TMI Blog2018 (2) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, pending assessment proceedings before AO on the date of search, got abated and sec. 153A proceedings against the assessee is valid in respect of AYs. 2012-13 and 2014-15 and scrutiny assessment for AY 2015-16 u/s. 143(3) of the Act is valid Aggregation of WDV of block of assets - Held that:- Since the assets of M/s.MSL after amalgamation have become assets of assessee company by operation of Law it falls in to the “Block of assets” of the assessee company from 01.04.2009 and though such assets, non-functional, yet they cannot be segregated and depreciation has to be allowed taking the first year as AY 2010-11 onwards and WDV to be calculated for AY 2012-13 as discussed above and we order the AO to calculate the WDV accordingly and allow the same in accordance to law. Grounds 6, 7 and 8 for AY 2012-13 are therefore stands allowed. Disallowing the claim of assessee in respect to brought forward loss and claim of allowance of unabsorbed depreciation in the light of BIFR sanctioned scheme - Held that:- So far as former objection is concerned, the same is factual and AO is directed to allow the claim after considering the availability of losses for the instant year subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bogus Purchase 15, 46, 02, 444/- 4 (a) Interest on investment 4, 370/- 5 (b) Fees 19, 00, 000/- (c) prior period Expenses 1, 67, 854/- (d) PF 59, 90, 318/- (e) Income Cessation 1, 25, 040/- Not allowing depn. On asset of Malanpur Steel Ltd 1, 53, 62.000/- 6, 7 8 Merged vide BIFR order. Disallowance of set off Of b/f loss on asset of AY 2000-01 of Malanpur Steel Ltd. 18, 63, 71, 316/- 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. 1, 14, 79, 000 6, 7 8 Not set off of b/f loss of Malapur Steel Ltd. 121, 06, 26, 360 9 U/S. 36(1) (va) 30, 75, 281 10 Prior period expenses 71, 911 11 Not granting Credit of TDS 7, 01, 72, 804 13 Interest u/s. 234B 14 5 2013-14 Validity of order u/s.153A 1, 2, 3 Addl. Ground 1 Not allowing depn. On assets of Malanpur Steel Ltd. 99, 29, 000 4, 5 6 Set off of B/f loss and unabsorbed depn. Allowed in AY 10-11 11-12 of Malanpur Steel Ltd. -now 91, 70, 02, 240 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid years and consequently, according to Ld. Counsel for the assessee, no addition/disallowance could be made without the aid of incriminating material which had been seized/unearthed during the search and for the said proposition of law he relied on the decisions of the Hon ble Delhi High Court in CIT vs.Kabul Chawla (2016)380 ITR 573 (Del) and, Hon ble Jurisdictional High Court in CIT vs.Veerprabhu Marketing Ltd (2016) 388 ITR 574 (Cal). He submitted that since no incriminating material was unearthed and seized, the additions made in the aforesaid impugned years are beyond the scope of assessments made u/s 153A of the Act. 3 On the other hand, the Ld.CIT, DR Md Usman vehemently opposed the contention of the Ld. AR and submitted before us that BIFR order itself has to be construed as incriminating material and the fact that M/s. Malanpur Steels Ltd (in short M/s.MSL) though amalgamated w.e.f. 01.04.2009 by retrospective operation of the BIFR order dated 04.09.2012, the fact is that the said unit M/s. MSL has not even started functioning. This information about non-functioning of M/s.MSL was also an incriminating fact and according to him even the BIFR order itself is in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial, the Ld. Counsel submitted that the information about M/s.MSL being non-functional when the search happened is common knowledge and is in public domain and, therefore, cannot be considered as an incriminating material unearthed during search. Therefore, according to him, no addition/ disallowance can be made in the assessment years which were not pending before the AO on the date of search, without nexus with the incriminating material unearthed during search. 5 We have considered the rival submissions and have perused the records carefully. We note that a search was conducted on the appellant on 23.12.2014 and proceedings u/s.153A of the Act was invoked against the assessee. The main thrust of the argument of the Ld.AR is that assessments for AY 2009-10, 2010-11 and 2011-12 were completed u/s.143(3) of the Act, well before the date of search i.e. on 23.12.2014, therefore, those assessments for those years cannot be said to be pending before the AO on the date of search. The Ld.AR also brought to our notice that for AY 2013-14, the assessment was made u/s 143(1) of the Act and since no notice for scrutiny was issued before the time limit prescribed by the statute, in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus purchase (AYs 2010-11 and 2011-12) and (b) the set off of loss and other reliefs as per the order of BIFR which was passed on 04.09.2012. In respect to the investigation report of Excise Department, we note that AO in the original assessments passed on 28.03.2013 and 31.03.2014 for AYs 2010-11 and 2011-12 