Income Tax Appellate Tribunal - Kolkata
M/S. Hindusthan Engineering & ... vs Dcit, Cc - 1(4), Kolkata, Kolkata on 24 January, 2018
1
IT(SS)A Nos.146 to 152/Kol/2017
Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
आयकर अपील
य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम ) ी ऐ. ट
. वक , यायीक सद य एवं डॉ. अजन
ु$ लाल सैनी, लेखा सद य)
[Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
I.T(SS).A. No. 146 to 152/Kol/2017
Assessment Years: 2009-10 to 2015-16
M/s. Hindusthan Engineering & Vs. Deputy Commissioner of Income-tax
Industries Ltd. (PAN: AAACH8505Q) Central Cirle-1(4), Kolkata.
(Appellant) (Respondent)
Date of Hearing 17.11.2017
Date of Pronouncement 24.01.2018
For the Appellant Shri S. Jhajharia, FCA, Shri Sujoy Sen, Advocate
For the Respondent Md. Usman, CIT (DR)
ORDER
Per Shri A.T.Varkey, JM
All these seven appeals filed by the assessee are against the separate orders of Ld. CIT(A)- 20, Kolkata, dated 01.08.2017 for AYs 2009-10 to 2015-16. Since facts are common and grounds are identical, we dispose of all these appeals by this consolidated order.
The issues raised in theses appeals are tabulated here under:
Sr. AY Addition u/s Amount (Rs.) Ground No.
No.
1 2009-10 Validity of order u/s 153A 1 to 3 &
Addl. Gr. 1
Unab. Depreciation 2,52,69,798 4
Tax liability Calculation 5
Interest u/s 234A 57,093 6
Interest u/s 234 r/w 234B(3) 5,54,45,230 7
Not granting credit of TDS 5,35,65,670 8
2 2010-11 Validity of order u/s 153A 1,2,3 &
Addl. Gr. 1
2
IT(SS)A Nos.146 to 152/Kol/2017
Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
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 1,53,62.000/- 6,7 & 8
Malanpur Steel Ltd
Merged vide BIFR order.
Disallowance of set off Of b/f loss
18,63,71,316/- 9
on asset of AY 2000-01 of
Malanpur Steel Ltd.
Addition for difference of assets
and liabilities of Malanpur Steel 3,18,98,060 10
Ltd
Interest u/s 234B r.w234B (3)
8,06,26,679 11 & 12
Interest u/s 234D
13
3 2011-12 Validity of order u/s 153A 1 to 3 &
Addl.Gr.1
Bogus purchase 8,66,49,802 4
a) Prior period expenses 60,309 5
b) PF & ESI u/s.36(1) (va) 3,03,447
Not allowing Depn. On asset of 1,32,78,000 6,7 & 8
3
IT(SS)A Nos.146 to 152/Kol/2017
Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
Malanpur Steel
Ltd. merged vide BIFR order
B/F loss of Malanpur Steel Ltd 58,17,10,822 9
and vide BIFR order.
Unabsorbed depn. For AYs 2004- 6,57,59,533 10
05 & 06-07 vide BIFR order
Interest u/s 234B r/w 234B(3) 4,43,28,510 11 & 12
Int. u/s 234D 18,01,501 13
4 2012-13 Validity of order u/s 1,2,3 &
153A
Addl.
Ground 1
Bogus Purchase 8,66,49,802 3
a) Prior Period expenses 60,309
b) PF & ESI u/s. 36 (1) (va) 3,03,447 5
Not allowing Depn. On assets of 1,14,79,000 6,7 & 8
Malanpur Steel Ltd merged vide
order of BIFR.
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 99,29,000 4,5 & 6
Malanpur Steel Ltd.
Set off of B/f loss and unabsorbed 91,70,02,240 7,8 & 9 &
depn. Allowed in AY 10-11 & 11-
Addl.Grs.
12 of Malanpur Steel Ltd. -now
2,3 & 4
Set off of B/f loss and unabsorbed 15,57,28,874 10
depn of Malanpur
Steel Ltd.
Interest u/s.234B r/w 234B (3) 31,56,57,810 11-12
4
IT(SS)A Nos.146 to 152/Kol/2017
Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
Interest u/s 234C 58,33,364 13
6 2014-15 Validity of order u/153A 1,2,3, &
Addl.Gr.1
Not allowing depn. on assets of 38,82,43,000 4,5 & 6
Malanpur Steel Ltd merged vide
order of BIFR
Interest u/s.234B r/w 234B(3) 12,88,83,249 7
7 2015-16 Validity of order u/s 153A 1,2,3 &
Addl.
Ground 1
Not allowing depn. On assets of 33,01,23,000 4,5,6 & 7
Malanpur Steel Ltd merged vide
order of BIFR
Interest u/s 234B r/w 234B(3) 12,88,83,249 8
Interest u/s 234D 24,808 9
2 At the outset itself, the Ld.AR Shri Siddharth Jhajharia drew our attention to the fact that
assessments of AYs 2009-10, 2010-11 and 2011-12 were completed originally u/s 143(3) of the Act before the search which took place on 23rdDecember, 2014. He also drew our attention to the fact that for AY 2013-14, assessment u/s 143(1) of the Act was also passed before search and the time limit for selection of scrutiny assessment became time barred on 30.09.2014. Therefore, according to the Ld. Counsel, since the original assessments pertaining to AY 2009-10, 2010-11 and 2011-12 were completed by scrutiny assessments u/s 143(3) of the Act and assessment for AY 2013-14 u/s 143(1) of the Act was not selected for scrutiny by 30.09.2014, no proceedings in-respect to these assessments were pending before the AO on the date of search i.e. on 23.12.2014 for the said 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.
5IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 nature of incriminating material and, therefore, he contended that the AO has all the powers u/s 153A of the Act to make appropriate addition/disallowance and the depreciation for the non- functional assets of M/s. MSL cannot be extended to absurd limits when the fact is that from 1998 onwards M/s. MSL unit has been closed down and depreciation cannot be claimed. Without prejudice to the aforesaid submissions, the Ld. CIT, DR also contended that if the original assessments cannot be disturbed without incriminating material, he wondered as to how the assessee is making new claim on the basis of BIFR order, when Hon'ble Supreme Court in CIT vs. Sun Engineering (1992) 198 ITR 297 (SC) though in the context of reopening of assessment u/s 147/148 of the Act, has held that such action i.e. (reopening assessment for escape of income) is for the benefit of revenue and the assessee cannot make any fresh claim during those proceedings. So, according to Ld. CIT DR without prejudice, to his argument that BIFR order and the information that M/s.MSL was not functional at all, is indeed an incriminating material, in any event, in the non- pending assessments before the AO on the date of search, the assessee is precluded from making any new claim based on BIFR order.
4 The Ld. AR in his rejoinder to the contention of Ld.CIT, DR that BIFR order is an incriminating material which was unearthed during search, he drew our attention to the original assessment passed for AY 2011-12 to point out that the AO in the original scrutiny assessment order dated 31.03.2014 itself at page 17 has taken note of BIFR order and has duly mentioned about it and considered and discussed about the BIFR order and thereafter only had passed the original assessment order u/s 143(3) of the Act. So, according to Ld. AR, the action of AO as early as 31.03.2014 clearly goes on to show the fact that AO had in his knowledge and possession the BIFR order very well before the search which happened only on 23.12.2014. Therefore, according to the Ld. Counsel, the question of BIFR order becoming an incriminating material unearthed during the search cannot arise at all. Countering the argument raised by the Ld.CIT, DR that the fact of M/s. MSL not functioning at all and which fact came to the notice of revenue only during the search proceedings, therefore, this information/fact should be treated as incriminating material, 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/ 6 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 words, the time limit to pass the 143(2) notice got barred after 30.09.2014, therefore, on the date of search i.e. on 23.12.2014, the assessment pertaining to AY 2013-14 cannot be said to be pending before the AO. We have gone through the records and the following chart, will give a birds-eye view on the date of events which took place before the search.
