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Facts
The assessee company, M/s. Bharat Technologies Auto Components Ltd., filed appeals against the order of the Ld.CIT(A) for Assessment Years 2003-04, 2004-05 & 2006-07. The appeals involved issues related to the disallowance of carry forward of business loss and additions under Section 41(1)(b) of the Income Tax Act, stemming from a merger with a sick company, M/s. Ucal Power Systems Ltd (UPSL).
Held
The Tribunal noted that a Hon'ble High Court Division Bench had granted an interim stay on a related matter and admitted an appeal. The Tribunal also observed that the assessee was not given proper opportunity by the AO during assessment proceedings. Therefore, the Tribunal set aside the impugned order and restored the assessment back to the AO.
Key Issues
Whether the disallowance of carry forward of business loss and additions under Section 41(1)(b) were justified, considering the merger with a sick company and ongoing High Court proceedings? Was the assessee provided with a proper opportunity during the assessment proceedings?
Sections Cited
Section 72A, Section 41(1)(b), Section 43B, Section 115JB, Section 115JAA, Section 80, Section 139, Section 143(3), Section 15(1), Section 3(1)(0)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI MANOJ KUMAR AGGARWAL
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short ‘the Ld.CIT(A)’), Delhi, dated 30.03.2024 for the Assessment Years (hereinafter in short ‘AY’) 2003-04, 2004-05 & 2006-07 respectively.
, 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 2 ::
2. Since both sides agree that issues raised are same/similar in all the appeals, the decision in AY 2003-04, which is taken as the lead case, will decide the outcome of all other appeals. At the outset, the assessee is not pressing the grounds (legal issues) against the re-opening resorted by assessee. Therefore, Ground Nos.2 to 6 are dismissed.
3. Ground Nos.7 to 16 are reproduced as under:
7. The NFAC, Delhi erred in sustaining the disallowance the claim of carry forward of business loss to the tune of Rs. 1,25,40,145/- in terms of Section 72A of the Act post amalgamation / merger with M/s Ucal Power System Ltd and consequently erred in adding it back in the computation of taxable total income in the computation of taxable total income without assigning proper reasons and justification.
8. The NFAC, Delhi failed to appreciate that claim of carry forward of business loss in terms of Section 72A of the Act post amalgamation / merger with M/s Ucal Power System Ltd was correct on various facets and ought to have appreciated that the arbitrary disallowance of such validly claimed deduction was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi failed to appreciate that provisions of Section 72A(2) of the Act would mandate the eligible appellant / amalgamated company to continue the business of amalgamating company and did not mandate the particular product manufactured by amalgamating company to be manufactured by the amalgamated company and ought to have appreciated that the artificial condition set by the Assessing Officer for validly claiming such benefit in this regard should accordingly be reckoned as bad in law.
10. The NFAC, Delhi failed to appreciate that having satisfied the conditions envisaged under Section 72A(2) of the Act while making the said claim of benefit under Section 72A of the Act, the arbitrary disallowance of such claim which is otherwise valid, for the presumed failure to adhere to an artificial condition imposed by the Assessing Officer should be reckoned as nullity in law.
11. The NFAC, Delhi erred in sustaining the addition of Rs. 4,11,40,145/- presumed to be the sum received as concessional relief in terms of Section 41(1)(b) of the Act in the computation of taxable total income without assigning proper reasons and justification.
The NFAC, Delhi failed to appreciate that provisions of Section 41(1)(b) of the Act had no application to the factual matrix of the present case and ought to have appreciated that the mechanical action in bringing to tax the disputed sum in terms of Section 41(1)(b) of the Act should be reckoned as nullity in law.
, 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 3 ::
The NFAC, Delhi failed to appreciate that disputed sum under no stretch of imagination could be brought to tax in terms of Section 41(1)(b) of the Act and ought to have appreciated that the order passed by the Board for Industrial and Financial Reconstruction dated 14.01.2004 waiving the loan and interest payable by the appellant could not be brought to tax under Section 41(1)(b) of the Act, there by vitiating the disputed addition in its entirety.
The NFAC, Delhi failed to appreciate that provisions in Section 41(1)(b) of the Act would envisage an addition in event of the said entity receiving a benefit in respect of a trading liability by way of remission or cessation there of and ought to have appreciated that waiver of the loan on the facts of the case would not fall within the scope of Section 41(1)(b) of the Act as it was not a case of cessation of a trade debt, there by vitiating the action in sustaining the disputed sum.