respectively had already made the addition on the basis of such report while completing assessment u/s.143(3) of the Act. So the said report of Excise Department cannot be treated as incriminating material seized/unearthed during the search conducted on 23.12.2014. Coming next to the contention of the Ld.CIT, DR that the BIFR order should be considered as an incriminating material cannot be accepted for the simple reason that in the original assessment for AY 2011-12 itself the AO has discussed about the BIFR order which was completed u/s 143(3) of the Act on 31.0.3.2014, therefore, the AO was very well aware of the BIFR order which was passed on 04.09.2012 well before the search. Moreover, we note that the Director General Income-tax, (Admn) and Director of Income Tax (Recovery) was a party in the BIFR proceedings as early as on 10.05.2012, and the department received the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments which are not pending on the date of search, then completed assessments cannot be disturbed unless incriminating material have been unearthed during the search has to be followed and necessarily given effect to. Admittedly, no specific incriminating materials have been mentioned in the assessment orders for AYs 2009-10, 2010-11, 2011-12 which have been admittedly completed before search by original assessments conducted by scrutiny therefore, no addition/disallowance can be made by the AO in 153A proceedings. Likewise, for AY 2013-14, the assessment u/s 143(1) of the Act was passed prior to search and notice for scrutiny u/s 143(2) of the Act was not issued by AO before the limitation dated 30.09.2014, so, the assessment for AY 2013-14 cannot be said to be pending before AO on date of search. Therefore, no addition/disallowance can be made without the aid of an incriminating material unearthed for the years referred as a result of search. The Hon ble Delhi High Court in Kabul Chawla (supra) has laid down the law as under: Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with provisions thereto, and in the light of the law explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 The Hon ble Jurisdictional Calcutta High Court in Veerprabhu Marketing Ltd (supra) has also held as under: We agree with the view expressed by the Delhi High Court that incriminating material is pre-requisite before power could have been exercise u/s 153(C) R.W. Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the order, but such disallowances made by the AO were upheld by the L.D.CIT (A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is therefore, dismissed. 8. Also, Apex court in the case of CIT v. Sinhgad Technical Education Society 397 ITR 344 has held as under: 18) In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim in sec.153A proceedings where original assessments are completed and (not pending before AO on the date of search) because the assessment in the case of search or requisition is for the benefit of Revenue. By doing search, the revenue authorities try to catch the assessee by surprise and by intrusive search conducted at their premises dig out materials which throws light to income undisclosed and kept away from the eyes of the revenue. Thus search conducted by revenue has to be for the benefit of revenue. The Hon ble Supreme Court though while interpreting escapement of income u/s 147 of the Act in Sun Engineering (supra) has held that the reopening of assessment u/s 147 to assess the escaped income, is therefore, for the benefit of revenue and the assessee cannot be given another innings during the re-assessment proceedings pursuant to reopening to make fresh claims. 12 We also note of the fact that assessee has already made claims arising from BIFR order in the regular appeals before Ld.CITA) from the completed original assessment already made before search, because BIFR order dated 04.09.2012 was received later on i.e. after the original assessment was completed u/s 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 04.09.2012 of BIFR with the assessee company. BIFR ordered the amalgamation with retrospective date i.e. from 01.04.2009 i.e. from AY 2010-11 onwards. The assessee company claimed depreciation of assets from AYs 2010-11 to 2015-16. In the present appeal also the assessee raised the claim, however, the AO denied the assessee s claim citing the order of Ld. CIT(A) in the case of M/s.MSL (preamalgamation) for AYs 2004-05 and 2006-07. In the pre-amalgamation original assessment, and appellate order of Ld.CIT(A) in the hands of pre-amalgamated company, the depreciation was denied, taking note of the fact that its plant and machinery was not used/non-user of it, when undisputedly, the M/s MSL declared lay-off on 20.10.1998 due to a major fire mishap in the substation on 15, .10.1978 and on 04.03.2000 the unit of M/s. MSL was closed by Secretary, Labour Dept. (Govt.of MP). Therefore, M/s. MSL filed reference to BIFR and was declared sick company on 03.08.2005. The list of dates given below tabulates the events that took place leading to amalgamation of M/s MSL with the assessee M/s. HEIL by BIFR order 04.09.2012 w.e.f.01.04.2009; 1. 