Sl. Assessment Original Pending Order Date of Remarks
No. Year Assessment before By AO search
u/s AO
On the
date of
search
1. 2009-10 143(3) Not 143(3) 23.12.2014 So, assessment is not
pending dated pending on the date
of search i.e.
28.12.2011
23.12.2014
2 2010-11 143(3) Not 143(3) -Do- -Do-
pending dated
28.03.2013
3 2011-12 143(3) Not 143(3) -Do- -Do-
pending dated
31.03.2014
4 2012-13 153A/143(3) Abated -Do- Proceedings u/s
143(2) was pending
5. 2013-14 143(1) Not 143(1) -Do- Time for notice
Pending u/s.143.143(2)expired
on 30.09.2014 Last
date of issuing of
notice was
7
IT(SS)A Nos.146 to 152/Kol/2017
Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
30.09.2014.
6. 2014-15 153A/143(3) Abated - -Do-
7. 2015-16 143(3) Abated - -Do-
6 A perusal of the aforesaid chart, reveals that proceedings for AYs.2009-10, 2010-11, 2011-
12 and 2013-14 were not pending before the AO on the date of search i.e. on 23.12.2014. We note from a perusal of the impugned assessments passed u/s 153A of the Act that the disallowance/additions for the aforesaid assessment years have been made based on two issues i.e.
(a) investigation report of Excise Department alleging 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 BIFR's Draft Rehabilitation Scheme (DRS) dated 20.4.2012, which was replied to by the department vide letter dated 08.06.2012, wherein objection were in fact raised by the department before the BIFR. We note that after the MSL company's letter dated 04.06.2012, the department has filed its detailed reply vide letter dated 13.07.2012 to BIFR/OA, which facts are evident from the appeal filed by department before AAFIR at (Page 6), which is found placed at page 1420 of the paper book, which is an appeal against the order of the BIFR order dated 04.09.2012. In the light of the aforesaid facts and circumstances, the BIFR order dated 04.09.2012 cannot be said to be an incriminating material which was unearthed during the search conducted on the assessee's premises on 23.12.2014 and, therefore, cannot be treated as an incriminating material. Coming to the contention of the Ld.CIT, DR, that fact regarding M/s. MSL had not started functioning came to the notice of the revenue, only during search proceedings and, therefore, should be considered as incriminating material, is also unacceptable. We note that M/s MSL, a steel factory had been closed on 4.3.2000 by Deptt. Of Labour affairs, State Govt. of MP much prior to 8 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 search. This fact of closing down of the unit only triggered the proceedings before BIFR and AAIFR. There is no new development claimed by the appellant in respect of its amalgamated unit i.e. M/s. MSL, other than the statutory claim arising due to retrospective operation of amalgamation ordered by BIFR. The order of original assessment in respect to the assessee company for AY 2011-12 has been passed after noticing the above order of BIFR. Moreover, the AO in his impugned order (153A order) has nowhere stated that during search only he came across this fact or that the assessee had misrepresented earlier (i.e. before search during original assessment) that M/s MSL was functional and only during search the truth that M/s MSL was not functional was revealed. So the contention of Ld. CIT, DR on this score cannot be accepted and so the fact of M/s MSL not functional cannot be treated as incriminating material unearthed during search. Therefore, the contentions raised by the Ld. CIT DR cannot be countenanced and consequently as per the order of Hon'ble Delhi High Court in Kabul Chawla (supra) wherein the law is settled that for completed assessments/for assessments 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 in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and re-assessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the `total income' of the aforementioned six years in separate will 9 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 be only one assessment order in respect of each of the six `AYs " in which both the disclosed and the undisclosed income would be brought to tax".
Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word `assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word `reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record the AO. vii. Completed assessment can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
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 becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for 10 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred."
9 Support, is also drawn from the following judgments:
i) BiswanathGarodiaVs.DCIT (2016) 76 taxmann.com81
ii) CIT Vs.Continental Warehousinhg (NhavaSheva) Ltd (2015 374 ITR 645).
iii) Jai Steel (India) Jodhpur Vs. ACIT (2013) 259 CTR 281
iv) CIT Vs.Deepak Kumar Aggarwal (2017) 398 ITR 586
v) Principal CIT Vs.DipakJashvantalaPanchal (2017) 397 ITR 253.
vi) Principal VIT vs.Lalit Jain (2017) 384 ITR 543
vii) Pr.CIT vs. Dvangi Alias Rupa (2017 394 ITR 184
viii) Chintels India Ltd Vs. DCIT (2017) 397 ITR 416
ix) Smt.AnjliPanditVs.ACIT (2017) 157 DTR (Mum) (Tri.) 17
x) Pr.CITVs.MeetaGutgutia (2016)395 ITR 526.
10 We are thus of the considered opinion that since there is no incriminating material unearthed
during search in respect of the concluded assessments, no addition/disallowance could be made by the AO for AYs 2009-10, 2010-11, 2011-12 and 2013-14. Therefore, the addition/disallowance made in impugned assessments for the AYs 2009-10, 2010-11, 2011-12 and 2013-14 are ordered to be deleted.
11 We also further note that appellant has made fresh claims for AY 2010-11, 2011-12 etc., for giving effect to BIFR order, we are of the considered opinion since AYs 2010-11 and 2011-12 have been completed u/s.143(3) of the Act before the search, the assessment should not be disturbed in Sec.153A proceedings, unless there is incriminating material unearthed during search. On the same logic/analogy, the assessee also cannot make any fresh claim 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.
11IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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) of the Act in certain years.
13 The appellate proceedings before the Ld. CIT(A) from original assessments is a continuation of the assessment proceeding itself and the assessee can make a fresh claim before the Tribunal/Ld.CIT(A) as held by the Hon'ble Supreme Court in Goetze (India) Ltd. vs.CIT (2006) 284 ITR 323 (SC) and NTPC vs.CIT 229 ITR 383 and CIT Vs.Prithvi Broker (2012) 349 ITR 336 (Bom).
14 With the aforesaid observations we allow grounds 1 to 3 and additional ground no 1in terms of our findings above for AY 2009-10, 2010-11, 2011-12 and 2013-14 and direct deletion of additions made in pursuance of Sec. 153A proceedings in these assessment years. Consequently, 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, so, grounds 1, 2, 3 and Additional Ground no. 1 for AY 2012-13, 2014-15 and 2015-16 are accordingly dismissed.
15 Next, let us take up AY 2012-13 which has abated because the assessment was pending on the date of search. Though we have stated that assessment proceedings after search, is for the benefit of revenue, once the assessment pertaining to an year is pending before AO on the date of search, like in the present case, then by operation of law, the pending assessment before the AO abates in view of the second proviso to sec.153(A) of the Act, and consequently when the AO issues notice u/s 153A, the assessee is required to furnish fresh return of income in pursuance of the said notice u/s. 153A of the Act. It is this return which is filed consequent to the notice u/s 153A which would be subject of assessment by the revenue for the first time in the case of abated assessment proceedings. Consequent to notice u/s 153A, the earlier return filed for the purpose of assessment which is pending would be treated as non-est in law. For this proposition, we rely on the ratio decidendi in CIT Vs. B.G Shirke Construction Technology Ltd by Hon'ble Bombay High Court (2017) 293 CTR 505 (Bom).
