The Commissioner Of Income Tax-Iicoimbatore v. M/S.lakshmi Machine Works Ltd.,Perianaickenpalayam,Coimbatore - 641 020

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.01.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.1199 of 2010 The Commissioner of Income Tax-IICoimbatore. ... Appellant/ Respondent Vs. M/s.Lakshmi Machine Works Ltd.,Perianaickenpalayam,Coimbatore - 641 020.PAN ... Respondent/ Appellant Appeal filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal'C'Bench,Chennaidated04.06.2010passedinI.T.A.No.1926/Mds/2008 Appeal Against the order dated09.06.2008 made in C.NO.220(1)/08-09/CIT-II/CBE passed by theCommissioner of Income Tax Appeals II, Coimbatore against theorder dated 09.11.2006 made in PAN Passed by theAssistant commissioner of Income Tax Company Circle IV(2),Coimbatore. For Appellant : Mr.T.R.Senthil Kumar Senior Standing Counsel For Respondent : Mr.Venkat Narayanan For Subbaraya Aiyar Padmanabhan JUDGMENT (Judgment of the Court was delivered by DR.VINEET KOTHARI, J.)The Revenue has preferred this Appeal under Section 260Aof the Income Tax Act, 1961 (in short 'Act') aggrieved by the https://hcservices.ecourts.gov.in/hcservices/ order of the learned Income Tax Appellate Tribunal dated04.06.2010 for Assessment year 2005-06. The followingquestions of law were admitted by the Coordinate Bench of thisCourt vide order dated 01.02.2011: "1.Whether on the facts and in thecircumstances of the case, the Income-tax AppellateTribunal was right in law in quashing the orderpassed under section 263 of the Income Tax Act,1961, even though the Assessing Officer is allowedthe claim of carried forward of losses under section72A, based on an incorrect assumption of facts isvalid? 2.Whether on the facts and in the circumstancesof the case, the Income-tax Appellate Tribunal wasright in law in holding that the Commissioner ofIncome-tax has not given show cause notice inrespect of the issue of additional depreciation onWind Mill and consequently the direction given bythe Commissioner of Income-tax on this issue is voidon account of lack of jurisdiction, even though theassessee furnishing his reply to show cause notice,has included in respect of additional depreciationon Wind Mills? and 3.Whether on the facts and in the circumstancesof the case, the Income-tax Appellate Tribunal wasright in law in holding that the assessee isentitled to additional depreciation on the purchaseof Wind Mills under Section 32(1)(iia) of theIncome-tax Act, 1961 even though the main businessof the assessee is not producing or generating ofelectricity?" 2.Both the learned counsels fairly submitted that boththe issues viz., powers under Section 263 of the Act andadditional depreciation of the Wind Mill are now covered bytwo separate judgments of this Court against the Revenue.In the case of The Commissioner of Income Tax-II Vs.Lakshmi Machine Works Ltd., Coimbatore [in T.C.A.No.747 of2009 dated 13.02.2019] wherein a Coordinate Bench of thisCourt (in which one of us, Dr.Vineet Kothari, J. was a Member]held as under: "13. The provisions of Section 32(2) of theSICA as well as 72A of the Act and the interplaythereof came to be considered by the Supreme Courtin the case of Indian Shaving Products Ltd (supra).The Bench was considering an appeal against an orderof the Appellate Authority for Industrial andFinancial Reconstruction upholding an order of theBIFR refusing to grant the benefit of the provisionsof Section 71 (a) of the Income Tax Act to the https://hcservices.ecourts.gov.in/hcservices/ appellant upon amalgamation and sanction of a schemeby the BIFR. "13. The provisions of Section 32(2) of theSICA as well as 72A of the Act and the interplaythereof came to be considered by the Supreme Courtin the case of Indian Shaving Products Ltd (supra).The Bench was considering an appeal against an orderof the Appellate Authority for Industrial andFinancial Reconstruction upholding an order of theBIFR refusing to grant the benefit of the provisionsof Section 71 (a) of the Income Tax Act to the https://hcservices.ecourts.gov.in/hcservices/ appellant upon amalgamation and sanction of a schemeby the BIFR. 14. After noting that that BIFR had beenenacted in public interest, with a view to securetimely detection of sick and potentially sickcompanies owning industrial undertakings and todetermine preventive, ameliorative, remedial andother measures required to be taken with respect tosuch companies, the Bench considered the variousprovisions of the SICA, 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 these reasons forultimately deciding whether the impugned conclusionof the Specified Authority and the CentralGovernment is liable to be interfered with or not itwill be useful to indicate briefly the object withwhich this new provision of s. 72A was introduced inthe Act as it will throw light on what was themischief or situation that was intended to beremedied by its introduction as also the trueconcept of financial Don- viability. From the budgetspeech of the Finance Minister, the Notes on Clausesof the Finance Bill (No. 2) of 1977 and theMemorandum explaining to provisions of the said Billit will appear clear that sickness among industrialundertaking was regarded as a matter of gravenational concern inasmuch as closure of any sizablemanufacturing unit in any industry entailed socialcosts in terms of loss of production andunemployment as also waste of valuable capitalassets, and experience had shown that taking over ofsuch sick units by Government was not always asatisfactory or economical