32. CIT
vs. Lakshmi Machine Works Ltd. [2020]
422 ITR 235 (Mad.) Date
of order: 13th February, 2019 A.Y.:
2004-05
Loss –
Set-off of – Sections 72(2), 72A and 263 of ITA, 1961 and sections 18 and 32(2)
of SICA, 1985 – Amalgamation of companies – Provision for carry forward by
amalgamated company of accumulated loss and unabsorbed depreciation of
amalgamating company – Sick industrial company – Sanction of scheme by Board
for Industrial and Financial Reconstruction implies that requirements of
section 72(2) satisfied; A.Y. 2004-05
Two spinning
units of a company amalgamated with the assessee under a rehabilitation scheme
under the Sick Industrial Companies (Special Provisions) Act, 1985 by an order
of sanction by the Board for Industrial and Financial Reconstruction. The
assessee claimed the carried forward loss u/s 72A of the Income-tax Act, 1961
in its return. The A.O. issued notices under sections 142(1) and 143(2) of the
1961 Act and required the assessee to show compliance with the conditions laid
down u/s 72A. The assessee submitted that it was entitled to the claim for
carry forward of loss u/s 72A by virtue of the scheme having been sanctioned by
the Board for Industrial and Financial Reconstruction which took into account the
provisions of that section as well. The A.O. agreed with the view of the
assessee and allowed the claim in his order u/s 143(3). But the Commissioner
was of the view that there was no application of mind by the A.O. while he
allowed the claim made by the assessee u/s 72A and that there were no reasons
in support thereof. Accordingly, he passed a revision order u/s 263 of the 1961
Act.
The Tribunal
held that the very fact that the Board for Industrial and Financial
Reconstruction had sanctioned the scheme was sufficient and no further
compliance was called for in regard to the conditions set out u/s 72A as the
provisions of the 1985 Act overrode those of the 1961 Act, and confirmed the
order of the A.O. allowing the claim of the assessee for the carry forward of
loss. Accordingly, the Tribunal set aside the order of the Commissioner passed
u/s 263.
On appeal by
the Revenue, the Madras High Court upheld the decision of the Tribunal and held
as under:
‘i) The financial viability or otherwise of the
amalgamating company has to be determined first in order to attract the
provisions of section 72A of the Income-tax Act, 1961. After the enactment of
the Sick Industrial Companies (Special Provisions) Act, 1985 and the
constitution of the Board for Industrial and Financial Reconstruction, the
question of sickness or robust health of the entity is to be determined by the
Board. It is only when the Board is satisfied that it would have entertained
applications for revival, sanctioning an appropriate scheme for rehabilitation.
Thus, a sanction by the Board for the scheme of amalgamation implies that the
requirements of section 72A have been met.
ii) The view taken by the A.O. to the effect that
the claim of the assessee u/s 72A of the 1961 Act was liable to be allowed in
the light of the provisions of section 32(2) of the 1985 Act and its
interpretation by the Supreme Court was the correct one. Section 263 of the
1961 Act empowered the Commissioner to revise an order of assessment if it was
erroneous or prejudicial to the interests of the Revenue. Both conditions were
to be satisfied concurrently. The action of the A.O. though prejudicial, could
hardly be termed “erroneous” insofar as the A.O. had followed the dictum laid
down by the Supreme Court in the case of Indian Shaving Products Ltd. vs.
BIFR [1996] 218 ITR 140 (SC). Thus, in the absence of concurrent
satisfaction of the two conditions u/s 263 of the 1961 Act, the action of the
Commissioner was contrary to the statute and was therefore to be set aside.
iii) The appeal filed by the Revenue is dismissed.
The substantial question of law is answered in favour of the assessee and
against the Revenue.’