The NFAC, Delhi failed to appreciate that the entire re-computation of taxable total income forming part of the re-assessment order was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi failed to appreciate that having not granted sufficient opportunity establishing the fact of defiance of the principles of natural justice, the violation of the said principles would make the order as nullity in law.
At the outset, the Ld.AR of the assessee drawing our attention to Ground No.16 submitted that these appeals have to be necessarily restored back to the file of the AO (Assessing Officer) for fresh assessment since there was violation of natural justice and assessee was not provided proper opportunity by the AO before framing the assessment order and cited the decision of the Hon’ble Supreme Court in the case of TIN Box Co. v. CIT reported in [2001] 249 ITR 216 (SC).
5. Further, the Ld.AR drew our attention to Ground Nos.7 to 15 and submitted that the assessee filed return of income on 27.11.2003 admitting an income of Rs.1,14,84,108/- and later filed the revised return on 01.11.2004 admitting ‘NIL’ income. The AO noted that the reason for filing the revised return was due to the adjustment of loss carried forward , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 4 ::
in the case of M/s.Ucal Power Systems Ltd., (hereinafter in short ‘M/s.UPSL’), which was declared as a sick company by BIFR and taken over by the assessee company as per rehabilitation cum merger scheme approved by the BIFR. In the first round of assessment u/s.143(3) of the Act framed on 31.03.2006, the AO accepted the ‘NIL’ return made an addition only Rs.4,15,173/-. Later on, the AO having noted that the assessee company [M/s.Bharat Technologies Auto Components Ltd (BTACL)] didn’t continue the business of the amalgamated company M/s.UPSL [which was producing portable gensets and IC engines] but it continued manufacturing raw materials like mudguards for bicycles, piston rods for shock absorbers, he [AO] re-opened the assessment of the assessee and after repelling the objection raised by the assessee for re- opening the assessment framed on 31.03.2006 (refer Page No.4 of Assessment order), he [AO] denied the carried forward losses and unabsorbed depreciation from M/s.UPSL and made an addition of Rs.1,25,32,085/- and thereafter also made an addition of Rs.4,11,40,145/- u/s.41(1)(b) of the Act. On appeal, the Ld.CIT(A) has confirmed the same by taking note of the history of this case that M/s.UPSL filed a reference u/s.15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the 'SIC Act') and at the hearing held on 23.04.1988, it was declared as a Sick Industrial Company under Section 3(1)(0) of the SIC Act. And the BIFR by , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. its order dated 14.01.2004 in case No.46 of 1998 and in exercise of the powers conferred u/s.18(4) of the Act read with Section 19(3) of the Act, sanctioned a Scheme for revival of the Sick Company, namely UPSL which was merged with the assessee Company. The assessee company filed its return of income for the AY 2003-04 to AY 2006-07 claiming the reliefs including the benefit u/s.72A of the Act relating to availing the unabsorbed losses and unabsorbed depreciation of M/s.UCAL Power Systems Ltd (UPSL) available to M/s.UPSL as on 01.07.2002. And that the AO also allowed the benefit u/s.72A of the Act to the assessee company/BTACL. However, it was realized that the AO at Chennai had no jurisdiction to allow any Income Tax relief which according to department fall under the jurisdiction of the CBDT (Pr. Director General of Income Tax) (Admin. & TPS). And as soon as the CBDT came to know about the benefit u/s.72A of the Act granted by the AO, Chennai to the assessee Company BTACL, it passed order dated 03.02.2010 disagreeing with the benefits availed by the assessee company u/s.72A of the Act and rejected the grant of benefit u/s.72A of the Act on the grounds mentioned in its said letter dated 03.02.2010. Pursuant to aforesaid developments, the AO reopened the assessments from the AYs 2003-04 to 2006-07 and accordingly, denied the carried forward losses and unabsorbed depreciation from amalgamated company M/s.UPSL pursuant to BIFR scheme (supra) and made an addition of Rs.1,25,32,085/- and also made , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. an addition of Rs.4,11,40,145/- u/s.41(1)(b) of the Act. Meanwhile, the assessee company approached the Hon'ble High Court against action of the AO for reopening the assessments vide W.P.No. 28924/10 and the Hon'ble Single Bench of the High Court granted interim Stay vide its order dated 24.01.2011. However, thereafter the assessee company withdrew its petition on 30.01.2014 [on the ground that it would pursue its relief by filing MA before BIFR keeping in view the Hon'ble Delhi High Court's order dated 13.07.2012 passed in WP(C) No.4163/2012 in the case of M/s.Orient Vegetax Pro. Ltd.]. And the Hon’ble High Court allowed assessee company's request to withdraw its petition. Accordingly, the assessee company filed MA No.171/2014 dated 26.02.2014 before the BIFR seeking direction to the CBDT to grant reliefs to the assessee and also to maintain status quo and not to take any coercive action till the disposal of the MA No.171/2014. A Miscellaneous Application in M.A.No.171 of 2014 in Case No.46 of 1998 was filed and the BIFR once again passed an order directing CBDT to consider the issues. The BIFR more specifically, passed further orders on 01.08.2014. Para 8 of the said order reads as follows:-