solution; it was feltthat a more effective method would be to facilitateamalgamation of sick industrial units with soundones by providing incentives and removingimpediments in the way of such amalgamation whichwould not merely relieve the Government ofuneconomical burden of taking over and running sickunits but save the Government from social costs interms of loss of production and unemployment. Withsuch objective in view, in order to facilitate themerger of sick industrial units with sound ones andas and by way of offering an incentive in that behalf s. 72A was introduced in the Act where underby a deeming fiction the accumulated loss orunabsorbed depreciation of the amalgamating companyis treated to be a loss or, as the case may be,allowance for depreciation of the amalgamatedcompany in the previous year in which theamalgamation was effected; but the amalgamatedcompany, although a successor in interest, would beentitled to carry forward and set-off theaccumulated loss and unabsorbed depreciation of theamalgamating company only where the amalgamatingcompany was not, immediately before suchamalgamation,financiallyviableandtheamalgamation was in public interest. The expression"financial non-viability" had not been defined inthe Act but the Finance Minister's speech, the noteson Clauses of the Bill and the Memorandum explainingthe provisions thereof make it clear that thefinancial non-viability of an undertaking has beenequated with the 'sickness' of such undertaking andobviously in the context of its revival by a soundundertaking the sickness must be of a temporarycharacter and not any basic or permanent sickness.An undertaking which is basically or potentiallynon-viable will ordinarily be incapable of revivaland would face a closure; in other words, thefinancial non-viability spoken of by the sectionmust refer to sickness brought about by temporaryadverse financial circumstances that disables theunit to stand and work on its own. This is also madeclear by the provision contained in cl. (a) of sub-s. (1) which states that the financial non-viabilityof the amalgamating 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 theBIFR was 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 provisionsof 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 firstplace, entertained applications for revival, sanctioning appropriate schemes for rehabilitation.Thus, a sanction by the BIFR implies that therequirements of Section 72(2) of the Act have beenmet. 17. This provision, and the interplay thereofwith the provisions of the Income tax Act has beenconsidered by the Supreme Court in the case ofIndian Shaving Products (supra) where at paragraph 7the Bench holds as follows: sanctioning appropriate schemes for rehabilitation.Thus, a sanction by the BIFR implies that therequirements of Section 72(2) of the Act have beenmet. 17. This provision, and the interplay thereofwith the provisions of the Income tax Act has beenconsidered by the Supreme Court in the case ofIndian Shaving Products (supra) where at paragraph 7the Bench holds as follows: '7.Under Section 72 of the Income Tax Act, to giveto the amalgamated Company the benefit of the lossor, as the case may be, allowance for depreciationof the amalgamating company for the previous year inwhich the amalgamation was effected for the purposesof the Income Tax Act, the Central Government must,upon the recommendation of the specified authority,be satisfied that the amalgamating company was not,immediately before the amalgamation, financiallyviable by reason of its liabilities, losses andother relevant factors, and that the amalgamationwas in the public interest, By reason of Section 32(2) of the 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 of theCentral Government is to be exercised by the BIFRwithout the necessity of a recommendation by thespecified authority mentioned in Section 72A of theIncome Tax Act. This is because, for the purposes ofaccording sanction to a scheme of amalgamation of asick industrial undertaking with any other companyunder Section 18 of the said Act, the BIFR has to besatisfied that the amalgamating company is notfinancially viable, which is the effect of Section 3(o) of the said Act, and that the amalgamation isnecessary or expedient in the public interest, whichis the effect of Sections 17 and 18 of the said Actread together. Sanction of a scheme of amalgamationunder Section 18 of the said Act necessarily impliesthat the requirements of Section 72A o f the IncomeTax Act have been met and the BIFR must exercise thepower conferred upon it by Section 3 2 ( 2} of thesaid Act and make the declaration contemplated bySection 7 2A o f the Income Tax Act, The conditionsfor sanctioning a scheme under Section 18 o f thesaid Act being the same as those required for adeclaration under Section 72A o f the Income Tax Act, the BIFR could not have sanctioned the schemeof amalgamation of Sharp Edge with the appellant butdeclined to make the declaration under Section 72A of the Income Tax Act with regard to t hatamalgamation' (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." 3.Accordingly, Question No.1 is answered against theRevenue and in favour of the Assessee in same terms." 3.Accordingly, Question No.1 is answered against theRevenue and in favour of the Assessee in same terms." 