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M/s. Ballarpur Industries Ltd., New Delhi. Versus Commissioner of Income Tax, Vidarbha, Nagpur.

Claim of unabsorbed business loss, depreciation of amalgamated company - Order passed by BIFR u/s 32(2) of SICA r.w.s.72A(2)(ii) of IT Act - as per the order of BIFR, assessee eligible to carry forward business loss & unabsorbed depreciation of amalgamating company maximum of ₹ 75 lakhs - AO disallowed depreciation claim of ₹ 27,09,294/- for AY 1992-93 Tribunal hold provision u/s 72A of the IT Act shall override the provisions u/s 32(2) and 43(6) of the SICA Act. - Held That:- ITAT d .....

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Appellant. Shri S.N. Bhattad, Advocate for Respondent. Judgment (Per R.K. Deshpande, J.) : 1. One Modern Stramit (I) Ltd., a sick company, was closed down by the end of the year 1986. It was referred to the Board for Industrial and Financial Reconstruction (BIFR) on 30­9­1989 under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). A scheme for rehabilitation in respect of it, was prepared under Section 19 of SICA and a proposal for its amalgamation in th .....

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9-90 22,67,739 28,92,151 51,59,890 1990-91 21,93,851 20,72,702 42,66,553 1991-92 21,83,983 10,63,906 32,47,899 Add: Depn. Claimed in A.Y. 1987-88 totally disallowed. 1,41,40,464 1,11,36,744 2,52,77,208 - 12,19,103 12,19,103 Admissible losses u/s 72(a) restricted to the tax relief of ₹ 75.00 lakhs i.e. equivalent loss. 1,41,40,464 1,23,55,847 2,64,96,311 1,41,40,464 3,52,290 1,44,92,754 Balance inadmissible u/s 72(A) 0 1,20,03,557 1,20,03,557 The claim of the assessee was for written down v .....

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me Tax Appellate Tribunal, Nagpur Bench also confirmed it on 30.­9­.2002. Hence, both these Income Tax Appeals No.27 and 135 of 2003 arise out of the proceedings for the Assessment Years 1992-­93 and 1993-­94, against these decisions of the Tribunal and the authorities below. It is an admitted position and conceded by the parties that questions (I) to (III) on which the appeals were admitted are covered in favour of the Revenue and against the appellant by judgment and order date .....

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erms of the order of BIFR ? V) Whether the Income­tax Appellate Tribunal erred in confirming the disallowance of depreciation on the value of assets of the amalgamating company not actually allowed under Section 32 read with Section 43(6) and Section 72A of the Income­tax Act, 1961 ? VI) Without prejudice to ground no. (iv) and (v) above whether the Tribunal erred in not allowing the benefit of unabsorbed depreciation despite the fact that provision of section 72A of the Income­tax A .....

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BILT would be eligible from 1st April 91 to carry forward business loss and unabsorbed depreciation of Modern Stramit (I) Ltd. under the provision of section 72A of the I.T. Act. The tax benefit under the section, however, would be to a maximum of ₹ 75 lakhs. The Assessing Officer holds that since the maximum benefit as far as tax is concerned was specified by BIFR, there was no way the assessee could get benefit beyond what was the intention of BIFR. Since the tax benefit had been specif .....

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decision of the Division Bench of this Court in the case of Commissioner of Income Tax v. Hindustan Petroleum Corporation Ltd., reported in (1991) 187 ITR 0001, holds that though the appellant in the said decision was held entitled to enhancement of written down value of the assets, the said decision cannot be applied to the facts of the present case, for the reason that it was delivered before insertion of Section 72A of the Income Tax Act, which now specifically lays down as to how and in what .....

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72A(i)(c) of the Income Tax Act. 6. The Income Tax Appellate Tribunal confirms the decisions of the authorities below. It holds that the provision of Section 72A of the Income Tax Act is a special provision dealing with the issues of carry forward and set off accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation and as per the phraseology used in the said Section, this provision has overriding effect on any other provisions of the Act. The Tribunal holds that th .....

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ing preference to it over the unabsorbed business loss. However, it chose to exhaust the business loss first which resulted in a portion of the unabsorbed depreciation to the extent of ₹ 1,20,03,557/­, remaining inadmissible. In these facts and circumstances, it cannot be said that the Assessee Company was otherwise entitled for more benefits without the application of Section 72A and that the benefits allowed to the Assessee Company as per the BIFR order issued in accordance with the .....

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#8377; 1,20,03,557/­ remaining inadmissible. It holds that the assessee was not entitled to more benefits than the limitation of ₹ 75,00,000/­ specified in the order passed by BIFR on 6­5­1992. 9. Shri Dewani, the learned counsel appearing for the assessee-­company, heavily relied upon the decision of the Division Bench of this Court in the case of Hindustan Petroleum Corporation Ltd., cited supra, to urge that in terms of Section 32(2) read with Section 43(6) and the E .....

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the current year, as the amalgamating company became non­existent, and the depreciation of these assets was allowable in the hands of the assessee. The Tribunal did not accept the claim of the assessee and it was held that the written down value of the assets taken over by the assessee­-company from amalgamating company, was the actual cost of assets to amalgamating company as reduced not only by the depreciation actually allowed but also the depreciation determined but not given effect .....

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s in the following year or years. This Court has held that for the Assessment Year 1975­76, the unabsorbed depreciation could not, under Section 32(2), be treated and/or allowed as the depreciation of the current year of the non­existent amalgamating company, and that is why the depreciation on these assets is claimed by and is allowable in the hands of the assessee only. 12. In our view, the Tribunal and the authorities below have rightly held that the decision of this Court in Hindusta .....

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rriding effect and the power to put such restrictions is conferred upon BIFR under Section 32(2) of SICA. In the present case, this power has been exercised by BIFR, putting a cap of ₹ 75,00,000/­ with an object not only to see that there is a revival of sick industry but also to provide capital incentive to amalgamated company to claim unabsorbed loss of the amalgamating company. 13. The object and purpose of introducing Section 72A under the Income Tax Act is considered by the Divisi .....

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me a burden on the economy. It is no doubt true that when a declaration under s. 72A is granted, the amalgamated company does receive benefits, inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. But this is precisely the incentive which is given to the healthy companies and, we feel, that the legislative intent of giving such incentive should not ordinarily be set at naught. The Specified Authority and the Central Government should take an overall vie .....

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ons stipulated in sub­s. (2) of s. 72A is obtaining of a certificate from the Specified Authority to the effect that adequate steps had been taken by the amalgamated company for the rehabilitation or revival of business of the amalgamating company. In other words, the benefit of s. 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. The revival of a sick .....

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re satisfied, then we see no reason as to why a declaration should not be accorded. 14. The Division Bench of Delhi High Court has held in the aforesaid decision that once the declaration is granted under Section 72A of the Income Tax Act, the amalgamated company thus received the benefit inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. Upon fulfillment of the conditions specified in sub­section (2) of Section 72A, it holds that the benefit of S .....

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