Having considered the prayers made in the MA, submissions made by the company, reply of Income Tax Department, rejoinder filed by the company and the argument of both the parties and the material available on record, the Bench reiterates its earlier direction given under para 8.3(a) of SS-04 as under:- To Consider- 1) To grant exemption under Section 72A(2) of Income Tax Act, 1961 to UCAL Division of BTACL (UDB) to enable it to carry , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 7 ::
forward the accumulated business losses and unabsorbed depreciation of UPSL. ii) To exempt the company from the provisions of Section 41(1) and 43B of Income Tax Act, 1961 in respect of the reliefs and concessions to be availed of by UPSL.) To exempt the company from applicability of payment of Minimum Alternate Tax (MAT) u/s 115JB, 115JAA of the Income Tax Act, 1961 till the accumulated losses are wiped out. iv) To exempt the company from the provisions of Section 80 read with Section 139 of Income Tax Act, 1961.
6. Even though, the assessee moved a Miscellaneous Application against the action of the BIFR, the Hon’ble Single Bench of the Madras High Court was pleased to dismiss the same by order dated 15.06.2021 (refer Page No.45-50 of the Ld.CIT(A)’s order). Aggrieved by the order of the Hon’ble Single Bench of the Madras High Court, the assessee preferred an appeal before the Hon’ble Division Bench of the Madras High Court, wherein the assessee made the CBDT and the AO (ITO Company Ward-1(1), Chennai-600034) party, and the Hon’ble High Court was pleased to admit the appeal and stayed the Single Bench order by passing an interim order dated 08.09.2021 [in Writ Appeal No.2249 of 2021 placed at Page No.286 of the Paper Book]. The interim order of the Hon’ble Division Bench of the Hon’ble Madras High Court, reads as under:
Heard Mr. P.V.Sivaraman, Learned Counsel for the Appellant and P Ms. Hema Muralikrishnan, Learned Senior Standing Counsel, who takes notice on behalf of the Respondents.
After careful consideration of the submissions made before us and also taking note of the decision in the case of CIT-vs- Lakshmi Machine Works Ltd. reported in [2020] 121 taxmann.com 284 (Madras), we are of the view that question of law arises for consideration in this appeal, namely, as to the effect of an order passed by the Board of Industrial & Financial Reconstruction (BIFR), while approving a scheme of settlement.
The Appellant Assessee would refer to the scheme, which was sanctioned by the BIFR, in the case of 46 of 98 (II) dated 19.01.2004 specifically dealing with the claim of the Central Board of Direct Taxes/ Directorate of Income Tax , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 8 ::
in paragraph 8.3 of the scheme, wherein directions have been issued to the Income Tax Department to consider to grant exemption under Section 72-A(2) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] to UDB to enable the Assessee to carry forward the accumulated business losses and unabsorbed depreciation; to OF CA consider to exempt the company from the provisions of Sections 41(1) and 43-B of the Act in respect of the reliefs and concessions to be availed of by the Assessee; to consider to exempt the company from applicability of payment of Minimum Alternate Tax (MAT) under Sections 115JB and 115JAA of the Act, and to consider to exempt the company from the provisions of Section 80 read with Section 139 of the Act.
4. The Respondent-Department has taken a stand that the scheme sanctioned by the BIFR only directs consideration and therefore, it is well open to the Department to consider and reject or consider and grant.
In our prima facie view, if such interpretation is to be given to the scheme, which has been settled in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 [hereinafter referred to as 'the SIC Act'], then the very purpose of Sick Industries approaching the BIFR would be rendered futile. The purpose for which the SIC Act was enacted is to rehabilitate the Sick Industries undertakings. It is not as if all Sick Industries would be automatically be admitted to the consideration of the BIFR for framing a scheme for sanctioning a settlement. Unless and until the BIFR is satisfied that the said company or industrial undertaking could be revived based upon the reports invited from the operating agency appointed by the BIFR, a scheme will be sanctioned.