11.09.194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-functional from 15.10.1998 till the date of order of BIFR (i.e. 04.09.2012). So when the sick company M/s MSL in their original assessments (pre-amalgamation) claimed depreciation, naturally it was denied to it by the AO as well as Ld.CIT (A) citing the reason that unit of M/s.MSL was non-functional, because there was no occasion for its plant and machinery was used during the lay-off/closed period. However, the factual matrix in AY 2010-11 onwards changed because of the order of BIFR dated 04.09.2012, wherein BIFR amalgamated M/s. MSL with the assessee/appellant company retrospectively with effect from 1.04.2009 i.e. from AY 2010- 11. It should be remembered that the true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one, the transferor company loses it entity (in the present case M/s.MSL) as it ceases to have its business, though their respective rights or liabilities are determined under the scheme of amalgamation. We note that the assessee/appellant company had taken over the sick company M/s.MSL through the scheme of amalgamation sanctioned on 04.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of the block of asses in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item(i) . 18 Thus, in the present case before us for the assessment year i.e. 2012-13, the W.D.V. of any block of assets shall be the aggregate of the W.D.V of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustments have to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. As per amended Section 32, deduction is to be allowed In the case of any block of assets, such percentage on the written down value thereof as may be prescribed. Thus, the depreciation is allowed on block of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ament in its wisdom has made another significant and contemporaneous amendment has been made, which need to be taken note. The Parliament has also deleted the provision for allowing terminal depreciation in respect of each assets, which was previously allowable under section 32(1) (iii) and also taxing of balancing charge under section 41(2) in the year of sale. In substitution of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessee are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1) (iii). This amendment also strengthened the claim that now only details for block of assets has to be maintained and not separately for each asset. In CIT Vs.Oswal Agro Mills Ltd (2011) 341 ITR 467 (Del) wherein their Lordship Justice A.K.Sikri (his Lordship then was ) has analysed the aforesaid law in detail and took into consideration the legislative intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 32 by the Taxation Laws (Amendment) Act, 1986. [Para 25]. As per amended section 32, deduction is to be allowed - In the case of any block of assets at such percentage on the written down value thereof as maybe prescribed . Thus, the depreciation is allowed on block of assets, and the revenue cannot segregate a particular asset there from on the ground that it was not put to use. [Para 29]. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the block of assets at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of block of assets has been introduced, which is relevant for calculating the depreciation. It would be of benefit to take note of the circular issued by the revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No.469, dated 23-9-1086, wherein the rationale behind the aforesaid amendment is described [Para 30]. It becomes manifest from the reading of the aforesaid circular that the legislature felt that keeping the details with regard to each and every depreciable asset was time consuming both for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in those circumstances, could not be extended to absurd limits. In any case, the Hon ble High Court upheld the order of Tribunal and accepted that though the assets of the Bhopal unit were not functional since being part of Block of Assets they cannot be segregated and depreciation has to be allowed 23 Also Bombay High Court in the case of CIT v. M/s Sonic Biochem Extractions (P) Ltd. ITA No. 2088/2013 dated 17.11.2015 while dismissing the appeal of revenue whereby depreciation was claimed in respect of plant and machinery of discontinued business which is not likely to be revived has held as under: c. On further appeal to the Tribunal the impugned order held that the refining machinery was a part of the block of assets of plant and machinery. In such a case depreciation is granted to the entire block of assets whether or not an individual item therein has been used during the subject assessment year. In support the impugned order placed reliance upon on its decision in the case of DCIT Vs. Boskalis Dredging India (P) Ltd. 53 SOT 17 (Mum) wherein it has been held that once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the case of Assessing Officer that the assets were not put to use at all. Once the factory building is put to use, it is not possible to restrict the depreciation on the said building by stating that only a portion thereof has been put to use. Similarly, in relation to block of assets, it is not possible to segregate items falling within the block for the purposes of granting depreciation or restricting the claim thereof. Once it is found that the assets are used for business, it is not necessary that all the items falling within plant and machinery have to be simultaneously used for being entitled to depreciation. 