4.As far as the other two questions on the additionaldepreciation on the Wind Mill is concerned, a Coordinate Benchof this Court [in which one of us, R.Suresh Kumar, J. was aMember] has held as under: "7.In so far as the first submission advanced byMr.Ravi is concerned, according to us, the same iscompletely untenable.7.1.The judgment of the Division Bench of this Courtin M.M.Forgings Limited Vs. Additional Commissionerof Income Tax, did not deal the issue, which is athand.7.2.The issue, in hand, is as to whether balanceadditional depreciation could be carried forward tothe year, following the previous year, in which,additional depreciation was claimed. 7.3.The Division Bench in M.M.Forgings case the said https://hcservices.ecourts.gov.in/hcservices/ case was not concerned with the issue, with which,we are faced, that is, the right to carry forwardthe balance additional depreciation. Therefore, thejudgment is completely distinguishable. 8.The second submission of Mr.Ravi, that Circularno.8 of 2002 dated 27.08.2002 and Circular no.281dated 29.11.1979, have not been taken note of, inour judgment rendered in Commissioner of IncomeTax, Madurai Vs. M/s.Shri T.P.Textiles PrivateLimited, according to us, will not impact, eitherthe reasoning or the conclusion reached by us, inthe said matter.8.1.It is pertinent to note that the Circular no.281dated 29.11.1979, pre-dates the insertion of therelevant provision, i.e., second clause to Section32 (1) (iia). The said clause (iia), admittedly, wasinserted by virtue of the Finance (No.2) Act, 2002,with effect from 01.04.2003. 8.2.In so far as the second Circular is concerned,i.e, Circular no.8 of 2002 dated 27.08.2002, in ourview, in no way, helps the case of the Revenue. TheCircular does not dwell on the point which we areconfronted with. 8.3.In any case, according to us, the Circulars arenot binding on the Court, though, they may bebinding on the Revenue. [See CIT V. Hero Cycles Pvt.Ltd., (1997) 228 ITR 463 (SC)]. 9.The last submission that Mr.Ravi advanced, was, infact, predicated on the reasoning given by theAssessing Officer, which, according to us, ismisconceived, as the manner of calculation ofdepreciation, cannot, to our minds, impede the claimof the Assessee for balance additional depreciation,in the year following the previous year, in which,the said asset is installed and put to use. 10.Therefore, for the aforesaid reasons, we find nomerit in the submissions advanced by the Revenue." 5.A similar view was expressed by this Court in anotherjudgment in the case of Commissioner of Income Tax V. VTMLimited [T.C.A.No.881 of 2009 dated 08.09.2009] wherein atparagraphs 5 and 6 are held as under:"5. In the case on hand, the assessee is stated tohave set up a wind mill at a cost ofRs.5,85,60,000/- It is true that the assessee is acompany engaged in the business of manufacture oftextile goods. As far as application of Section 32(1)(iia) of the Act, is concerned, what is requiredto be satisfied in order to claim the additionaldepreciation is that the setting up of a new https://hcservices.ecourts.gov.in/hcservices/ 5.A similar view was expressed by this Court in anotherjudgment in the case of Commissioner of Income Tax V. VTMLimited [T.C.A.No.881 of 2009 dated 08.09.2009] wherein atparagraphs 5 and 6 are held as under:"5. In the case on hand, the assessee is stated tohave set up a wind mill at a cost ofRs.5,85,60,000/- It is true that the assessee is acompany engaged in the business of manufacture oftextile goods. As far as application of Section 32(1)(iia) of the Act, is concerned, what is requiredto be satisfied in order to claim the additionaldepreciation is that the setting up of a new https://hcservices.ecourts.gov.in/hcservices/ machinery or plant should have been acquired andinstalled after 31st March 2002 by an assessee, whowas already engaged in the business of manufactureor production of any article or thing. The saidprovision does not state that the setting up of anew machinery or plant, which was acquired andinstalled upto 31.03.2002 should have anyoperational connectivity to the article or thingthat was already being manufactured by the assessee.Therefore, the contention that the setting up of awind mill has nothing to do with the power industry,namely, manufacture of oil seeds etc. is totally notgermane to the specific provision contained inSection 32(1)(iia) of the Act. 6. In such circumstances, we are not able toappreciate the contention of the learned standingcounsel for the appellant on the ground that theorder of the Commissioner of Income-tax (Appeals) asconfirmed by the Tribunal should be interfered with.It cannot also be said that setting up of a windmill will not fall within the expression setting upof a new machinery or plant. We do not find anyerror in the conclusion of the Tribunal inconfirming the order of the Commissioner of Income-tax (Appeals). We, therefore, do not find anyquestion of law much less substantial question oflaw to entertain this appeal. The appeal fails andthe same is dismissed. No costs." 6.In view of the aforesaid, Questions No.2 and 3 alsodeserve to be answered against the Revenue and in favour ofthe Assessee. We hereby do so. 7.Accordingly, the present Appeal filed by the Revenue isdisposed of in aforesaid terms. There shall be no order as tocosts. Sd/- Assistant Registrar(CS VIII) //True Copy// Sub Assistant Registrar ToThe Income Tax Appellate Tribunal,'C' Bench, Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2.The Commissioner of Income Tax Appeals II, Coimbatore. 3.The Assistant commissioner of Income Tax Company Circle IV(2),Coimbatore.(2),Coimbatore. +1cc to Mr.T.R.Senthil Kumar , Advocate SR.No. 6584 +1cc to Mr.Subbaiya Aiyar , Advocate SR.No. 6582 T.C.A.No.1199 of 2010 A.SK(04/03/2020)