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 DATED : 21.03.2022 CORAM : THE HONOURABLE MR.JUSTICE R.MAHADEVANAND THE HONOURABLE MR.JUSTICE J.SATHYA NARAYANA PRASAD TCA.NO.233 OF 2012 M/s.Lakshmi Machine Works Ltd.,Perianaickenpalayam, Coimbatore - 641 020. ... Appellant The Additional Commissioner of Income Tax, Range - IV, Coimbatore. ... Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,“D” Bench, Chennai, dated 19.09.2011 in I.TA.No.1164/Mds/2009,as against the order of the Commissioner of Income Tax(Appeals)– I, Coimbatore, made in Appeal No.310/08-09 dated16.06.2009 and as against the order of the AdditionalCommissioner of Income Tax made in PAN No.AAACLK5244N dated30.12.2008 for the Assessment Year 2006 – 2007. JUDGMENT This tax case appeal has been filed by the appellant /assessee, challenging the order dated 19.09.2011 passed by theIncome Tax Appellate Tribunal, 'D' Bench, Chennai, inI.TA.No.1164/Mds/2009, relating to the assessment year 2006-2007. https://hcservices.ecourts.gov.in/hcservices/ 2. By order dated 21.08.2012, this court admitted theaforesaid tax case appeal on the following substantial questionsof law: “(i) Whether on the facts and in the circumstancesof the case, the Tribunal was right in law in holdingthat the appellant is not entitled for set off of losspertaining to assessment year 2003-04 of the Companymerged with it as per the Scheme formulated andsanctioned by BIFR and approved by AAIFR? (ii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in law in notpermitting the set off of loss when the Nodal Authority/ Director General of Income Tax has conveyed itsapproval for grant of reliefs and concessions undersection 139(3) and 79 read with 72A of the Income TaxAct besides waiver of interest, penal interest,penalties etc. under Income Tax Act?" 3.When the matter was taken up for consideration, thelearned counsel for the appellant / assessee as well as therespondent / Revenue jointly, referring to the judgement dated13.02.2019 passed by a Division Bench of this court in T.C.A.No. 747 of 2009 in respect of the assessee's own case relatingto the assessment year 2004-05, submitted that the identicalquestion of law was raised in that case and the same was decidedin favour of the assessee and against the Revenue. The relevantpassage of the said judgment is profitably, extracted below: “12. The SICA is a special enactment, the purposeof which is rehabilitation and revival of sickindustries. The provisions of section 32(2) thereofread 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 of theIncome Tax Act, 1961 (43 of 1961), shall, subject tothe 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 SICA aswell as 72A of the Act and the interplay thereof cameto be considered by the Supreme Court in the case ofIndian Shaving Products Ltd (supra). The Bench wasconsidering an appeal against an order of theAppellate Authority for Industrial and FinancialReconstruction upholding an order of the BIFR refusingto grant the benefit of the provisions of Section 71(a) of the Income Tax Act to the appellant uponamalgamation and sanction of a scheme by the BIFR. 13. The provisions of Section 32(2) of the SICA aswell as 72A of the Act and the interplay thereof cameto be considered by the Supreme Court in the case ofIndian Shaving Products Ltd (supra). The Bench wasconsidering an appeal against an order of theAppellate Authority for Industrial and FinancialReconstruction upholding an order of the BIFR refusingto grant the benefit of the provisions of Section 71(a) of the Income Tax Act to the appellant uponamalgamation and sanction of a scheme by the BIFR. 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 SpecifiedAuthority and the Central Government isliable to be interfered with or not it willbe useful to indicate briefly the objectwith which this new provision of s. 72A wasintroduced in the Act as it will throw lighton what was the mischief or situation thatwas intended to be remedied by itsintroduction as also the true concept offinancial Non- viability. From the budgetspeech of the Finance Minister, the Notes onClauses of the Finance Bill (No. 2) of 1977and the Memorandum explaining to provisionsof the said Bill it will appear clear thatsickness among industrial undertaking wasregarded as a matter of grave nationalconcern inasmuch as closure of any sizablemanufacturing unit in any industry entailedsocial costs in terms of loss of production and unemployment as also waste of valuablecapital assets, and experience had shownthat 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 withsound ones by providing incentives andremoving impediments in the way of suchamalgamation which would not merely relievethe Government of uneconomical burden oftaking over and running sick units but savethe Government from social costs in terms ofloss of production and unemployment. Withsuch objective in view, in order tofacilitate the merger of sick industrialunits with sound ones and as and by way ofoffering an incentive in that behalf s. 72Awas 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 thecase may be, allowance for depreciation ofthe amalgamated company in the previous yearin which the amalgamation was effected; butthe amalgamated company, although asuccessor in interest, would be entitled tocarry forward and set-off the accumulatedloss and unabsorbed depreciation of theamalgamating company only where theamalgamating company was not, immediatelybefore such amalgamation, financially viableand the amalgamation was in public interest.The expression “financial non-viability” hadnot been defined in the Act but the FinanceMinister's speech, the notes