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TMI Blog2019 (2) TMI 1780X X X X Extracts X X X X X X X X Extracts X X X X ..... cific 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;). 4. Textool had approached the BIFR seeking a scheme of re-construction of its business in pursuance of section 17(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short 'SICA'). A rehabilitation proposal had been prepared and submitted, that involved amalgamation of Textool with the assessee before us. The details of the scheme are adverted to only in so far as they relate to the issue raised for our resolution. The proposal included the vesting of two spinning units of Textool with the assessee. After a detailed consideration of the rehabilitation proposal, the BIFR sanctioned the same on 22.10.2003. The provisions of Section 72A of the Act relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or demerger were also noted by the BIFR in its sanction order. The relevant portions of the order are extracted below: '6.0 MERGER/REHABILITATION PROPOSAL The present rehabilitation scheme has been prepared based on the proposal submitted by the company involving merger of TCL with LMW. LMW has made cash accruals of ₹ 5337 lacs on a total income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer does refer to the provisions of section 32(2) of the SICA and the judgment of the Supreme Court in Indian Shaving Products Ltd (supra). 8. Thereafter, the CIT, being of the view that there had been no application of mind by the Assessing Authority while allowing the assessees' claim and no reasons in support thereof, proposed a revision of the order of assessment and the allowance of the claim under section 263 of the Act. Despite objections put forth by the assessee, the assessment came to be revised by order dated 15.04.2008 passed by the CIT under section 263 of the Act. 9. As against the same, the assessee filed an appeal before the Tribunal that held the issue in favour of the assessee. The Tribunal took a cue from the rationale of Circulars Nos.523 dated 05.10.1988 and 576 dated 31.08.1990 by virtue of which the impact of the provisions of Sections 41(1) and 139(3) of the Act relating to cessation of liability and return of loss that enabled an assessee to claim carry forward of losses under section 80 of the Act, was minimised in cases where the BIFR had sanctioned a scheme of rehabilitation. The Circulars provided that in such circumstances, the Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Bench considered the various provisions of the SICA, in specific Section 32(2). 15. Reference is made to the judgement of the Supreme Court in the case of Commissioner of Income Tax and others vs. Mahindra and Mahindra and Others (144 ITR 225) that considered a challenge to Section 72 A. The following paragraph from the judgement in Mahindra s case has been particularly noted and extracted: Before undertaking a scrutiny of these reasons for ultimately deciding whether the impugned conclusion of the Specified Authority and the Central Government is liable to be interfered with or not it will be useful to indicate briefly the object with which this new provision of s. 72A was introduced in the Act as it will throw light on what was the mischief or situation that was intended to be remedied by its introduction as also the true concept of financial Don- viability. From the budget speech of the Finance Minister, the Notes on Clauses of the Finance Bill (No. 2) of 1977 and the Memorandum explaining to provisions of the said Bill it will appear clear that sickness among industrial undertaking was regarded as a matter of grave national concern inasmuch as closure of any si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-viability of the amalgamating company has to be judged by reference to its liabilities, losses and other relevant facts . 16. The above judgment was rendered prior to coming into force of SICA in terms of which the BIFR was constituted, in an era when sanction was specifically required to be given by the Central Government upon recommendation of the Specific Officer thereunder. Thus, 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. 17. 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) where at paragraph 7 the Bench holds as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic 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. 19. 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. 20. In the light of the aforesaid discussion, the appeal filed by the Revenue is dismissed. The substantial question of law is answered in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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