2019 (2) TMI 1780 - HC - Income Tax

Revision u/s 263 - AO allowed the claim of carried forward of losses u/s 72A based on an incorrect assumption of facts - HELD THAT - The provisions of Section 32(2) of the SICA as well as 72A of the Act and the interplay thereof came to be considered by the Supreme Court in the case of Indian Shaving Products Ltd 1996 (1) TMI 375 - SUPREME COURT . The Bench was considering an appeal against an order of the Appellate Authority for Industrial and Financial Reconstruction upholding an order of the BIFR refusing to grant the benefit of the provisions of Section 71 (a) of the Income Tax Act to the appellant upon amalgamation and sanction of a scheme by the BIFR. After noting that that BIFR had been enacted in public interest, with a view to secure timely detection of sick and potentially sick companies owning industrial undertakings and to determine preventive, ameliorative, remedial and other measures required to be taken with respect to such companies, the Bench considered the various provisions of the SICA, in specific Section 32(2) Financial viability or otherwise, of the amalgamating company had to be determined first, in order to attract the provisions of Section 72A. However, after the enactment of the SICA and the Constitution of the BIFR, the question of sickness or robust health of the entity is to be determined by the Board. It is only when the Board was satisfied that it would have, in the first place, entertained applications for revival, sanctioning appropriate schemes for rehabilitation. Thus, a sanction by the BIFR implies that the requirements of Section 72(2) of the Act have been met. This provision, and the interplay thereof with the provisions of the Income tax Act has been considered by the Supreme Court in the case of Indian Shaving Products (supra) Nothing further remains to be said in the light of the categoric conclusion of the Supreme Court emphasised above. The view taken by the Assessing Authority to the effect that the claim of the assessee is liable to be allowed in the light of the provisions of section 32(2) of the SICA and its interpretation by the Supreme Court is thus, the correct one. The jurisdiction exercised by the CIT to correct the alleged error in assessment was in terms of section 263 of the Act. Section 263 empowers the Commissioner of Income tax to revise an order of assessment if the order in question is erroneous and prejudicial to the interests of the revenue, both conditions to be satisfied concurrently. The action of the assessing officer, though prejudicial, can hardly be termed as erroneous in so far as the officer has followed the dictum laid down by the Supreme Court in the case of Indian Shaving products (supra). Thus, in the absence of concurrent satisfaction of the two conditions under section 263 of the Act, the action of the CIT was contrary to statute and liable to be set aside. - Decided against revenue

Summary

Issues Involved:
1. Validity of the Income Tax Appellate Tribunal's quashing of the order under section 263 of the Income Tax Act, 1961.
2. Applicability of section 72A of the Income Tax Act in light of a scheme sanctioned by the Board for Industrial and Financial Reconstruction (BIFR).

Detailed Analysis:

1. Validity of the Income Tax Appellate Tribunal's Quashing of the Order under Section 263 of the Income Tax Act, 1961:

The Commissioner of Income Tax (CIT) challenged an order by the Income Tax Appellate Tribunal (Tribunal) that quashed an earlier order passed under section 263 of the Income Tax Act, 1961. The Tribunal had allowed the assessee's appeal against the CIT's revision of the assessment order dated 22.08.2006, which initially allowed the assessee's claim for the set-off of carried forward losses amounting to ?128,19,50,761/-. The CIT contended that the Assessing Officer had allowed the claim based on an incorrect assumption of facts without proper application of mind. However, the Tribunal held that the BIFR's sanction of the scheme was sufficient for the assessee to claim the carry forward of losses, and no further compliance with section 72A was required.

2. Applicability of Section 72A of the Income Tax Act in Light of a Scheme Sanctioned by the Board for Industrial and Financial Reconstruction (BIFR):

The case revolved around the applicability of section 72A of the Income Tax Act, which deals with the carry forward and set-off of accumulated loss and unabsorbed depreciation in cases of amalgamation or demerger. The assessee argued that the scheme sanctioned by the BIFR, which included the amalgamation of Textool Company Limited (Textool) with the assessee, inherently satisfied the conditions of section 72A. The BIFR's order dated 22.10.2003 noted the provisions of section 72A, and the assessee contended that no separate satisfaction of the conditions under section 72A was required.

The Tribunal supported this view, referencing Circulars Nos. 523 and 576, which minimized the impact of statutory provisions in cases where the BIFR had sanctioned a rehabilitation scheme. The Tribunal concluded that the BIFR's sanction implied compliance with section 72A, thus overriding the need for further compliance.

Judgment Analysis:

The High Court upheld the Tribunal's decision, emphasizing the special nature of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and its provisions, particularly section 32(2), which modifies the application of section 72A of the Income Tax Act in cases of amalgamation sanctioned by the BIFR. The court referenced the Supreme Court's judgment in Indian Shaving Products Ltd. v. BIFR, which clarified that the BIFR's sanction of a scheme implies that the requirements of section 72A are met. The court noted that the Assessing Officer's decision was in line with this interpretation and thus not erroneous.

The CIT's jurisdiction under section 263 to revise the assessment order was contingent upon the order being both erroneous and prejudicial to the interests of the revenue. The court found that the Assessing Officer's action, though potentially prejudicial, was not erroneous as it adhered to the Supreme Court's dictum. Consequently, the CIT's revision was deemed contrary to statute and set aside.

Conclusion:

The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision. The substantial question of law was answered in favor of the assessee, confirming that the BIFR's sanction of the scheme sufficed for the purposes of section 72A, and the CIT's revision under section 263 was unjustified. No costs were awarded.