8433 G Baroda

अपीलाथ / अपीलाथ / (Appellant) ू यथ यथ / थ / (Respondent/Cross-

objector) Revenue by : Shri B.L. Yadav, Sr. DR Assessee(s) by : Shri Tushar P. Hemani, AR सु नवाई क$ तार ख / Date of Hearing : 13/05/2015 घोषणा क$ तार ख / Date of Pronouncement: 15/05/2015

आदे श/O R D E R

PER G.D. AGRAWAL, VICE PRESIDENT:

ITA No. 266/Ahd/2011 is the appeal filed by the assessee against the

order of the Commissioner of Income-tax (Appeals)-I, Baroda dated 16.11.2010 for the Assessment Year 2005-06. ITA No.2459/Ahd/2010 is the appeal filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-I, Baroda dated 21.04.2010 for the Assessment Year ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 2

2007-08. CO No.176/Ahd/2011 is filed by the assessee for Assessment Year 2007-08.

2. The only ground raised in its appeal by the Revenue is against the deletion of Rs.2,47,05,000/- made by the Assessing Officer to the book profit for the purpose of Section 115JB in respect of waiver of interest by the Bank.

3. In the Cross-objection, the assessee has disputed its liability to be assessed u/s 115JB(2) in the light of Explanation-1, Clause (vii) of Section 115JB. The Cross-objection of the assessee is delayed by 317 days. The assessee has furnished an application for condonation of delay which is duly supported by the affidavit of Shri Chandrakant R. Patel, Managing Director of the assessee. In the affidavit, it is mentioned by the Managing Director of the assesses that since the CIT(A) has allowed the appeal in favour of the assessee with respect to computation u/s 115JB, the assessee did not prefer appeal or cross-objections. However, when the notice of hearing of the appeal is served upon the assessee, the assessee engaged the Counsel for appearing before the ITAT, the Counsel advised to file the cross-objection and thereafter, the cross-objection was immediately filed.

4. The ld. Counsel, who appeared at the time of hearing before us, submitted that the assessee is a layman and he is not aware about the intricacy of provisions of Income-tax Act. He also submitted that the point raised in the cross-objection was also raised before the CIT(A) and the CIT(A) adjudicated the same against the assessee. Therefore, even without cross-objection, the assessee can raise this issue in view of Rule 27 of the ITAT Rules. He further submitted that for adjudicating this ground, no investigation in to the facts is required because all the facts are already ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 3

on record and the ground is only with regard to legal interpretation of Clause (vii) in Explanation-1 of Section 115JB. He also stated that the delay in filing of the cross-objection is not on account of any malafide intention or lethargy on the part of the assessee. He, therefore, requested for condonation of delay and admission of cross-objection.

5. The ld. Departmental Representative, on the other hand, opposed the condonation of delay and the admission of cross-objection.

6. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the appeal was fixed for hearing for the first time on 03.06.2011. However, on this date the Bench did not function and hearing was adjourned to 29.07.2011. Thus, first effective hearing took place on 29.07.2011. The cross-objection is furnished by the assessee on 27.07.2011. Thus, the cross-objection was furnished even before the first date of effective hearing. These facts support the averment made in the affidavit of Shri Chandrakant R. Patel, Managing Director of the assessee. That after the receipt of hearing of notice, when the assessee approached the Counsel, he advised to file the cross-objection. Moreover, the issue raised in the cross-objection is already considered by the CIT(A) and adjudicated upon. By cross-objection, the assessee is raising only a pure legal issue. Considering the totality of these facts and the submissions of both the sides, we are of the opinion that it would be in the interest of justice to condone the delay and admit the cross-objection. Accordingly, we condone the delay of 317 days in filing of the cross-objection and admit the cross-objection for hearing.

CO No.176/Ahd/2011 - Cross-Objection by Assessee

7. The first ground of the Cross-objection reads as under:-

ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 4

1. The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in holding that provisions of clause (vii) to the Explanation 1 of S.115JB(2) of the Act are not applicable to the facts of the case of the assessee and thus not allowing to reduce an amount of profit of sick industrial appellant company from the net profit to determine book profit u/s 115JB of the Act as per clause (vii) to the Explanation 1 of S.115JB(2) of

8. The other ground is only in support of ground No.1

9. At the time of hearing before us, it is submitted by the ld. Counsel that the assessee is a sick unit and during the accounting year relevant to assessment year under consideration, for the first time, the net worth of the assessee company exceeded the accumulated losses. That Explanation-1, Clause (vii) provides for exclusion of profit of sick industrial company while computing book profit. The exemption is available from the assessment year in which the company becomes sick industrial unit and is available up to the year during which the net worth of the company exceeds the accumulated losses. He, therefore, submitted that for the year under consideration, the net profit of the sick unit is to be excluded. In support of this contention, he relied upon the following decisions of the ITAT.

i. DCIT vs. Steelco Gujarat Limited- ITA No.178 & 349/Ahd/2007 ii. Viswabharathi Textiles P. Ltd. vs. CIT - ITA No.778/Mds/2011 iii. ACIT vs. M/s. Praga Tools Ltd - ITA No.288/Hyd/2011

10. The ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below and he stated that the exemption as per Explanation 1, Clause (vii) would end in the year in which net worth of the company exceeded the accumulated losses. Admittedly, during the accounting year relevant to the assessment year under consideration, the net ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 5

worth of the company exceeded the accumulated losses; and therefore, exclusion permitted by Explanation-1, Clause (vii) would not be applicable.

11. We have carefully considered the arguments of both the sides and perused the material placed before us. In the case of Steelco Gujarat Limited (supra), the ITAT "A" Bench, Ahmedabad has considered the identical issue and held as under:-

"7. That from the above it is evident that as on 31-03-2003 the net worth of the assessee company exceeded the accumulated losses. As per Explanation-1, Clause (vii) while computing the book profit, following amount is to be reduced.