on Clauses ofthe Bill and the Memorandum explaining theprovisions thereof make it clear that thefinancial non-viability of an undertakinghas been equated with the 'sickness' of suchundertaking and obviously in the context ofits revival by a sound undertaking thesickness must be of a temporary characterand not any basic or permanent sickness. Anundertakingwhichisbasicallyorpotentially non-viable will ordinarily beincapable of revival and would face aclosure; in other words, the financial non-viability spoken of by the section must refer to sickness brought about by temporaryadversefinancialcircumstancesthatdisables the unit to stand and work on itsown. This is also made clear by theprovision contained in cl. (a) of sub-s. (1)which states that the financial non-viability of the amalgamating company has tobe judged by reference to “its liabilities,losses and other relevant 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 Specific Officerthereunder. Thus, financial viability or otherwise, ofthe amalgamating company had to be determined first,in order to attract the provisions of Section 72A.However, after the enactment of the SICA and theConstitution of the BIFR, the question of sickness orrobust health of the entity is to be determined by theBoard. It is only when the Board was satisfied that itwould have, in the first place, entertainedapplications for revival, sanctioning appropriateschemes for rehabilitation. Thus, a sanction by theBIFR implies that the requirements of Section 72(2) ofthe Act have been met. 17. This provision, and the interplay thereof withthe 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: 17. This provision, and the interplay thereof withthe 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,allowancefordepreciationoftheamalgamating company for the previous yearin which the amalgamation was effected forthe purposes of the Income Tax Act, theCentralGovernmentmust,upontherecommendation of the specified authority,be satisfied that the amalgamating companywasnot,immediatelybeforetheamalgamation, financially viable by reasonof its liabilities, losses and otherrelevant factors, and that the amalgamationwas in the public interest, By reason of Section 32(2) of the said Act, wherethere has been under any scheme thereunderan amalgamation of a sick industrial companywith another company, the provisionsof Section 72A of the Income Tax Act shallapply in relation to such amalgamation,subject to this modification that the powerof the Central Government is to be exercisedby the BIFR without the necessity of arecommendation by the specified authoritymentioned in Section 72A of the Income TaxAct. This is because, for the purposes ofaccording sanction to a scheme ofamalgamationofasickindustrialundertakingwithanyothercompanyunder Section 18 of the said Act, the BIFRhas to be satisfied that the amalgamatingcompany is not financially viable, which isthe effect of Section 3(o) of the said Act,and that the amalgamation is necessary orexpedient in the public interest, which isthe effect of Sections 17 and 18 of the saidAct read together. Sanction of a scheme ofamalgamation under Section 18 of the saidActnecessarilyimpliesthattherequirements of Section 72A of the IncomeTax Act have been met and the BIFR mustexercise the power conferred upon itby Section 32(2} of the said Act and makethe declaration contemplated by Section72A of the Income Tax Act, The conditionsfor sanctioning a scheme under Section 18 ofthe said Act being the same as thoserequired for a declaration under Section72A of the Income Tax Act, the BIFR couldnot have sanctioned the scheme ofamalgamation of Sharp Edge with theappellant but declined to make thedeclaration under Section 72A of the IncomeTax Act with regard to that amalgamation'(underlining for emphasis, ours) 18. Nothing further remains to be said in thelight of the categoric conclusion of the Supreme Courtemphasised above. The view taken by the AssessingAuthority to the effect that the claim of the assesseeis liable to be allowed in the light of the provisionsof section 32(2) of the SICA and its interpretation bythe Supreme Court is thus, the correct one. https://hcservices.ecourts.gov.in/hcservices/ 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 action ofthe assessing officer, though prejudicial, can hardlybe termed as 'erroneous' in so far as the officer hasfollowed the dictum laid down by the Supreme Court inthe case of Indian Shaving products (supra). Thus, inthe absence of concurrent satisfaction of the twoconditions under section 263 of the Act, the action ofthe CIT was contrary to statute and liable to be setaside. 20. In the light of the aforesaid discussion, theappeal filed by the Revenue is dismissed. Thesubstantial question of law is answered in favour ofthe assessee and against the Revenue. No costs.” 20. In the light of the aforesaid discussion, theappeal 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 respondent /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 substantialquestions of law raised in this appeal are answered in favour ofthe assessee and against the Revenue. Accordingly, the presenttax case appeal filed by the assessee, stands allowed. No costs. Sd/- Assistant Registrar(CS-IX) //True Copy// Sub Assistant Registrar av To 1. The Income Tax Appellate Tribunal, “D” Bench, Chennai, “D” Bench, Chennai, 2. The Additional Commissioner of Income Tax, Range - IV, Coimbatore. Range - IV, Coimbatore. 3. The Commissioner of Income Tax (Appeals) - I, Coimbatore. +1cc to M/s.Subbaraya Aiyar, Advocate, S.R.No.19013 +1cc to Mr.M.Swaminathan, Advocate, S.R.No.19011 TCA.No.233 of 2012 SPD(CO)RLP(07/04/2022)