16. First of all, the assessee/appellant company is aggrieved by the action of AO/CIT(A) in not allowing depreciation of assets of amalgamating company M/s. MSL Ltd. Brief facts of the case are 12 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 that a sick company called M/s.MSL was amalgamated by virtue of the order 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 (pre- amalgamation) 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 sub- station 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. 11.09.1944 Hindustan Development Corporation Ltd. (HDCL) was incorporated
2. 1989 MP Iron & Steel Co. (MPISC) as steel division of HDCL was formed. ( Later name changed to M/s MSL)
3. 03.1993 MPISC (later Malanpur Steels Ltd. (MSL) company's performance remained unsatisfactory since then.
4. 15.10.1998 Major fire in the sub-station, operation suspended (MPISC later MSL)
5. 20.10.1998 Declared lay off, held by M P High Court as illegal
6. 04.03.2000 The unit closed by the Secretary, LabourDptt. (Govt. of MP)
7. 04.2000 HDCL Later 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. 2000 Rs.245.80 cr.Infused by HDCL for capital asset/revenue
9. 16.04.2001 The name of HDCL was changed to MSL 10 14.06.2002/ MSL Company filed reference in BIFR as a sick company and registered 11.03.2003 BIFR case No.158/2001.
11 03.08.2005 Company declared sick in terms of section 3(1)(0) of SICA and PNB appointed as Operating Agency to formulated scheme u/s 17(3) of SICA 12 01.04.2009 BIFR was amalgamated with assessee from retrospective date with effect from 01.04.2009.
13 04.09.2012 BIFR passed order amalgamating M/s.MSL with the assessee company after considering the Income Tax Department's view.
14 23.12.2014 Search at assessee company premises which led to Sec.153A proceedings.
17 From a perusal of the above stated dates and events which took place, it reveals that the unit of M/s MSL was non-functional from 15.10.1998 till the date of order of BIFR (i.e. 04.09.2012). So 13 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 04.09.2012 with effect from 01.04.2009 (i.e. from AY 2010-11 onwards) and so in the eyes of law, M/s MSL ceased to have any identity as it did not remain a "person" either in fact or in law after amalgamation. For this proposition, we rely on the Hon'ble Supreme Court decision in Mcdowell & Company Ltd Vs.CIT, Karnataka (2017) 393 ITR 570 (SC). So, in the present assessment year before us, the assessee has claimed depreciation on its assets, because by amalgamation, the assets of amalgamated company (MSL) gets vested with assessee and have become part of "Block of Assets" of the assessee company. We note that after the amendment of sec.32 by the Taxation Laws (Amendment) Act, 1986, major change happened in respect to the manner in which the depreciation is to be allowed after the concept of "block of assets" was introduced. Let us look into the definition of "block of assets" given in sub-clause (ii) to sec.2 of the Act.
"26. Section 2 (11) of the Act defines the term "block of assets" as under:
"2(11) " Block of assets" means a group of assets falling within a class of assets comprising (a Tangible assets, being buildings, machinery, plant or furniture;
(b) Intangible assets, being know-how, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;"
27. Along with the aforesaid amendment, definition of written down value as contained in Section 43(6) has also been amended and the am, wended provisions read as under:
"43(6) - " Written down value" means-
(a) ** ** **
(b) ** ** **
(c) In the case of any block of assets,-
(i) In respect of any previous year relevant to the assessment year commencing on the
1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted. (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset 14 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 falling within that block ,which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the 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 assets, and the Revenue cannot segregate a particular asset there from on the ground that it was not put to use. 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. We 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 23.09.1986, wherein the rationale behind the aforesaid amendment is described as under:
"6.3 As mentioned by the Economic Administration Reform Commission (report No.12, Para 20),the existing system in this regard requires the calculation of depreciation in respect of each capital assets separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity if use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1) (iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the year classes of assets, namely, buildings, machinery, plant and furniture."
19 From a reading of the aforesaid Circular it is clear that the legislature felt that keeping the details with regards to each and every depreciable asset was time consuming for both the assessee 15 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 and the Assessing Officer. Therefore, the Parliament in its wisdom amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of asset falling within the same class of assets.
20 Along with the amendment as aforesaid, the Parliament 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 which led to the aforesaid amendment. Therefore, his Lordship did not accept the submission of the Revenue "that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of "block of assets" Repelling this argument of Revenue, their Lordship in his own words held " Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular assets forming part of the "block of assets" even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short term capital gain, which would be exigible to tax and for this reason, we say that there is not loss to Revenue either."
21 It would be worthwhile to discuss the facts in CIT Vs. Oswal Agro Mills Ltd 341 ITR 467 (Del) in brief:-
"For the relevant assessment year the assessee claimed depreciation on its various assets which included the claim of depreciation in respect of a closed unit at Bhopal. The Assessing Officer asked the assessee to explain that on what basis it was claiming depreciation on that unit, which remained closed. In response the explanation of the assessee was that the depreciation was to be allowed as the assets of that unit remained part of the block of assets and were ready for passive use, which was as good as real use.16
IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 The Assessing Officer, however, was not impressed with the explanation of the assessee and disallowed the depreciation on that unit. The Commissioner (Appeals) dismissed the assessee's appeal. On second appeal, the Tribunal allowed the assessee's claim on two grounds, viz (1) there was a passive user of the assets at Bhopal unit, which would be treated as `used for the purpose of business' and (2) as it was a case of depreciation on block of assets, the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets".
The Head Notes in this case is as under:
The position concerning the manner in which the depreciation is to be allowed, has gone a sea change after the amendment of section 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 assessee and the Assessing Officer. Therefore, it amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of assets falling within the same class of assets [Para 31].
Another significant and contemporaneous development, which needs to be noticed, is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previously allowable under section 32(1)(iii) and also taxing of balancing charge under section 41(2) in he year of sale. Instead 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 assesses are not required to maintain particulars of each asset separately and in the absence of of such particular, it cannot be ascertained whether on sale of any asset, there is any profit liable to be taxed under section 41(2) or terminal losses allowable under section 32(1)(iii).This amendment also strengthens the claim that now only detail for 'block of assets' has to be maintained and not separately for each asset (para 32)."
22. So, we rely on the ratio decidendi of the decision rendered by the Hon'ble Delhi High Court in Oswal Agro Mills Ld (supra) where the assessee in that case claimed depreciation on its various assets which included the claim of depreciation in respect of a closed unit at Bhopal (non-used for six years) was disallowed by the AO, which was later allowed by the Tribunal on two grounds (i) there was a passive use of the assets at Bhopal unit, which would be treated as "used for the purpose 17 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 of business" and (ii) as it was a case of depreciation on block of assets, the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets. The Hon'ble High Court upheld the order of the Tribunal on the 2nd reason stated herein and as discussed above. However, the first reason of Tribunal that passive user of plant and machinery which theory in the facts and circumstances i.e. (six years non-user of unit and no sign of that unit becoming functional) did not find favour with the Hon'ble High Court, wherein their Lordship observed that the "Passive User", 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 the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset looses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time. In the circumstances the respondent's appeal was allowed and the disallowance of depreciation was deleted.
d. Mrs. Bharucha, learned Counsel for the revenue fairly states that the issue arising herein is identical to the issue which arose before the Tribunal in Boskalis Dredging India (supra) where also the dredger concerned was a part of the block of assets and not put to use. On instructions, she further states that the Revenue has accepted the decision of the Tribunal in Boskalis Dredging India (supra) which the impugned order has merely followed.
No distinguishing feature in the present facts has been pointed out which would warrant taking a different view. Besides the Tribunal in its order in Boskalis Dredging India (supra) placed reliance upon the decision of this Court rendered in an appeal filed by the Revenue in G.R. Shipping Ltd. being Income Tax Appeal No.598 of 2009 which was dismissed on 20.07.2008 upholding the view of the Tribunal on identical issue. Moreover it is clarified by the counsel that the refining machinery has itself been sold during the next year.
e. In the above view question Nos.(a) & (b) formulated do not give rise to any substantial questions of law. Accordingly not entertained."
18IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 24 Likewise Gujarat High Court in the case of Nirma Credit and Capital Ltd. v. ACIT reported in 390 ITR 302 has held as under:
"8. The record reveals that the reason assigned by the Assessing Officer for rejecting the depreciation is that the assessee had stopped the manufacturing activity and therefore, the question of use of machinery does not arise. However, the CIT(A) reversed the findings of the Assessing Officer on the premise that individual items included in the block are not to be considered separately for the purposes of granting depreciation in light of the amended provisions. We do not find any legal infirmity in the aforesaid view adopted by the first appellate authority since the assessment order itself reveals that it is not 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 are therefore stands allowed.
26 Ground No. 9 of AY 2012-13 is regarding the action of AO/Ld. CIT(A) in 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. Brief history of M/s. MSL can be taken note from the chart given below, which shows that M/s. MSL was initially incorporated in the year 1989 in the name of Madhya Pradesh Iron Steel (MPIS) as a steel division of Hindustan Development Corporation Ltd. (HDCL) which was Public Limited Company incorporated as early as in year 1944. Due to a major fire at its sub stations on 15.10.1998, company (now MSL) declared lay off, which action of it was later held by Hon'ble MP High Court as illegal; and on 04.03.2000, the Labour Department of Govt. of MP closed down the factory. Thereafter, the company filed a reference to BIFR and the company was declared sick by BIFR on 03.08.2005. BIFR after circulating Debt Rehabilitation Scheme (DRS) on 20.04.2012 to the nodal agent of the Revenue (Income Tax Department) i.e. the Director General of Income Tax (Admn) and Director of Income Tax (Recovery) and taking note of their views/objections submitted by it (revenue) on 16.07.2012, the BIFR passed sanctioned scheme (SS-12). A tabulation of the history, dates and events 19 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 particularly giving the details of Income Tax Department's participation in BIFR and AAIFR proceedings is as below:
1. 11.09.1944 Hindustan Development Corporation Ltd. (HDCL) was incorporated
2. 1989 MP Iron & Steel Co. (MPISC) as steel division of HDCL was formed (steel division, unit of HDCL) later name changed to M/s MSL
3. 03.1993 MPISC (later Malanpur Steels Ltd. (MSL) company's performance remained unsatisfactory since then.
4. 15.10.1998 Major fire in the sub-station, operation suspended (MPISC later MSL)
5. 20.10.1998 Declared lay off, held by M P High Court as illegal
6. 04.03.2000 The unit closed by the Secretary, Labour Dptt. (Govt. of MP)
7. 04.2000 HDCL Later 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 / MSL Company filed reference in BIFR as a sick company and registered as 11.03.2003 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) sent comments/objections to BIFR u/s. 19(2) of SICA within statutory time limit of 60 days opposing the granting the IT reliefs in DRS.
14. 21.06.2012 Company sent letter dated 04.06.2012 to the DIT (R) along with some details.
15. 13.07.2012 DIT(R) sent comments to BIFR after taking into consideration the company's reply dated 04.06.2012 and asked to retain u/s 72(3) and 72A for consideration of the Department by prefixing the word to consider and opposing all other IT reliefs provided in para 15.8 of DRS.
16. 16.07.2012 Hearing held before BIFR to hear comments. Hearing attended by the counsel of the Department and objection/suggestions to all the reliefs as per letter dated 08.06.2012 and 13.07.2012. BIFR directed that except sub para
(g) of para 15.8, all other sub paras (a) to (f) and (h) of para 15.8 be prefixed with word to consider. V Sub para (g) of para 15.8 be retained without any change and sanction the scheme. BIFR's SOP/order dated 16.07.2012 received in this Directorate on 09.08.2012.
17. 04.09.2012 BIFR Sanctioned a Scheme ( SS-12 ), copy received in this Directorate on 12.09.2012. As per para 15.8 under the head CBDT, IT reliefs are for consideration [except sub para (g) ]. Accordingly, the reliefs are provided in sub para (a) to (f) and (h) pf 15.8 with the word 'to consider' and relief as per sub para- (g) of para 15.8 in SS retained without any change. Hence the present appeal.20
IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16
27. We notice that in the impugned order of assessment, AO directed the appellant to explain the allowability of carry forward and set off of brought forward business loss/depreciation as per the provisions of the Act. It has been noted against the above the assessee submitted a letter dated 29.12.2016, where reliance was placed on the order dated 4.9.2012 of BIFR and stated that the said authority had directed for grant of relief and concessions as enumerated in para 15.8 page 26 of the said order. The AO on consideration of the above plea held as under:
"On the basis of the above concessions sought by MSL, the Hon'ble BIFR, has provided two types of concessions-
i) Concessions indicated for the authorities/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 in sub-para (g) of para 15.8 . The Hon'ble AAIFR vide its order dated 22.03.2013, an Appeal No.180/12 (A/w MA no.350/12) has observed that:-
"Heard that 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 section 72A of the Income Tax Act or any other statutory provision for the time being in force. As such, the contention and apprehensions of the appellant are completely misplace. There is no merit in the appeal. The Appeal is dismissed accordingly."
In fact in the said sub-para (g( of para 15.8 of Hon'ble BIFR, it is clearly stated that "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.
The order of the Hon'ble AAIFR lends credence to the discussions made in various paragraphs of this order in connection with allowability of brought forward business and depreciation loss of MSL in the hands of the assessee company after merger".
28 The appellant in respect of above claim in first appeal before CIT(A) submitted as under:
21IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 "The appellant had claimed set off of brought forward loss of MSL at Rs.1,21,06,26,360/- from A.Y 2000-2001 onwards which the AO denied on the ground that as per provisions of sec. 72, business loss of such years which have exceeded time period of 8 years and as such could not have been carried forward and set off beyond 8 years. The AO failed to appreciate the fact that the order of BIFR in such regard clearly and specifically directed the allowance of any "lapsed losses". The allowance of set off of "lapses losses" by the BIFR clearly made that the provision of sec. 72 were not at all applicable and such losses were eligible for set off by the amalgamated concern i.e. appellant company. The AO has chosen to apply the direction of BIFR as per its own sweet will and has ignored such order of BIFR although they were binding on it and as such the action of the AO in not granting the allowance of brought forward business loss of Rs.1,21,06,26,360/- in the impugned assessment year i.e. A.Y 2012-13 is wholly bad and illegal and it may kindly be held accordingly."