(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provision) Act, 1985 (1 to 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

8. From the above it is evident that the amount of profit of the sick industrial undertaking is to be reduced while computing book profit. The reduction is to be allowed from the year in which the said company becomes a sick industrial company and such exemption will end with the Assessment Year in which the net worth of the company exceeds the accumulated losses. It means exemption would be available upto the year in which the net worth exceeds the accumulated losses, but will not be available for subsequent years. Thus, the year in which the net worth exceeds the accumulated losses, will be last year of exemption under clause (vii).

9. In view of above, we hold that for the year under consideration, the amount of profit of sick industrial undertaking is to be excluded from the book profit. It is not in dispute that entire profit of the assessee company is from sick industrial undertaking. We, accordingly allow ground No.1 of the assessee's appeal. Once it is held that the profit of the sick industrial undertaking is not chargeable to tax u/s 115(JB), the book profit (Assessment Year 2003-2004) of the assessee company would be nil because the assessee ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 6

company is having only one industrial undertaking which is a sick unit. In view of the above, ground raised in Revenue's appeal as well as Ground Nos.2,3 and 4 of the assessee's appeal, which are with regard to the computation of the book profit of the assessee, have become infructuous, accordingly rejected."

12. Similar view is taken by the ITAT Hyderabad Bench in the case of M/s. Praga Tools Ltd (supra). No contrary decision is brought to our knowledge. Therefore, respectfully following the above two decisions of the ITAT, we are of the opinion 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. Thus, the Cross-objection of the assessee is allowed.

ITA No. 2459/Ahd/2010 - Revenue's Appeal (AY : 2007-08) 13. In the light of our decision on the Cross-objection of the assessee, the appeal of the Revenue has become infructuous, because in the appeal of the Revenue the dispute was only for computation of the book profit of the sick unit in respect of which some interest was waived. The question was whether while computing the book profit the interest waived is to be excluded or is to be included in the book profit. Since we have held that the entire book profit of the sick unit is to be excluded in view of Explanation-1, Clause (vii), the controversy with regard to quantum of book profit of the sick unit has become academic and infructuous. Accordingly, the Revenue's appeal is dismissed being infructuous.

ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 7 ITA No.266/Ahd/2011 - Assessee's Appeal (AY : 2005-06)

14. The Ground No.1 of the assessee's appeal reads as under:-

"1. Confirmation of part addition of Rs.77,81,667/- out of Rs.2,50,14,190/-, being interest waiver."

15. Other grounds raised by the assessee in its appeal are only arguments in support of above ground.

16. At the time of hearing before us, it is submitted by the ld. Counsel that the Assessing Officer made addition of Rs.2,50,14,190/- on the presumption that it was interest waived by the State Bank of Saurashtra and State Bank of Indore; the details of which is given at page No.10 of the assessment order and the same is reproduced below for ready reference.

"a) Interest waived by State Bank of Saurashtra:

i) Interest debited to P&L account Rs. 40,72,561/-

ii) Interest debited to deferred Revenue expenditure Rs.1,27,82,606/- iii) Interest claimed as allowable Rs. 77,81,667/-

b) Interest waived by State Bank of Indore Rs. 3,77,356/- ---------------- Rs.2,50,14,190/- ==========="

17. He stated that the CIT(A) sustained addition only in respect of Rs.77,81,667/- and deleted the balance addition. He also stated that to the best of his knowledge, the Revenue has not filed any appeal against part deletion of the addition by the CIT(A). With respect to Rs.77,81,667/-, he submitted that this amount was claimed by the assessee as deduction and it was not waived. He also referred to his written submission which is ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 8

reproduced at page Nos. 8 & 9 of the assessment order and the relevant portion of which is reproduced hereunder:-

"Besides, out of the total amount of interest payable as per settlement which came to Rs.93,86,166/- as amount of Rs.77,81,667/- was only claimed and the balance of Rs.16,04,499/- (Rs.93,86,166 - Rs.77,81,667) has been claimed as deduction, as later on the whole of the amount of Rs.93,86,166/- was converted by the bank as refundable loan."

18. He pointed out that as per the settlement with the Bank, the sum of Rs.93,86,166/-, which was interest due, was converted into loan by the Bank. Thus, there was no waiver of interest but it was only conversion of interest into the bank loan. He submitted that the Assessing Officer wrongly interpreted it to be waiver of interest.

19. The ld. Departmental Representative, on the other hand, stated that the contention of the assessee would require verification at the end of the Assessing Officer. The ld. Counsel for the assessee had no objection for setting aside the matter back to the file of the Assessing Officer for the verification whether there was waiver of interest to the extent of Rs.77,81,667/- .

20. After considering the facts of the case and arguments of both the sides, 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 ITA Nos.2459/Ahd/2010, 266/Ahd/2011 & CO No.176/Ahd/2011 Gujarat Metal Cast Industries Ltd 9

the issue in accordance with law, keeping in view our observation above. Needless to mention that he will allow adequate opportunity of being heard to the assessee while re-adjudicating this issue.

21. In the result, the assessee's Cross-objection is allowed, the assessee's appeal is deemed to be allowed for statistical purposes and the Revenue's appeal is dismissed.

Order pronounced in the Court on 15th May, 2015 at Ahmedabad.

Sd/- Sd/-

(RAJPAL YADAV) (G.D. AGRAWAL) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 15/05/2015 Biju T., PS

षत Copy आदे श क$ ूितिल+प अमे+षत/ of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. संबंिधत आयकर आयु. / Concerned CIT 4. आयकर आयु.(अपील) / The CIT(A)

5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

/ BY ORDER, आदे शानु सार

TRUE COPY

Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad