Reference Is Made To The Judgement Of Thesupreme Court In The Case Of Commissioner Of Incometax And Others v. Mahindra And Mahindra And Others(144 Itr 225) That Considered A Challenge To Section72 A. The Following Paragraph From The Judgement Inmahindra's Case Has Been

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE R.MAHADEVANand THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD The Commissioner of Income Tax II,Coimbatore. M/s.Lakshmi Machine Works Ltd.,SRKV Post, Perianaickenpalayam,Coimbatore 641 020.PAN Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal'D' Bench, Chennai dated 08.06.2009 in ITA No.2159/Mds/2008 forthe assessment year 2004-05 preferred against the order of theCommissioner of Income Tax (Appeals)-I in ITA.No.88/08-09 dated11.09.2008 filed against the Assessment order of the AssistantCommissioner of Income Tax, Company Circle – IV(2), Coimbatoredated 08.07.2008 for the Assessment Year 2004-05. For Respondent :No appearance This tax case appeal has been filed by the appellant /Revenue, challenging the order dated 08.06.2009 passed by theIncome Tax Appellate Tribunal, 'D' Bench, Chennai, inI.T.A.No.2159/Mds/2008, relating to the assessment year 2004-05. https://hcservices.ecourts.gov.in/hcservices/ 2.By order dated 22.03.2010, this court admitted theaforesaid tax case appeal on the following substantial questionof law: “Whether the claim of carry forward lossesunder Section 72A of the Act, ought to have beenallowed, where necessary conditions have not beensatisfied?” 3.When the matter was taken up for consideration, thelearned counsel appearing for the appellant, referring to thejudgement dated 13.02.2019 passed by a Division Bench of thiscourt in T.C.A. No. 747 of 2009 in respect of the assessee's owncase relating to the assessment year 2004-05, submitted that theidentical question of law was raised in that case and the samewas decided in favour of the assessee and against the Revenue.The relevant passage of the said judgment is profitably,extracted below: “12. The SICA is a special enactment, thepurpose of which is rehabilitation and revival ofsick industries. The provisions of section 32(2)thereof read as under: '32. Effect of the Act on other laws.? - (1)....... (2)Where there has been under any scheme under thisAct an amalgamation of a sick industrial company withanother company, the provisions of Section 72-A ofthe Income Tax Act, 1961 (43 of 1961), shall, subjectto the modifications that the power of the CentralGovernment under that section may be exercised by theBoard without any recommendation, by the specifiedauthority referred to in that section, apply inrelation to such amalgamation as they apply inrelation to the amalgamation of a company owning anindustrial undertaking with another company.' 13. The provisions of Section 32(2) of the SICAas well as 72A of the Act and the interplay thereofcame to be considered by the Supreme Court in thecase of Indian Shaving Products Ltd (supra). TheBench was considering an appeal against an order ofthe Appellate Authority for Industrial and FinancialReconstruction upholding an order of the BIFRrefusing to grant the benefit of the provisions ofSection 71 (a) of the Income Tax Act to the appellantupon amalgamation and sanction of a scheme by theBIFR. 14. After noting that that BIFR had been enactedin public interest, with a view to secure timelydetection of sick and potentially sick companiesowning industrial undertakings and to determinepreventive, ameliorative, remedial and other measuresrequired to be taken with respect to such companies,the Bench considered the various provisions of theSICA, in specific Section 32(2). 15. Reference is made to the judgement of theSupreme Court in the case of Commissioner of IncomeTax and others vs. Mahindra and Mahindra and Others(144 ITR 225) that considered a challenge to Section72 A. The following paragraph from the judgement inMahindra's case has been particularly noted andextracted: 14. After noting that that BIFR had been enactedin public interest, with a view to secure timelydetection of sick and potentially sick companiesowning industrial undertakings and to determinepreventive, ameliorative, remedial and other measuresrequired to be taken with respect to such companies,the Bench considered the various provisions of theSICA, in specific Section 32(2). 15. Reference is made to the judgement of theSupreme Court in the case of Commissioner of IncomeTax and others vs. Mahindra and Mahindra and Others(144 ITR 225) that considered a challenge to Section72 A. The following paragraph from the judgement inMahindra's case has been particularly noted andextracted: 'Before undertaking a scrutiny of thesereasons for ultimately deciding whether theimpugned conclusion of the Specified Authorityand the Central Government is liable to beinterfered with or not it will be useful toindicate briefly the object with which this newprovision of s. 72A was introduced in the Act asit will throw light on what was the mischief orsituation that was intended to be remedied byits introduction as also the true concept offinancial Don- viability. From the budget speechof the Finance Minister, the Notes on Clauses ofthe Finance Bill (No. 2) of 1977 and theMemorandum explaining to provisions of the saidBill it will appear clear that sickness amongindustrial undertaking was regarded as a matterof grave national concern inasmuch as closure ofany sizable manufacturing unit in any industryentailed social costs in terms of loss ofproduction and unemployment as also waste ofvaluable capital assets, and experience hadshown that taking over of such sick units byGovernment was not always a satisfactory oreconomical solution; it was felt that a moreeffective method would be to facilitateamalgamation of sick industrial units with soundones by providing incentives and removingimpediments in the way of such amalgamationwhich would not merely relieve the Government ofuneconomical burden of taking over and runningsick units but save the Government from socialcosts in terms of loss of production andunemployment. With such objective in view, in order to facilitate the merger of sickindustrial units with sound ones and as and byway of offering an incentive in that behalf s.72A was introduced in the Act where under by adeeming fiction the accumulated loss orunabsorbed depreciation of the amalgamatingcompany is treated to be a loss or, as the casemay be, allowance for depreciation of theamalgamated company in the previous year inwhich the amalgamation was effected; but theamalgamated company, although a successor ininterest, would be entitled to carry forward andset-off the accumulated loss and unabsorbeddepreciation of the amalgamating company onlywhere the amalgamating company was not,immediatelybeforesuchamalgamation,financially viable and the amalgamation was inpublic interest. The expression “financial non-viability” had not been defined in the Act butthe Finance Minister's speech, the notes onClauses of the Bill and the Memorandumexplaining the provisions thereof make it clearthat the financial non-viability of anundertaking has been equated with the 'sickness'of such undertaking and obviously in the contextof its revival by a sound undertaking thesickness must be of a temporary character andnot any basic or permanent sickness. Anundertaking which is basically or potentiallynon-viable will ordinarily be incapable ofrevival and would face a closure; in otherwords, the financial non-viability spoken of bythe section must refer to sickness brought aboutby temporary adverse financial circumstancesthat disables the unit to stand and work on itsown. This is also made clear by the provisioncontained in cl. (a) of sub-s. (1) which statesthat the financial non-viability of theamalgamating company has to be judged byreference to “its liabilities, losses and otherrelevant facts.' 16. The above judgment was rendered prior tocoming into force of SICA in terms of which the BIFRwas constituted, in an era when sanction wasspecifically required to be given by the CentralGovernment upon recommendation of the SpecificOfficer thereunder. Thus, financial viability orotherwise, of the amalgamating company had to bedetermined first, in order to attract the provisions of Section 72A. However, after the enactment of theSICA and the Constitution of the BIFR, the questionof sickness or robust health of the entity is to bedetermined by the Board. It is only when the Boardwas satisfied that it would have, in the first place,entertained applications for revival, sanctioningappropriate schemes for rehabilitation. Thus, asanction by the BIFR implies that the requirements ofSection 72(2) of the Act have been met. 17. This provision, and the interplay thereofwith the provisions of the Income tax Act has beenconsidered by the Supreme Court in the case of IndianShaving Products (supra) where at paragraph 7 theBench holds as follows: of Section 72A. However, after the enactment of theSICA and the Constitution of the BIFR, the questionof sickness or robust health of the entity is to bedetermined by the Board. It is only when the Boardwas satisfied that it would have, in the first place,entertained applications for revival, sanctioningappropriate schemes for rehabilitation. Thus, asanction by the BIFR implies that the requirements ofSection 72(2) of the Act have been met. 17. This provision, and the interplay thereofwith the provisions of the Income tax Act has beenconsidered by the Supreme Court in the case of IndianShaving Products (supra) where at paragraph 7 theBench holds as follows: '7. Under Section 72 of the Income TaxAct, to give to the amalgamated Company thebenefit of the loss or, as the case may be,allowance for depreciation of the amalgamatingcompany for the previous year in which theamalgamation was effected for the purposes ofthe Income Tax Act, the Central Governmentmust, upon the recommendation of the specifiedauthority, be satisfied that the amalgamatingcompany was not, immediately before theamalgamation, financially viable by reason ofits liabilities, losses and other relevantfactors, and that the amalgamation was in thepublic interest, By reason of Section 32(2) ofthe said Act, where there has been under anyscheme thereunder an amalgamation of a sickindustrial company with another company, theprovisions of Section 72A of the Income Tax Actshall apply in relation to such amalgamation,subject to this modification that the power ofthe Central Government is to be exercised bythe BIFR without the necessity of arecommendation by the specified authoritymentioned in Section 72A of the Income Tax Act.This is because, for the purposes of accordingsanction to a scheme of amalgamation of a sickindustrial undertaking with any other companyunder Section 18 of the said Act, the BIFR hasto be satisfied that the amalgamating companyis not financially viable, which is the effectof Section 3(o) of the said Act, and that theamalgamation is necessary or expedient in thepublic interest, which is the effectof Sections 17 and 18 of the said Act read together. Sanction of a scheme of amalgamationunder Section 18 of the said Act necessarilyimplies that the requirements of Section 72A ofthe Income Tax Act have been met and the BIFRmust exercise the power conferred upon itby Section 32(2} of the said Act and make thedeclaration contemplated by Section 72A of theIncome Tax Act, The conditions for sanctioninga scheme under Section 18 of the said Act beingthe same as those required for a declarationunder Section 72A of the Income Tax Act, theBIFR could not have sanctioned the scheme ofamalgamation of Sharp Edge with the appellantbut declined to make the declarationunder Section 72A of the Income Tax Act withregard to that amalgamation' (underlining for emphasis, ours) 18. Nothing further remains to be said in thelight of the categoric conclusion of the SupremeCourt emphasised above. The view taken by theAssessing Authority to the effect that the claim ofthe assessee is liable to be allowed in the light ofthe provisions of section 32(2) of the SICA and itsinterpretation by the Supreme Court is thus, thecorrect one. (underlining for emphasis, ours) 18. Nothing further remains to be said in thelight of the categoric conclusion of the SupremeCourt emphasised above. The view taken by theAssessing Authority to the effect that the claim ofthe assessee is liable to be allowed in the light ofthe provisions of section 32(2) of the SICA and itsinterpretation by the Supreme Court is thus, thecorrect one. 19. The jurisdiction exercised by the CIT tocorrect the alleged error in assessment was in termsof section 263 of the Act. Section 263 empowers theCommissioner of Income tax to revise an order ofassessment if the order in question is erroneous andprejudicial to the interests of the revenue, bothconditions to be satisfied concurrently. The actionof the assessing officer, though prejudicial, canhardly be termed as 'erroneous' in so far as theofficer has followed the dictum laid down by theSupreme Court in the case of Indian Shaving products(supra). Thus, in the absence of concurrentsatisfaction of the two conditions under section 263of the Act, the action of the CIT was contrary tostatute and liable to be set aside. 20. In the light of the aforesaid discussion,the appeal filed by the Revenue is dismissed. Thesubstantial question of law is answered in favour ofthe assessee and against the Revenue. No costs.” 4.In addition, the learned counsel for the appellant /Revenue submitted that the Special Leave Petition in S.L.P.(Civil) No.16117 of 2020 filed by the Revenue against thesimilar judgment dated 28.01.2020 passed in TCA No.1199 of 2010,was also dismissed by the Supreme Court on 22.11.2021. 5.Following the aforesaid decision, the substantialquestion of law raised in this appeal is answered in favour ofthe assessee and against the Revenue. Accordingly, the presenttax case appeal filed by the Revenue, stands dismissed. Nocosts. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar vkr To 1. The Commissioner of Income Tax II, Coimbatore.2. The Income Tax Appellate Tribunal 'D' Bench, Chennai.3. The Assistant Commissioner of Income Tax, Company Circle – IV(2), Coimbatore. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.11353 T.C.A.No. 254 of 2010 RSI[co]NSK 08/03/2022