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/CC- XXV/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 letter along with or order of Hon'ble BIFR dt.06-09-2012 stating that the Hon'ble BIFR has granted reliefs and concession to the assessee. During the appellate proceedings the AR has also brought it on record that the assessee has written a letter to the CBDT in this regard. But so far no communication has been received from the CBDT. As per the direction of the Hon'ble Calcutta High Court to decide this case and pass an appeal order preferably within six weeks from the date of receipt of the Hon'ble High Court's direction, this case is being decided on the basis of material available on record and as per the provisions of the Income Tax Act, 1961. I think as per provision of section 72 of the I T Act, 1961, business loss can be carried forward to the following assessment year and so on for seven assessment years immediately succeeding only. In this context the assessee's claim that as per Hon'ble BIFR's order of merger the assessee is entitled to carry forward and set off of lapsed losses, does not hold good as per the existing provisions for carry forward of business loss in the I T Act. 1961. Accordingly, I think the AO is very much justified in disallowing the claim of the carry forward of business loss of Rs.1886371316/- from the assessment year 2000-01. Thus, assessee's appeal on this issue is also dismissed. In the result, assessee's appeal on grounds on 7,8,9 and 10 are dismissed."22
IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 30 The ld. AR before us submitted that the appellant had claimed the following losses of the merged unit i.e. Malanpur Steel Ltd. aggregating to Rs. 2,13,01,09,473/- (Business loss-Rs. 1,40,44,64,925/- and unabsorbed deprecation - Rs. 72,56,44,548/-) including the losses for AYs 2000-01, 2001-02 and 202-03. He submitted that the AO while giving effect to the order of Hon'ble BIFR in A.Ys 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14 did not grant the benefit of unabsorbed depreciation of Rs.72,56,44,548/0 on the ground that since the factory at Malanpur is closed down and hence set off of unabsorbed depreciation was denied. As regards business loss of Rs.1,40,44,64,925/- AO granted set off of only Rs.91,70,02,240/- and denied the brought forward loss so granted by the Hon'ble BIFR on the ground that "it includes lapsed losses" and the same cannot be considered as per provisions of Income Tax Act beyond 8 years and hence 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".
b) Indian Shaving Products v. BIFR (1996) 218 ITR 140 (SC) [Pg 164]
c) CIT v. Tube Investment India Ltd. (Madras HC) [Pg 176]
d) DCIT v. Sree Janadan Mills (Madras HC) [Pg. 179]
33 The ld. DR drew support from the orders of AO and CIT(A) and vehemently opposed the
contention of the assessee that lapsed losses after eight years can be claimed because of BIFR order.
According to the Ld. DR, condition stipulated in sub-section (2) of sec. 72A have to be complied with before grant of carry forward losses claimed by assessee company and since MSL has not 23 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 started functional, the AO rightly did not allow the claim and he does not want us to interfere in the order of the authorities below.
34 We have heard the rival submissions and carefully perused the records and judicial precedents cited before us. In order to appreciate the claim of the assessee and its prayer to give effect to the BIFR order passed on 04.09.2012, we need to examine the scope and power of sanctioned scheme of BIFR and for that we need to refer the Sick Industrial Companies (Special provisions) Act, 1985 (hereinafter referred to as " SICA Act").
35 The preamble to SICA Act states that SICA was introduced in the public interest to make special provisions for detection of sick units and expeditious enforcement of the measures determined by an expert Board (i.e. BIFR) to revive such sick unit, We therefore, has to keep this object of the SICA Act in mind while deciding the prayer of the assessee to give effect to BIFR order.
36 We note that SICA Act was enacted in the public interest, with special provisions enacted with a view to securing the timely detection of sick and potentially sick companies owing industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which were needed to be taken with respect to such companies and the expeditious enforcement thereof. Section 4 constitutes the Board for Industrial and Financial Reconstruction (BIFR/Board) and section 5 constitutes the Appellate Authority (AAIFR), Chapter III deals with references, inquiries and schemes. The provisions of section 15(1) state that there an industrial company has become a sick industrial company, its board of directors shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the 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 24 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 scheme for revival and rehabilitation with various measures, which includes amalgamation of the sick company with another company.
37 Where an order has been made under section 17(3) in relation to any sick industrial company, the operating agency specified in the order shall prepare a scheme with respect to such company providing for the measures set out therein. The following measures is referred to in Section 18 includes clause (c ) (i), namely, " the amalgamation of the sick industrial company with any other company". The scheme prepared by the operating agency is required to be examined by the BIFR and its copies sent with such modifications, if any, as may have been made by the BIFR to the sick industrial company, the operating agency and to the other company concerned in the proposed amalgamation and, after consideration of objections, the BIFR is required to sanction the scheme, which would come into force on such date as it might specify as per subsection (4) of section 18 of the said Act which provides as follows:
"(4) The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the `sanctioned scheme') and shall come into force on such date as the Board may specify in this behalf".
38 Thus, it is plain that date of operation of the scheme may be prospective or may be retrospective as the situation will demand and as per the decision of the Board, Sub-section (5) of the said section also provides for review, modification of any sanctioned scheme at the instance of the operating agency. Sub-section 7 and sub-section 8 provides as follows:
"Sub-s (7) - the sanction accorded by the Board under sub-s (4) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation, or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Board to be a true copy thereof shall, in all legal proceedings(whether in appeal or otherwise) be admitted as evidence.
Sub-s(8) - On ad from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on he shareholders, creditors and guarantors and employees 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 25 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation for within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given].
(3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistances, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.",
39 From a bare perusal of sec.19 of the SICA Act reveals the scheme by which rehabilitation has to be given to the Sick Industrial Company as a preventive measure, ameliorative remedial and other measures for which the scheme relates and the scheme by the BIFR to provide for financial assistance by way loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, State Government, any scheduled bank or other bank, a public financial intuition or state level intuition or any institution or other authority to the sick industrial company. Sec 19 refers to the aforesaid persons including Central Government who is required by the scheme to provide financial assistance. Sub-section (2) of section 19 requires every scheme prepared under sub-section (1) by the BIFR shall be circulated to every person required from the date of such circulation and if no consent is received then such period it shall be deemed that consent has been given. As per sub-section (3) of sec.19 consent refers in sub-section (2) is given then the Board should sanction the scheme on and from the date of such sanction the scheme shall be binding on all concerned.
40 Section 25 provides for appeal by any person aggrieved by an order of the Board. In this case, there has been an appeal preferred by the CBDT against the order sanctioning the scheme (which we will discuss later, but the appeal has been dismissed). Section 26 of the said Act provides bar of jurisdiction with regard to entertainment of any challenge against the order passed by the BIFR except as provided in the Act. The said section 26 provides as follows:
"26. Bar of jurisdiction - No order passed or proposed made under this Act shall be appealable except as provided 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 26 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 provisions of section 72A of the Income-tax Act, 1961 (43 of 1961), shall subject to the modification that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company."
From a reading of the above provision of law clearly indicates the Parliament's intention that this Act will prevail over other Acts in case there are inconsistency with them. The only laws which have been specifically excluded from this feature of this Act is (i) Foreign Exchange Regulation Act, 1973 (46 of 1973) and (ii) the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976).
42 In order to interpret the intention of the Parliament when only two statutes are specifically excluded if there is any inconsistency when giving effect to any orders passed by virtue of the power contemplated in this Act, we may take the aid of this maximum which is explained by Maxwell on the Interpretation of Statutes "Expressio unius exclusion alterius."
43 By the rule usually known in the form of this Latin maxim, mention of one or more things of a particular class maybe regarded as silently excluding all other members of the class: expressum facit cessare tacitum. Further, where a statue used two words or expressions, one of which generally includes the other, the more general term is taken in a sense excluding the less general one:
otherwise there would have been little point in using the latter as well as the former. An illustration is given below:
"In the Poor Relief Act, 1601, s.1. which imposed a poor rate on the occupiers of "
Lands, " houses, tithes and "coal mines", the same word was similarly limited as not including mines other than coal mines; the mention of one kind of mine showed that 27 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 the legislature understood the word "land", which would usually comprehend all kind of mine, as here not including any."