25. Therefore, following the aforesaid judgments since the assets of M/s.MSL after amalgamation have become assets of assessee company by operation of Law it falls in to the Block of assets of the assessee company from 01.04.2009 and though such assets, non-functional, yet they cannot be segregated and depreciation has to be allowed taking the first year as AY 2010-11 onwards and WDV to be calculated for AY 2012-13 as discussed above and we order the AO to calculate the WDV accordingly and allow the same in accordance to law. Grounds 6, 7 and 8 for AY 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name change to Malanpur Steel Ltd. (MSL). which was a Public Ltd. Company transferred all its divisions (Engineering, chemical, High-tension insulated) in various places to HEIL (assessee) which was sanctioned by Hon'ble Calcutta High Court except the steel division M/s. MPISC (later MSL) 8. 16.04.2001 The name of HDCL was changed to MSL 9. 14.06.2002/11.03.2003 MSL Company filed reference in BIFR as a sick company and registered as BIFR case No. 158/2001 10. 03.08.2005 Company declared sick in terms of section 3(1)(0) of SICA amd PNB appointed as Operating Agency to formulate scheme u/s. 17(3) of SICA 11. 20.04.2012 BIFR circulated DRS which was received by DIT(R) on 10.05.2012. The IT reliefs in the DRS were provided in para 15.8 12. 10.05.2012 DIT (R) sent letter to company to file relevant details in support of the reliefs. 13. 08.06.2012 DIT (R) se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agencies as in Para 15.1, 15.2, 15.6, 15.9, 15.11, 15.12, 15.13, 15.14, 15.15 for them to follow. ii) Concessions indicated for the authorities/agencies as in Para 15.3, 15.4, 15.5, 15.8 {except sub-para(g)}, 15.10 for them to consider. Therefore ostensibly, there is a difference in these two varieties of concessions indicated by the Hon ble BIFR which is evident from the insertion of word to consider , in the second variety as indicated above. This is further corroborated by the reading of clause (xix) under General Terms and Conditions, as is provided below:- 17. GENERAL TERMS AND CONDITIONS xix) Notwithstanding anything contained hereinabove, the reliefs and concessions to the allowed to the company shall with within the policy guidelines of the concerned State/Central Govt/other Govt Agencies . 11. Thus, it is clear that for State/Central Govt. Agencies the concessions indicated are of the nature of guidelines and not directives, to be considered by the concerned authorities and to be allowed only within the four concerns of the law. This fact, finds force from the order of Hon ble AAIFR wherein it has clarified the exception provided by Hon ble BIFR i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 The CIT(A) consideration of the above has held as under: I have considered findings of the AO in the assessment order and the written submission filed by the AR during the appellant proceedings. Regarding brought forward depreciation and business loss I think the AO has very clearly brought it on record from the records of the assessee itself that the steel plant of the assessee is closed since 28-10-1998. As the assessee does not intend to reopen this plant further in the future and the assessee further wants to exit from this business, there is no question of allow-ability of carried forward business loss or depreciation for the steel plant. Further regarding disallowance of depreciation on plant and machinery in the case of M/s MSL, the assessee had preferred an appeal on the same issue before my predecessor and he has given a speaking order vide Appeal No.227/CCXXV/ CIT(A)C-III/08-09 dated 30-11-2010. In this order my predecessor has confirmed the disallowance of depreciation and I find no reason to interfere in findings given my predecessor on the same issue in assessee s own case, therefore assessee s appeal on this issue is also dismissed. The AR has filed a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced the availability of such brought forward loss and unabsorbed depreciation to assessee company. 