THE COMMISSONER OF INCOME TAX vs. 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 23RD 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 TAX COCHIN. 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 AZEES SRI.V. ABRAHAM MARKOS SRI. BINU MATHEW SRI. JOSEPH MARKOSE SR. SRI.B.J. JOHN PRAKASH SRI. MATHEWS K.UTHUPPACHAN SRI. TERRY V.JAMES SRI. TOM THOMAS KAKKUZHIYIL OTHER PRESENT: SR ADV JOSEPH MARKOS THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.1256 of 2009 2 JUDGMENT S.V.Bhatti, J. The Commissioner of Income Tax, Cochin/Revenue is the appellant. PTL Enterprises Ltd./Assessee is the respondent. The revenue, being aggrieved by the order of the Income Tax Appellate Tribunal in ITA No.291/Coch/07 dated 13.3.2008, has filed the present appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act'). It is relevant to note at the outset that the Commissioner of Income Tax, Cochin through order dt. 15.3.2007 made order under Section 263 of the Act, directed the Assessing Officer (AO) to re-do assessee's assessment, after considering the applicability of Section 115JA and levy MAT on assessee in accordance with law. 2. The assessee on 30.11.2000 filed return for the assessment year 2000-01 declaring total income as 'Nil'. The assessee, for arriving at 'nil' income, has set off brought forward business loss and unabsored depreciation of previous years. The AO processed the return under Section 143(1) on 25.3.2002. The assessment was re-opened under Section 148 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 of Rs.1,88,38,380/-. The assessee filed appeal before the CIT (Appeals) and the appeal was allowed and the total income of assessee was reduced to Rs.7,82,920/-. The AO made effect order Annexure-C dated 31.3.2005 and held that the assessee is entitled to refund of Rs.24,43,292/-. In these circumstances, the CIT, Cochin exercised the power vested in him under Sec.263 of the Act, namely, revision of orders prejudicial to revenue and made the order dt. 15.3.2007. By exercising substantially suo motu power available to the CIT, the CIT proposed to revise the effect order dated 31.3.2005. The Commissioner, through his order under 263, has held that the assessee is not entitled to the benefit of clause-vii of explanation to Section 115JA(2) of the Act. Therefore it is held that the petitioner is not entitled to the benefit of clause-vii of explanation to Section 115JA of the Act for the assessment year 2000-01. The order of the Commissioner reads thus: "I have carefully considered the submissions of the assessee. Since the assessee company had turned net worth positive during the previous year relevant to assessment year 2000-01 (as recorded in page 9 of the audit report), the company was not remaining as a Sick Industrial Company within the meaning of Section 3(1) of the Sick Industrial Companies Act, 1985. Hence Clause (vii) of Explanation to Section 115JA is not applicable to the assessee in the assessment year 2000-01. Under the above circumstances, I hold that the order

ITA No.1256 of 2009 4 passed by the Assessing Officer dtd.31.3.2005 giving effect to the order of the CIT(A) is erroneous in so far as it is prejudicial to the interests of revenue. The above referred order is therefore st aside. The Assessing Officer is directed to redo the same after considering the above aspects, and levying 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, Cochin Bench. The Appellate Tribunal through the order in Annexure-E dated 31.3.2008 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 the case and after having found as a fact that "the order passed by him in giving effect to the order of learned CIT(A) was erroneous and prejudicial to the interests of the Revenue. Show cause notice under Section 263 was given", the Tribunal is right in law and fact in considering the revisional order of Commissioner as one revising an intimation under Section 143(1)(a) and holding the same as without jurisdiction? 2. Whether on the facts and in the circumstances of the case and in the light of Clause (vii) of Explanation to Section 115JA(2) of the I.T.Act and also in view of the fact that the net worth exceeded the accumulated loss during the year_ i) Can the company remain as a Sick Industrial Company 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 up to the Asst.year 2000-01? iii) The Tribunal is right in law in holding that the CIT was not justified in directing the Assessing Officer to compute book profits under Section 115JA.

ITA No.1256 of 2009 5 4. Learned Standing Counsel Mr.Jose Joseph argues that the assessee as on 31.3.2000 had become positive net worth for the first time eversince the company was declared as a sick company and rehabilitation scheme has been implemented. The benefit under clause (vii) of Explanation to Sec.115 JA(2), therefore, according to him, is applicable upto 31.3.2000 but not to the assessment year 2000-01. 5. Per contra, learned Senior Counsel Mr.Joseph Markose argues that clause-vii of explanation to Section 115JA(2) provides for the starting point and the ending period during which the sick company is entitled to the benefit of clause (vii) of Explanation to Sec.115JA(2). Referring to the relevant years it is stated on 30.11.2000 the assessee has filed return for 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 is not decided either on month to month basis, week to week basis or day to day basis. The profitability, particularly, net worth of a company is arrived at the end of the financial year, in the case on 31.3.2000. The return for the previous year ending 31.3.2000 was made on 30.11.2000. Therefore, for the purpose of availing benefit under clause-vii of explanation to Section 115JA(2), the assessment year is the criteria and not 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 in clause-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 the applicable assessment year. There is no reasoning whatsoever except directing the AO to re-do the assessment by giving effect to minimum alternate tax provision. He argues that the Tribunal, though has very briefly adverted to the controversy, has kept in mind the applicable years for which the explanation is operated and allowed the appeal. He prays for dismissing the appeal. 7. The substantial question No.2 in the appeal deals with the applicability of clause -vii of explanation to Section 115JA(2). For immediate reference, we excerpt relevant clause(vii) which reads thus: "(vii) the amount of profits of sick industrial company for the assessment year commencing 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 Provisions) Act, 1985 (1 of 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. 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 has become a sick industrial company and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. The criteria, in plain understanding of clause-vii, is that it prescribes starting point and ending point with assessment year only. What is important in the second limb which determines the ending period i.e. ending with the assessment year. Therefore, the benefit is available to the assessee ending with the assessment year during which the net worth has turned positive. The consideration of the issue by the CIT is by referring to the previous year during which it is noted that the assessee has attained net positive worth. The explanation refers to assessment year, therefore, either for starting point or for ending the period during which the benefit ceases to have applicability to an assessee is determinative only on the basis of assessment year but not by referring to the previous year. The first question is dependant subject to the outcome of substantial question No.2 viz. whether in favour of revenue or assessee. Had it been in favour of revenue, the necessity to examine the point raised under Section 263 of the Act would have arisen for our consideration. Substantial question No.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 A COPY OF ASSESSMENT ORDER DATED 16.12.2004 FOR THE ASSESSMENT YEAR 2000-01. ANNEXURE B COPY OF ORDER DATED 29.3.2005 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 31.3.2005 OF THE ASSESSING OFFICER GIVING EFFECT TO APPEALLATE ORDER. ANNEXURE D COPY OF ORDER U/S. 263 OF INCOME TAX ACT DATED 15.3.2007. ANNEXURE E COPY OF THE ORDER DATED 13.3.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.291/COCH/2007.