44 By applying the aforesaid maxim, the express mention of two Acts i.e. FERA (46 of 1993) and UL (C&R) Act 1976 (33 of 1976) in sec.32 of SICA clearly excludes other statues when giving effect to the scheme as envisaged/empowered by this statute, all other statutes inconsistent with the scheme passed by the Board 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-section (8). The scheme has mentioned the date on which it will become operative. It has been specifically mentioned that the said scheme would be operative from February 1, 1992, though the same was sanctioned on January 25, 1994.
41. We are of the opinion that the Board has ample power to fix the date to make the scheme operative from any day and we have quoted its authority under the said Act. Before the scheme had been prepared the draft was circulated by advertisement in the newspaper and no one had raised any objection. According to us the right of objection has been waived as by and under section 32(2) of the Act on behalf of the Central Government the Board has been empowered to give consent as is required to be done under the provisions of section 72A of the Income-tax Act, 1961. Under the aforesaid sub-section all the powers of the Central Government can be exercised by the Board without any interference or intervention of the authority referred to therein. Therefore, in this case, the Board really acts on behalf of the Central Government and when the Board is satisfied that all the conditions are fulfilled for giving consent for taking rehabilitation measures by way of amalgamation separate consent by notification by the Central Board of Direct Taxes is not required.
42. We could find this legal position from the decision of the Supreme Court in case of Indian Shaving Products Ltd. v. Board for Industrial and Financial Reconstruction reported in [1996] 218 ITR 140. In paragraph 28 of page 148 of the report Justice Bharucha for the Bench spoke legal position in this context as follows (headnote) :28
IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 "By reason of section 32(2) of the said Act, where there has been under any scheme thereunder an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act shall apply in relation to such amalgamation, subject to this modification that the power of the Central Government is to be exercised by the BIFR without the necessity of a recommendation by the specified authority mentioned in section 72A of the Income-tax Act. This is because, for the purposes of according sanction to a scheme of amalgamation of a sick industrial undertaking with any other company under section 18 of the said Act, the BIFR has to be satisfied that the amalgamating company is not financially viable, which is the effect of section 3(1)(o) of the said Act, and that the amalgamation is necessary 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 Income- tax 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 words, the scheme can be set at naught only by the BIFR or the AAIFR under the said Act itself and not otherwise except by the constitutional provision.
46. In view of the aforesaid provisions of the said Act which is a special one the income-tax authority cannot have any jurisdiction to render the operation of the said scheme nugatory.
47. It is rightly argued by Mr. Bajoria with the authority of the Supreme Court decision reported in Marshall Sons and Co. (India) Ltd. v. ITO reported in [1997] 22 ITR 809 that date of effect of the scheme is the date as mentioned therein.
48. It is appropriate to quote the relevant portion of the judgment as follows (headnote) :
"Every scheme of amalgamation of companies has necessarily to provide a date with effect from which the amalgamation/transfer shall take place. It is true that while sanctioning the scheme, it is open to the company court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it, the date of amalgamation/date of 29 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 transfer is the date specified in the scheme as `the transfer date'. It cannot be otherwise."
49. Hence, the income-tax authority has no competence to read the scheme differently as far as date of effect is concerned for any purpose.
50. Under those circumstances, we, therefore, are of the view that while answering question (A), that the Tribunal was correct in law in holding that the sanctioned scheme shall be conclusive evidence of fulfilling of requirements regarding consent of the Central Government/Central Board of Direct Taxes Circular No. 683 dated June 8, 1994.
51. While answering question (B) we express our opinion that the Tribunal was correct in law, on interpretation of the scope and purport of section 32(1) of the SICA, 1985 in holding that once a scheme having been sanctioned under this Act, the provisions of the scheme will have the overriding effect over any other laws except the FERA and the ULCRA.
52. While responding to question (C) we state that the Tribunal was not right in holding for the scheme sanctioned by the BIFR on January 25, 1994 approval/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 that provisions of SICA Act and the scheme sanctioned by the Board will override the Income Tax Act. Moreover, we note that in Morgan Securities and Credit Pvt. Ltd. JT 2007(1) SC 432, the Hon'ble Supreme Court answered to the question as to whether the provision of Arbitration Act would prevail over the provision of Sick Industrial Company (Special provisions) Act, 1985 (SICA). It was held that when there is a conflict between Arbitration Act and the SICA, 30 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 the later which have been made to seek to achieve the higher goal would be applicable despite non- obstante clause contained in Sec. 5 of Arbitration Act.
46 Let us now look at the CBDT Circular which has given instruction to the officers under it, how to give effect to the sanctioned scheme of the BIFR. The order u/s 119(2)(a) of the IT Act, 1961 dated 16-02-2000 issued by CBDT reported in 159 CTR 148 (st.) reads as under:
"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
(a) 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 giving a chance to the I. Tax Department to submit its views the effect of BIFR recommendations is to be given only after such recommendations of the BIFR are considered by the CBDT."
47 We also note that Vide CBDT circular No.683 dated 08.06.1994 - the nodal agency for co- ordination between the Board for Industrial and Financial Reconstruction (BIFR) and the Central Board 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.
31IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 empowered to issue circulars under section 5(8) of the Income Tax Act, 1922 and the Hon'ble Supreme Court observed that the circular issued by the CBDT is binding on all officers and persons employed in the administration of the Act.
51 In Ellerman Lines Ltd., vs. CIT (1971) 82 ITR 913 (SC), the observation made in Navnit Lal C. Jhaveri vs. K.K.Sen (1965) 56 ITR 198 (SC) was quoted with approved by the Hon'ble Supreme Court.
52J In State of Travancore vs.CIT (1986) 158 ITR 102, the Hon'ble Supreme Court once again reiterated the law that the circulars, which are in the nature of concessions, could always be withdrawn only prospectively.
53 In KeshavjiRavji& Co., vs.CIT (1990) 183 ITR 1 (SC), a Bench of three Judges of the Hon'ble Supreme Court had also taken the view that circulars beneficial to the assessee which tone down the rigour of the law and are issued in exercise of the statutory powers under Section 119 are binding on the authorities in the administration of the Act retrospectively.
54 The same view was taken by the Hon'ble Supreme Court in CWT vs.Vasudeo V. Dempo (1992) 196 ITR 216,that circulars issued by the department are normally meant to be followed and accepted by the authorities.
55. In K.P.Varghese vs. ITO (1981) 131 ITR597 (SC), the Hon'ble Court had gone one step further and observed that circulars issued by the CBDT are legally binding on the revenue and this binding character attaches to the circulars even if they are found not in accordance with the correct interpretation of a statutory provision and they depart or deviate from such construction.
56 The above dictum of law laid down by the Supreme Court show that although the circulars are not binding on the courts or an assessee, they are certainly binding on the revenue and it is not open to the revenue to advance an argument or filing an appeal contrary to the circulars. In fact, the department cannot even take contrary stand to the circulars as well.
32IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 57 In UCO Bank vs. Commissioner of Income Tax (1999) 237 ITR 889, the Hon'ble Supreme Court while considering the circulars issued in exercise of power under Section 119 of the Income Tax Act regarding the interest on sticky advances has held that the circulars were in the nature of concessions, which could always be prospectively withdrawn.
58 From the reading of the aforesaid judicial precedents it is vivid that 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 fact that the department's view was in fact considered by the BIFR before the order was passed on 04.09.2012 is clear from the pleadings of department in its appeal against BIFR order before the AAIFR wherein we note that the nodal officer of the Department Director General of Income Tax (Admin.) and Director Income Tax (Recovery)'s views of the Income Tax Department have been considered by the BIFR is clearly discerned and certain submission of the department before the AAIFR which throws light on this fact is reproduced below :-
"(2) The Applicant No.1 is the Director General of Income Tax (Admn.) is the Nodal agency on behalf of the CBDT as per the CBDT circular no.683 dared 08.06.1994 and another Circular No.5/2009 dated 02.07.2009. The Applicant No.2 is the Director of Income Tax (recovery) and is functioning under the charge of Applicant NNo.1 and was also party to the order dated 16.07.2012 passed by BIFR and SS-12 dated 04.09.2012.