31 It was submitted that the relief so granted by the Hon ble BIFR at para 15.8 of its order contained the following recommendations. A Direction:- Clause g : Hindustan Engineering Industries Ltd. (HEIL) shall be entitled to carry forward and set off of the accumulated losses (including lapses losses) and unabsorbed depreciation as per Income-tax Act, 1961 till such losses are set off and fully against the income in assessment year subsequent to assessment year during which the merger of Malanpur Steel Ltd as above shall take place. The effect of this provision shall be provided in the manner as provided u/s 72A of the IT Act, 1961 or otherwise for a statutory provision for the time being is enforced. 32 Further reliance was placed on following judgments: a) CIT v. J.K. Corporation Ltd. (2011) 331 ITR 303 (Kol) [Pg 153) : Jurisdictional High Court even observed at para 28, 29 when the Board is satisfied that all conditions are fulfilled for giving consent for taking rehabilitation measures by amalgamation, separate consent by CBDT not required . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year as at the end of which the company has become a sick industrial company, make a reference to the BIFR for determination of the measures which should be adopted with respect to the company. A sick industrial company as defined by section 3(1)(o) means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Section 16 requires the BIFR to make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under section 15. The BIFR may, for the disposal of such inquiry, require an operating agency (OA) to enquire into and make a report with respect to such matters as the BIFR may specify (In this case, Punjab National Bank (PNB) was appointed as operating agency (OA) by BIFR by its order dated 03.08.2005). Under section 17, the Board passes a suitable order for completion of the enquiry made by operating agency. The Board as per Sec.18 having considered everything as mentioned in Sec.17 prepares and sanctions the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the said companies. Section 19 of the said Act provides for rehabilitation arranging financial assistance and concerned financial institutions who have stake in the sick industrial company are notified for consenting and if no consent is received within a particular period then the Boar is to adopt such other measures. For ready reference Sec.19 of SICA Act is give below: 19. Rehabilitation by giving financial assistance (1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government any scheduled bank or other bank a public financial institution or State Level institution or any institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) every scheme referred to in sub-section (1) shall be circulated to every person required by the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein and no civil court shall have jurisdiction in respect of any matter which the Appeal late Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. . 41 Most important provision in this Act which spells out the effect of the Act on other laws can be seen from a perusal of section 32, which reads as under:- 32 Effect of the Act on other laws- (1) The provisions of this Act and of any rules or scheme made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the (i) Foreign Exchange Regulation Act, 1973 (46 of 1973 and (ii) the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an Industrial company or in any other instrument having effect by virtue of any law other than this Act. (2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under SICA would prevail and so is overriding statute. The view expressed by us has been upheld by the Hon ble jurisdictional High Court in CIT Vs. J. K. Corporation Ltd (2011) 331 ITR 303 (Kol), wherein the Hon ble High Court held as under: 39. In this case, it appears that the Assessing Officer has altogether ignored the legal effect of the scheme taking note of Circular No. 683 dated June 8, 1994 as the consent was not accorded by the Central Government. In other words, the Assessing Officer thought that the circular is having overriding effect over the said provision of the sanctioned scheme. The Appellate Authority, however, did not choose to follow the same course of action but recognized the effect of the scheme but on the facts it did not make the said scheme applicable on various grounds mentioned therein. 40. In the context as aforesaid, we now examine the legal effect of the scheme sanctioned by the BIFR which remains unchallenged. The SICA is a special Act and the scheme framed thereunder is of tremendous implication. So, it is binding upon everyone, as it has assumed the character of conclusiveness by virtue of section 18 sub-section (4) and also sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expedient in the public interest, which is the effect of sections 17 and 18 of the said Act read together. Sanction of a scheme of amalgamation under section 18 of the said Act necessarily implies that the requirements of section 72A of the Incometax Act have been met and the BIFR must exercise the power conferred upon it by section 32(2) of the said Act and make the declaration contemplated by section 72A of the Income-tax Act. 43. In other words, once the scheme is framed by virtue of section 32 sub-section (1) the same overrides all other provisions of law including the Income-tax Act 1961 and also other instrument or document having effect by virtue of any law. The Board derives authority under section 120(6) of said Act which itself is overridden. 