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2020 (2) TMI 96 - HC - Income TaxRevision u/s 263 - AO allowed the claim of carried forward of losses u/s 72A, based on an incorrect assumption of facts - HELD THAT - In the case of The Commissioner of Income Tax-II Vs. Lakshmi Machine Works Ltd., Coimbatore 2019 (2) TMI 1780 - MADRAS HIGH COURT for purposes of according sanction to a scheme of amalgamation of a sick industrial undertaking with any other company under Section 18 of the said Act, the BIFR has to be satisfied that the amalgamating company is not financially viable, which is the effect of Section 3(o) of the said Act, and that the amalgamation is necessary or expedient in the public interest, which is the effect of Sections 17 and 18 of the said Act read together. Sanction of a scheme of amalgamation under Section 18 of the said Act necessarily implies that the requirements of Section 72A of the Income Tax Act have been met and the BIFR must exercise the power conferred upon it by Section 3 2 ( 2 of the said Act and make the declaration contemplated by Section 72A o f the Income Tax Act, The conditions for sanctioning a scheme under Section 18 of the said Act being the same as those required for a declaration under Section 72A of the Income Tax Act, the BIFR could not have sanctioned the scheme of amalgamation of Sharp Edge with the appellant but declined to make the declaration under Section 72A o f the Income Tax Act with regard to t hat amalgamation' (underlining for emphasis, ours) 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. 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 ( 1996 (1) TMI 375 - SUPREME COURT ) . Additional depreciation of the Wind Mill - HELD THAT - As decided in case of Commissioner of Income Tax V. VTM Limited 2009 (9) TMI 35 - MADRAS HIGH COURT what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in Section 32(1)(iia) of the Act. - Decided against the Revenue and in favour of the Assessee.
Issues Involved:
1. Validity of the Income Tax Appellate Tribunal's decision to quash the order under Section 263 of the Income Tax Act, 1961. 2. Jurisdiction of the Commissioner of Income-tax regarding additional depreciation on Wind Mills. 3. Entitlement of the assessee to additional depreciation on the purchase of Wind Mills under Section 32(1)(iia) of the Income-tax Act, 1961. Detailed Analysis: 1. Validity of the Income Tax Appellate Tribunal's Decision to Quash the Order Under Section 263 of the Income Tax Act, 1961: The Revenue challenged the ITAT's decision to quash the order passed under Section 263 of the Income Tax Act, 1961. The court referred to the case of The Commissioner of Income Tax-II Vs. Lakshmi Machine Works Ltd., Coimbatore, where it was established that the provisions of Section 32(2) of the SICA and Section 72A of the Act were considered by the Supreme Court in Indian Shaving Products Ltd. The Supreme Court noted that the BIFR's sanction of a scheme of amalgamation implies that the requirements of Section 72A of the Income Tax Act have been met. The court concluded that the Assessing Officer's action, though prejudicial, was not erroneous since it followed the Supreme Court's dictum in Indian Shaving Products. Therefore, the jurisdiction exercised by the CIT under Section 263 was not justified. Consequently, Question No.1 was answered against the Revenue and in favor of the Assessee. 2. Jurisdiction of the Commissioner of Income-tax Regarding Additional Depreciation on Wind Mills: The court examined whether the Commissioner of Income-tax had the jurisdiction to issue directions regarding additional depreciation on Wind Mills without a specific show cause notice. It was noted that the ITAT held the Commissioner lacked jurisdiction as the issue was not included in the show cause notice. The court affirmed this view, indicating that the direction given by the Commissioner was void due to lack of jurisdiction. This was consistent with the principle that jurisdictional defects cannot be cured by subsequent actions or replies from the assessee. 3. Entitlement of the Assessee to Additional Depreciation on the Purchase of Wind Mills Under Section 32(1)(iia) of the Income-tax Act, 1961: The court addressed whether the assessee was entitled to additional depreciation on Wind Mills under Section 32(1)(iia) despite not being primarily engaged in producing or generating electricity. Referring to previous judgments, including Commissioner of Income Tax V. VTM Limited, the court clarified that the additional depreciation provision does not require the new machinery or plant to have operational connectivity to the existing business. The court emphasized that the requirement is merely the acquisition and installation of new machinery or plant after 31st March 2002 by an assessee engaged in manufacturing or production. Therefore, the assessee's entitlement to additional depreciation was upheld, and Questions No.2 and 3 were answered against the Revenue and in favor of the Assessee. Conclusion: The appeal filed by the Revenue was disposed of, with all questions answered against the Revenue and in favor of the Assessee. The court upheld the ITAT's decision to quash the order under Section 263, affirmed the lack of jurisdiction of the Commissioner regarding additional depreciation on Wind Mills, and confirmed the assessee's entitlement to additional depreciation under Section 32(1)(iia). The appeal was dismissed with no order as to costs.
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