(3) A reference was filed by M/s Malanpur Steel Limited (MSL), formerly known as Hindustan Development Corporation Ltd (HDCL), in terms of Section 15(1) of Sick Industrial Companies )Special).
Provisions) Act, 185 (SICA) and the same was considered by Hon'ble BIFR in the hearings held on 14.06.2002 and 11.03.2003. The BIFR accordingly declared MSL to be a sick industrial company in terms of Section 3(1)(0) of SICA.
33IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 (4) Hon'ble BIFR circulated a Draft Rehabilitation Scheme (DRS) vide order dated 20.04.2012, which was received in this Directorate on 10.05.2012. The Income Tax reliefs sought in the said DRS in para 15.08 are as under:
a) To exempt/grant relief to the company from the provisions of section 40A(3), 40(a)(ia), 41(1), 43B, 45, 56(2), 72A(2) 72(3), 79, 80 read with 139, 115JB and provisions of Chapter XVII of the Income Tax Act.
b) To allow the company to capitalize amount of Rs.245.80 crore, which was disallowed as revenue expenditure in the assessment for AY 2001-02 by debiting the Capital Work in Progress Account and crediting the P & L A/c in the FY 2010-11.
This amount of capital work in progress will be treated as part of the cost of the assets.
c) To exempt the company from chargeability of interest and penalties for defaults committed till date of production of Rolling Mill and Steel Plant respectively.
d) To exempt the company from Section 72 & Section 32 of 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. for the period when the Steel Plant was under suspension of operation/closed/shut down (From October, 1998 to the date of restart).
(5) The applicant Department filed its first reply within stipulated time limit vide its letter dated 08-06-2012 to BIFR stating therein in para 3 & 6, relevant portion is reproduced below:
..........
3. Further in the same decision of the Hon'ble Delhi High Court, it is also observed that DRS should quantify the extent of reliefs and concessions to be provided to the sick industrial company.
6. Hence, the company may be directed to furnish the same and the word 'to consider' should be prefixed before IT reliefs sought in para 15.8(a) to (h) of the DRS. In absence of which no comment can be offered and if the company fails to give the quantification of tax implication, we object to the income tax reliefs proposed in the draft scheme.
Subsequently the applicant Department received a reply on 21.06.2012 filed by the respondent company vide its letter dated 04.06.2012. The Department considered the respondent company's reply and filed its detailed reply vide letter dated 13.07.2012 to BIFR/OA. Vide the said reply the Department requested that only relief u/s. 72(3) and 72A provided in para 15.8 may be retained for consideration for the Department by prefixing the word 'to consider' and all the remaining reliefs be deleted. The Sr. 34 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 Standing Counsel was advised to communicate these facts/objections/suggestions before the Hon'ble BIFR during hearing of the case on 16.07.2012.
The appellant Department requests the Hon'ble Authority to grant following prayer:-
(a) To allow the appeal.
(b) To quash/set-aside the BIFR's order dated 16.07.2012 and SS-12 dated
04.09.2012 and modify the observations in paragraph 2. 11(b) in the sanctionedscheme and para 15.8 of SS-12 and prefix the words 'to consider' in respect of the relief claimed under sub-para (g) of 15.8 (under the heading CBDT) of the Rehabilitation Scheme so that the Petitioner Department could limit the relief to the merged entity to the extent of benefits available under section 72A of Income Tax Act 1961 subject to fulfillment of the conditions laid down in that section read with Rule 9-C of Income Tax Rules 1962.
(c) To delete relief u/s 80 read with 139 as not required by the company itself. Further relief u/s 40A(3), 40(a)(ia) 41(1), 43B, 45, 56(2), 72, 32, 72(2), 79, 115JB, provisions of chapter XVII, chargeability of interest and penalties, to capitalized amount of Rs.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 section 72A of the Income-tax Act or any other statutory provision for the time being in force. As such, the contention and apprehension of the appellant are completely misplaced. There is no merit in the appeal. The appeal is dismissed accordingly."
61 From perusal of the order of AAIFR (supra) dismissing the appeal of the revenue, it is evident that Hon'ble AAIFR held that relief granted in para 15.8(g) of the sanctioned scheme does not override the provisions of section 72A of the Act or any other statutory provisions for the time being in force and therefore, the Hon'ble AAIFR concluded that there is no merit in the appeal and dismissed it accordingly. The said order has acquired finality, as it has not brought to our knowledge, that any further proceedings are pending viz-a-viz the said order.
62 As per the latest circular of the CBDT governing the subject on hand, it is clearly laid down that during the BIFR proceedings, if the department's objections have been considered by the BIFR 35 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 before passing the sanctioned scheme, then the AO shall give effect even to the reliefs/grants for the consideration of the CBDT. In the present case, the undisputed fact is that the department's Nodal Agency (Director General of Income-tax (Admn.) and the Director of Income Tax (Recovery) has gone through the draft rehabilitation scheme and have conveyed their view point's/objections to the BIFR and BIFR has passed the order after considering the department's view/observations, which is clearly discernible from the averments/pleadings of the CBDT Nodal Officers (Director General of Income-tax (Admn.) and the Director of Income-tax (Recovery) in the appeal preferred before the AAIFR. This fact that department's views were considered emerges from a perusal of the appeal of the CBDT before the Hon'ble AAIFR relevant portions of which have been reproduced (supra) will clearly reveal that the department's view has been considered by the BIFR before the sanctioned scheme was passed on 04.09.2012. So, once we have taken note that department's view/objection has been taken note by the BIFR before passing the sanctioned scheme read with the circular issued by the CBDT, imposes a duty on the AO to give effect to even all the recommendations (i.e. reliefs to be given for proposals for consideration of CBDT given at sub para (a) to (h) of para 15.8 of the sanctioned scheme of BIFR. 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 giving a chance to the I. Tax Department to submit its views the effect of BIFR recommendations is to be given only after such recommendations of the BIFR are considered by the CBDT."
63 From the aforesaid, it is clear that the CBDT's objection/view was considered by the BIFR in terms of Circular which is binding on the officers of the department.
64 In the above factual and judicial backdrop, the sum and substance of the issue involved relates to the claim of unabsorbed lapsed losses and unabsorbed depreciation of the amalgamating company namely MSL with the appellant company on the basis of the order of BIFR dated4.9.2012.
36IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 There is no dispute even as per the AO that the appellant is entitled to claim the said losses in terms of the order of BIFR dated 4.9.2012. In fact out of total claim of losses of Rs.140.44 crores, the AO has allowed losses of Rs. 91.70 crores and the balance losses of Rs. 48.74 crores apart from unabsorbed depreciation of Rs. 72.56 crores have not been allowed. Thus aggregate sum in dispute is of Rs.121.30 crores.