44. It appears that the text of the said circular dated June 8, 1994 relied on by the Assessing Officer is clearly inconsistent with the provision of the said section 32(2). 45. Having regard to the language used in section 26 it is clear that neither the civil court nor any other authority including the quasi-judicial authority can pass any order which would impede the operation of the said scheme. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval/consent of the Central Government/Central Board of Direct Taxes was necessary in view of the provision of the said Act. 53. As far as question being ground (D) is concerned in our view no separate opinion need be expressed and however, we add that the assessee is exempted from fulfilling the provisions of sections 80 and 139 of the Income-tax Act, 1961, in view of the BIFR's order dated March 17, 1994, it must be held that the revised return of loss filed by the assessee shall be treated to have been validly filed. 54. While answering question (E) we are of the view that the Tribunal was not right and justified in law not considering and deciding the alternative contention raised on behalf of the assessee that when the original return having been filed within the time allowed under section 139(1) the revised return filed on March 31, 1994, claiming loss was not beyond the time as contemplated in the provision of section 139 sub-section (3) and section 80. 55. Thus the aforesaid reference is disposed of in the above lines. (emphasis given by us) 45 In view of the Hon ble jurisdictional High Court s order in CIT Vs. J.K. Corporation (supra), we hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Direct Taxes and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the Central Board of Director Taxes will be the Director General of Income Tax (Admn.), 7th Floor, MayurBhawan, New Delhi -110 001. 48 The power of CBDT to issue such circular is traceable to section 119 of the Income Tax Act, which contemplates that the CBDT may from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit for proper administration of the Act and such authorities and all other persons employed in the execution of the said Act shall observe and follow such orders, instructions and directions of the CBDT. 49 The judicial precedents laid by Hon ble Apex Court and other Hon ble High Courts which held that CBDT circular is binding on the authorities serving in the Income-tax Department. 50 In Navnit Lal C. Jhaveri Vs. K.K.Sen (1965) 56 ITR 198 (SC), the Hon ble Supreme Court has an occasion to examine the statutory basis and background of the circulars issued by the Central Board of Revenue under the provisions of the Income Tax Act, and the scope and the effect of such circulars. In that case, the CBDT was empo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBDT circular is binding on authorities of Income Tax Department and should be followed in letter and spirit. 59 So, from a reading of the earlier circular dated 22.4.1991 of the CBDT (supra), it is clear that earlier CBDT circular does not make any distinction in respect of BIFR order, that means if the BIFR scheme purposes recommendations i.e. for being considered, then also during the course of an assessment, AO has to give effect to both the direction as well as the recommendation of BIFR should be given effect and relief should be granted. We note that the earlier circular of dated 22.4.1991 was superseded by another CBDT circular dated 16.2.2000 which clearly spells out that if the BIFR directs any specific relief then it should be allowed and the effect of such order must be given immediately. However, in case, if the BIFR recommends any relief under the Income Tax Act, the relief to be allowed to the assessee, if during the course of proceedings before the BIFR, the views of the Income Tax Department have been considered by the BIFR. Now, let us see whether the views of the Department were taken into consideration by the BIFR before the final order was passed. The fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act so as to allow company to carry forward its accumulated losses and allowances beyond the period of eight years till it is fully adjusted against the profits of the company in the subsequent years. e) To exempt the company from the levy of MAT under section 115JB of the Income Tax Act 1961 for the period of rehabilitation from 01.04.2009 to 31.03.2015. (f) To exempt/grant relief under section 41(1) apart from other liabilities written back for all liabilities for which relief if granted/sanctioned as per DRS. g) Hindustan Engineering Industries Ltd. (HEIL) shall be entitled to carry forward and set off the accumulated losses (including lapsed losses) and unabsorbed depreciation as per the Income Tax Act, 1961 till such losses