This was the view taken in the case of Lakshmi Machine Works Ltd. (supra), in which the Learned Single Bench has observed in Paragraph No.15 of the order that the judgment cited on behalf of the Appellant is factually different. To be noted that the decision was rendered in an appeal filed under Section 260-A of the Act, wherein the substantial question of law has been answered.
Therefore, we are of the view that the Appellant has made out a prima facie case for entertaining the appeal. Accordingly, the appeal is admitted and there will be an order of interim stay till the disposal of the Writ Appeal. C.M.P.No.14325 of 2021 stands disposed of, accordingly.
7. The Ld.AR submitted that the Hon’ble Madras High Court (Division Bench) has passed the aforesaid interim stay order till the disposal of the Writ Appeal viz the issue regarding giving effect to the order of BIFR dated 14.01.2004 and 01.08.2014 i.e. consider granting of exemption u/s.72-A(2) of the Income Tax Act, 1961 to UCAL Division of assessee i.e. BTACL (UDB) to enable the assessee to carry forward accumulated , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. business losses and unabsorbed depreciation of UPSL; to consider to exempt the company from the provisions of Sec.41(1) & Sec.43B of the Act, etc, which are the subject matter of grounds of appeal before this Tribunal. According to the Ld.AR, the final decision of the Hon’ble High Court (Division Bench) has a direct bearing on the assessment of the assesse [ refer additions made by AO in the reassessment order which is subject matter of appeal] and which issues are pending before the Hon’ble High Court as evident from the order of the Hon’ble High Court (cited supra) and contented that if the assessee succeeds in its appeal, then there would be no taxable income. Therefore, he prays that the matter may be restored back to the file of the AO, so that assessment can be made de novo after order is passed by the Hon’ble High Court in Writ Appeal No.2249 of 2021. Moreover, according to the Ld.AR, the assessee didn’t get proper opportunity before the AO and cited the decision of the Hon’ble Supreme Court in the case of TIN Box Co. v. CIT reported in [2001] 249 ITR 216 (SC), he prayed that the assessment may be ordered to be framed de novo after decision of Hon’ble High Court (supra).
8. Per contra, the Ld.DR submitted that there is no necessity to give second innings to the assessee since the Ld.CIT(A) has passed detailed order by citing the Hon’ble High Court Single Bench decision (supra) in , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. :: 10 :: the assessee’s own case, he doesn’t want us to interfere with the order of the Ld.CIT(A).
9. Having heard both the parties, we are not repeating the facts noted supra for the sake of brevity. We note that the two addition made by AO is following the outcome of the BIFR order dated 14.01.2004, by virtue of which, the assessee filed revised return for AY 2003-04 and claimed carried forward losses in the case of M/s.UPSL which was taken over by the assessee company by rehabilitation-cum-merger scheme approved by the BIFR dated 14.01.2004. The AO in the first round of the assessment u/s.143(3) had accepted the claim of the assessee. However, based on further development as noted by us (supra) at paragraph No.5, the AO re-opened the assessment and has made the following two additions:
i) non-allowability of carry forward loss and unabsorbed depreciation of Ucal Power Systems Ltd., (the company) – Rs.1,25,32,085/- & ii) addition u/s.41(1)(b) of the Act Rs.4,11,40,145/- (net amount)
Though the assessee preferred Writ Petition before the Hon’ble Single Bench, which was finally dismissed and based on which, the Ld.CIT(A) has also decided the appeal against the assessee. However, it has been brought to our notice that the Hon’ble Single Bench Order dated 15.06.2021 has now been stayed and appeal admitted as noted supra. It was also brought to our notice that the AO during assessment , 1842 & 1843/Chny/2024 (AYs 2003-04, 2004-05 & 2006-07) M/s. Bharat Technologies – Auto Components Ltd. proceedings didn’t give proper opportunity to the assessee before making the above two additions and similar additions in other captioned appeals.
In such a scenario, relying on the decision of the Hon’ble Supreme Court in the case of TIN Box Co. v. CIT reported in [2001] 249 ITR 216 (SC), as well as considering the overall facts noted supra, we set aside the impugned order of the Ld.CIT(A) and restore the assessment back to the file of the AO with a direction to await the decision of the Hon’ble DB of Madras High Court in the assessee’s own case since it has bearing on the assessment, and thereafter, the AO to frame the assessment after giving proper opportunity to the assessee. The AO is at liberty to take appropriate steps before the Hon’ble Madras High Court for early disposal of the appeal preferred by assessee (supra), if they are advised to do so.
In the result, appeals filed by the assessee are allowed for statistical purposes.
Order pronounced on the 13th day of November, 2024, in Chennai.