DEEPAK EDUCATION LTD,MUMBAI vs. CIT(A) 10, MUMBAI

We have heard the parties and perused the records. The assessee is engaged in the business of conducting Coaching Classes. It filed its return of income for the year under consideration declaring nil income under normal provisions of the Act and nil book profit u/s. 115JB of the Act. The assessment was originally completed by Assessing Officer accepting the book profit declared by the assessee. The Ld. Commissioner of Income tax noticed that the accounts of the assessee did not show any brought forward loss/depreciation. Accordingly he took the view that the AO had wrongly allowed the claim for deduction of brought forward loss/depreciation.

2550/M/15 Deepak Education Ltd Hence, he revised the assessment order u/s. 263 of the Act. Consequent thereto, the present assessment order was passed by the Assessing Officer wherein he determined the book profit u/s. 115JB of the Act at Rs.27.78 lakhs by rejecting the claim for deduction of brought forward loss/depreciation.

The facts relating to this issue requires further elaboration. The assessee had accumulated losses of Rs.5.58 crores and equity share capital of Rs.7.00 crores in the past. In view of the huge losses, the assessee made an application u/s.100 of the Companies Act, 1956 for reduction of capital. The said claim was approved by the Hon'ble Bombay High Court, vide its order dated 30-01-2003. Consequent thereto the assessee set off the accumulated loss of Rs.5.58 crores against equity share capital of Rs.7.00 crores. As a result, thereof the equity share capital was reduced to Rs.1.42 crores and the accumulated loss was shown at nil figure in the Balance Sheet.

However, while computing book profit u/s 115JB of the Act for the year under consideration, the assessee did not recognize the capital reduction and accordingly claimed set off of brought forward loss or depreciation whichever is less from the Net profit as per provisions of Section 115JB of the Act. The Assessing Officer rejected the same, since the books of account did not show any brought-forward losses/depreciation. The order of the AO was also confirmed by the ld. Commissioner of Income tax(Appeals). Aggrieved, the assessee has filed the present appeal before us.

The ld. Authorised Representative (AR) placed reliance on the decision rendered by the Ahmedabad Bench of the Tribunal in the case of Surat Textile Mills Ltd. vs. DCIT (2016) (70 taxmann.com 158) in order to contend that the capital reduction carried out in order to rehabilitate the company should be ignored for the purpose of Section 115JB of the Act.

On the contrary the ld. Departmental Representative (DR) submitted that the book profit u/s. 115JB of the Act has to be computed from the financial statements prepared

Having heard rival submissions, we are of the view that there is merit in the contentions of the ld. DR. In the case of Surat Textile Mills Ltd. vs. DCIT (supra), the all credit balances were accumulated and transferred to “Rehabilitation Scheme Account” and the profit and loss account was adjusted against the same as per Scheme approved by BIFR for re-habilitation of the assessee under Sick Industries Act. Such adjustments were not made as per the requirements of Companies Act. That fact weighed in favour of the assessee. In the instant case the assessee itself has filed petition before the Hon'ble High Court of Bombay for reduction of share capital by adjusting accumulated losses as per the provisions of Companies Act. After receipt of approval from the Hon'ble Bombay High Court, the assessee has wiped off the accumulated losses by transferring it to Equity Share capital, thereby reducing the Share capital account. As submitted by the ld. DR all these transactions have happened way back in 2003. All these adjustments have been carried out as per the provisions of Companies Act and after such adjustment; there would not be any accumulated loss as contended by the assessee.

Now we are concerned with determination of book profit for assessment year 2010-11. Admittedly the financial statement prepared for the year under consideration does not contain any entry towards “accumulated losses”. As stated earlier, there does not exist any accumulated loss in the eyes of law after giving effect to the order passed by Hon’ble Bombay High Court for capital reduction. For these reasons, we are of the view that the ld. CIT(A) was justified in upholding the order o the Assessing Officer in rejecting the claim of the assessee. Accordingly, we uphold the order passed by the ld.CIT(A).