are set off fully against income in the assessment years subsequent to the assessment year during which merger of MSL as above shall take place. The effect of this provision shall be given in the manner as is provided under Section 72A of the Income Tax Act, 1961 or otherwise any statutory provisions for the time being is enforced. h) To all depreciation on plant machineries of MISC unit of Malanpur Steel Ltd. fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 43B, 45, 56(2), 72, 32, 72(2), 79, 115JB, provisions of chapter XVII, chargeability of interest and penalties, to capitalized amount of ₹ 245.80 crore to be deleted in para 15.8 of order dated 16.07.2012 and SS-12 dated 04.09.2012. (d) Grant ad-interim ex parte stay of the operation of the impugned order dated 16.07.2012 by BIFR and SS-12 dated 04.09.2012. (e) In the alternative, modify the observations in paragraph 2.11 (b) in the sanctioned scheme and prefix the word to consider before sub para. (g) ofpara 15.8 of order dated 16.07.2012 end SS-12 dated 04.09.2012. (f) Pass such other order/direction as is deemed fit in the facts and circumstances of the case. 60 The aforesaid appeal against the said BIFR order (relevant portions of which have been reproduced above, along with prayer before AAIFR) was dismissed by the AAFIR vide order dated 22.03.2013 which is reproduced as below: Heard the Ld. Counsel for the appellant as well as the caveator. After considering the submissions and perusal of para 15.8(g) of the sanctioned scheme, this authority is of the view that the relief granted under the said para does not override the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FR. The CBDT circular is again reproduced for easy understanding. The CBDT in exercise of the powers u/s.119(2) (a) of the IT Act, 1961 vide order dated 22-04-1001 (F.No.225/91/ITA II) had directed that effect to all orders passed by Board of Industrial Financial Reconstruction (BIFR) in an approval scheme of reconstruction/rehabilitation be given during the course of an assessment after granting all the reliefs under the IT ACT, 1961 including those reliefs were the BIFR had recommended consideration of such reliefs under the IT Act by the Central Government. In supersession of this, the CBDT now directs that wherever the order of the BIFR in an approved scheme of reconstruction/rehabilitation (b) directs that the reliefs be allowed under the I.T. Act, 1961 the effect to such orders be given immediately. recommends that the reliefs under the I.T. Act, 1961 may be considered by the Central Government, the relief be allowed to the assessee if during course of the proceedings before the BIFR, the views of the I. Tax Department have been considered by the BIFR. However, if the order of BIFR has been passed without making I. Tax Department a party or without gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. It has been further held by the Hon ble High Court that income tax authority cannot have any jurisdiction to render the operation of the said (BIFR) scheme nugatory under any circumstances. It was also held that Tribunal was not right in holding for the scheme sanctioned by the BIFR approval/consent of the Central Government/Central Board of Direct Taxes was necessary in view of the provision of the said Act. Having regard to the above conclusive judgments the only conclusion that flows is that the scheme sanctioned by BIFR is to be allowed in entirety. The objection of the revenue that the scheme provides for consideration of the relief and not for direction of the relief is also contrary to the circular of the CBDT whereby it has been provided that once the Income Tax Department has been heard by BIFR, then such scheme is to be given effect and then it should be kept in mind that there is no distinction between direction and consideration of relief/grant. In the instant case it has been amply demonstrated that the Income Tax Department was heard by BIFR and therefore there remains no occasion to draw adverse inference and deny the legitimate claim arising from the scheme. To s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years. (e) To exempt the company from the levy of MAT under section 115JB of the Income Tax Act, 1961 for the period of rehabilitation from 01.04.2009 to 31.03.2015. (f) To exempt/grant relief under section 41(1) apart from other liabilities written back for all liabilities for which relief is granted/sanctioned as per DRS. (g) .. (h) To allow depreciation on plant machineries of MISC unit of Malanpur Steel Ltd. for the period when the Steel plant was under suspension of operation/closed/shut down (From October, 1998 to the date of restart) 69 As regard unabsorbed depreciation of ₹ 72.56 crores it is noted that section 32(2) comes into play which provides as under: 2 Where in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains, chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub38 section (3) of the section 73, the allowance or the part of the allowance to which effect has not been give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Act relating to set off of carry forward loss shall apply accordingly. So, by this deeming fiction the accumulated loss of the amalgamating company i.e. M/s. MSL shall be deemed to be the loss of the accumulated company i.e. HEIL (Assessee). So, when the assessee in this case before us, in A.Y 2010-11 claimed the accumulated loss from AY 2010-11 onwards after amalgamation took effect from 01.04.2009 and consequently in the present assessment year in 2012-13 by virtue of sec.72A(1), the accumulated loss of MSL shall be deemed to be the loss of the assessee company in the previous year in which the amalgamation was effected i.e. AY 2010-11 onwards. As per the definition of accumulated loss given u/s. 72A of the Act, the accumulated loss of M/s. MSL in this case has to be so much of loss of amalgamating company i.e. M/s. MSL, computed under the head Profit Gain of Business , which such amalgamating company i.e. M/s. MSL would have been entitled to carry forward and set of under the provision of sec.72 of the Act, as if the amalgamation has not taken place. As per sec. 72 of the Act, where for any assessment year, the net result of the computation under the head profit and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e BIFR Scheme recommends CBDT to exempt the company from Sec.72 and 32 of the Income Tax Act, so as to allow the company to carry forward its accumulated loss and allowance beyond the period of eight years till it is fully adjusted against profit of the company in the subsequent years. This recommendation also becomes directory in nature as per the CBDT in the facts and circumstances of the case discussed above and the AO is duty bound to give effect to it as such. It should be remembered that BIFR Scheme can override the Income Tax Act as held by jurisdictional High Court in J.K. Corporation Ltd. (supra). Morover, we note that by clause (h) the BIFR recommends to allow depreciation on plant and machinery of MSL unit of Malanpur Steel Ltd. for the period when the steel plan was under suspension of operation/closed/shut down (From October 1998 to the date of restart) also becomes directory in the light of the CBDT circular since the department s view has been considered by the BIFR before sanctioned scheme was passed. Therefore, the intent of the BIFR is very clear and the AO was duty bound to give effect to the order of BIFR since the circular passed by the CBDT is binding on the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: 7.6 Income Tax-The Chairman, Central Board of Direct Taxes, New Delhi.To consider ii) Exemption of capital gains from capital gain tax, if any. The company may be allowed to set off capital gains against accumulated losses. iv) For the purpose of 8 years limitation period of carry forward of losses, 8 years period would be counted from the financial year 2002-03. 76 The AO denied the set off on the ground that the losses could not be allowed to be set off beyond 8 years. The CIT(A) deleted the disallowance by observing as under: Now issue here is whether 8 year's limitation will apply in this case or not. As per the section 72, business loss cannot be set off against business income beyond eight years. However capital gain can never be allowed to be set off against business loss brought forward. Therefore income tax act never allows set off of capital gain against business loss brought forward. However the BIFR under SICA has power to allow any concession it considered appropriate for the revival of the company. As discussed earlier, BIFR has clearly allowed set off of capital gain against accumulated losses. The order nowhere talks of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may consider allowing such deduction. The scheme should be read keeping in kind the object of the provisions of the SICA for rehabilitation measure in respect of sick industry. When a company is declared to be a sick and the assessee is taking over the management of such a sick company based on the scheme for the purpose of rehabilitation, such assessee should also be entitled to the benefits and the scheme should be construed only keeping in mind the rehabilitation measure. In these circumstances, the contention of the revenue that the scheme has not specifically directed the allowing of deduction under section 43B cannot be accepted as such benefit should be dealt with in the scheme itself. Therefore, the substantial question of law is answered in the negative i.e. against the revenue. 78 Having regard to the above we also notice that the AO held that the claim is not maintainable in the instant year as set off on account of carry forward business loss and unabsorbed of deprecation off stands exhausted in the preceding years and there is no left over business loss brought forward and, unabsorbed depreciation. He has also held that without prejudice any loss that could have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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