65 The aforesaid claim has been denied by AO on the basis that BIFR order dated 4.9.2012 did not direct the "relief" but it only provided for "consideration" of the relief and since there is no order of CBDT providing for such relief, the claim is not maintainable. This reasoning is apparently flawed for it runs contrary to the judgment of the Hon'ble Apex Court in the case of Indian Shaving Products Ltd. v. Board of Industrial and Financial Reconstruction and Another218 ITR 140,and the Hon'ble Jurisdictional High Court in the case of CIT v. J. K. Corporation (supra) and Circular of CBDT dated 16.2.2000 (supra). The Apex Court in the case of Indian Shaving Products Ltd. (supra) has held that sanction of a scheme of amalgamation under section 18 of the said Act necessarily implies that the requirements of section 72A of the Income Tax Act have been met and the BIFR must exercise 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. Further Hon'ble Jurisdictional High Court has also in no uncertain terms have held that the scheme of BIFR override the Income- tax Act and the said scheme can be set at naught only by the BIFR or the AAIFR under the said SICA Act itself and not otherwise except by the Constitutional provision. 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 sum up the triad comprising of the judgment of the Hon'ble Apex Court in the case of Indian Shaving Products Ltd. v. Board of Industrial and Reconstruction and Another (supra), the 37 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 Hon'ble Jurisdictional High Court in the case of CIT v. J. K. Corporation (supra) and Circular of Board dated 16.2.2000 (supra) and section 32 of SICA when applied to the scheme, the claim of the appellant is in accordance with law and has to be given effect to.
66 Before parting with the matter we also consider it appropriate to independently consider the sanctioned scheme BIFR dated 4.9.2012 67 The directions of CBDT are found at sub-clause (g) to para 15.8 which reads as under:
"(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."
68 Other reliefs/grants for the consideration of CBDT are found at sub-clause (a) to (h) (except
g) above at para 15.8 of the sanctioned scheme of BIFR, which reads as under:
(a) To exempt/grant relief to the company from the provisions of section 41A(3), 40A(a)(ia), 41)1), 34-B, 45, 56(2), 72(2), 72(3), 79, 80 read with 139, 115JB and provisions of Chapter XVII of the Income Tax Act.
(b) To allow the company to capitalize amount of Rs.245.80 crore, which was disallowed as revenue expenditure in the assessment for AY 2001-02 by debiting the Capital Work in Progress Account and crediting the P&L A/c in the FY 2010-11. This amount of capital work in progress will be treated as part of the cost of the assets.
(c) To exempt the company from chargeability of interest and penalties for defaults committed till date of production of Rolling Mill and Still Plant respectively.
(d) To exempt the company from Section 72 & section 32 of the Income Tax act so as to allow company to carry forward its accumulated losses and allowances beyond the period 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 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 Rs. 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 sub-38
IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 section (3) of the section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for deprecation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."
70 It is thus noted that the deprecation is to be carried forward as per section 32(2) of the Act without any time limitation. Further, clause (b) of section 72A(7) provides that "unabsorbed depreciation" means so much of the allowance for deprecation of the amalgamating company which remains to be allowed and which would have been allowed to the amalgamating company under the provisions of Act amalgamation had not taken place.
71 Having regard to the above statutory provisions there can be no dispute as to allowability of the unabsorbed deprecation of MSL in the hands of the appellant company.
72 The quantum being ascertained, the facts not in dispute, the statutory position being clear as to the unlimited period of limitation for claim of unabsorbed depreciation, the claim of the assessee as to unabsorbed deprecation is in order and has to granted as per law(Mother India Refrigeration 155 ITR 711 (SC).
73 In respect of the unabsorbed losses, the AO was of the opinion that it includes 'lapsed losses" of AY 2000-01 and 2001-02 of Rs. 48.74 crores and the same cannot be considered as per the provisions of Act beyond eight years. The carry forward of unabsorbed losses as noted above, is governed by the special provision i.e. section 72A of the Act. So, when a special provision relating to carry forward and set off of accumulated loss on amalgamation is stipulated in section 72A of the Act, it will override the general provisions in respect of carry forward of losses given in section 72 of the Act. As per section 72A of the Act relevant to the present case, the law is that where there has been amalgamation of a company owning an industrial undertaking (M/s MSL) with another company (the assessee M/s. HEIL) then notwithstanding anything contained in any other provisions of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company (M/s. MSL) shall be deemed to be the loss of the amalgamated company (the assessee M/s. HEIL) for the previous year in which the amalgamation was affected and other provisions 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 39 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 gains of business is a loss to the assessee (not loss sustained in a speculation business) and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of sec.71, so much of the loss as has not been so set off or where the assessee has no income under any other head, the whole loss shall subject to the other provisions of this chapter be carried forward to the following assessment year and it shall be set off against the profit and gains if any of any business of profession carried on by the assessee and assessable for that assessment year. And if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. However, we note that sub-sec.(3) of Sec.72 of the Act prescribes a limitation period of 8 assessment years immediately succeeding the assessment year for which the loss was first computed. In other words, there is an outer limit of 8 years for carry forward of losses from the first year loss was computed under this section. Since the definition of 'accumulated losses' u/s. 72A of the Act, which is the special provision for carry forward of losses of amalgamated companies, incorporates the amalgamating company's accumulated loss which is entitled to carry forward and set off as per the provision of Sec.72 of the Act, sub clause (3) of section 72 of the Act prescribes a cap of eight assessment years immediately succeeding assessment year for which the loss was first computed. The AO while giving effect to the BIFR order did not understand the binding nature of the CBDT circular and has not given effect to the sub-clause (a) of 15.8 wherein para (a) the BIFR has asked CBDT to consider exempt/grant relief to the company from the provisions of section---------'--------
---'-----------'-----------'72A(2), 72(3), 79, 80 read with sec. 139 etc. Since the department's view has been considered by the BIFR before passing the sanctioned scheme as per CBDT circular, the AO was duty bound to give effect to the recommendation made by the BIFR. So, when the BIFR schemes consider, relief u/s. 72(3), means the limitation period prescribed u/s. 72(3) of the Act i.e. 8 years has to be lifted and AO has to give effect to it and carry forward of loss has to be given more than 8 years. Moreover, we note that clause (b) para 15.8 of the BIFR Scheme recommends CBDT 40 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 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 Income Tax authorities and as held by the Hon'ble jurisdictional High Court that the SICA Act overrides all other statutes except Foreign Exchange Regulation Act, 1973 and Urban Land Ceiling & Regulation) Act, 1976. Therefore, the AO was duty bound to give effect to the order passed by the BIFR and the accumulated loss and the unabsorbed depreciation needs to be granted.
74 We also take note that the special provision in case of amalgamated companies i.e. sec. 72A(1) is subject to sec. 72A(2). There are certain conditions which have been prescribed u/s. 72A(2) which the amalgamating company as well as the amalgamated company has to fulfill then only the accumulated loss as well as unabsorbed depreciation will be allowed u/s. 72A(1) of the Act. However, as we stated above as per the latest CBDT circular (supra), since in this case the department's views/objections were duly considered by the BIFR, before passing the sanctioned scheme, the AO has to give effect to even the recommendation given by it for consideration to the CBDT. In fact, as stated above, AO has given to scheme and, allowed unabsorbed losses though in part. So, the BIFR recommendation given in sub-clause (a) to (h) of para 15.8 of the sanctioned scheme is to be given effect to by the AO, since circular of CBDT is binding on him. We note that as per the sanctioned scheme sub para (a) of para 15.8, the BIFR has recommended CBDT to exempt/give relief of u/s. 72A(2) of the Act. Since the CBDT's objections were considered by the BIFR, before passing the sanctioned scheme, the recommendation/for consideration to CBDT has to be treated as mandatory by the AO and has to be given effect. Resultantly, the sub para (a) to (h) has to be given effect it includes to exempt/grant relief u/s 72A(2) of the Act, which implies, the pre-conditions stipulated in section 72A(2) of the Act for invoking section 72A(1) of the Act, needs 41 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 to be exempted and becomes in-operative and necessarily has to be overlooked and so, in effect the AO has to give effect to Sec. 72A(1) without looking into the conditions laid in sec. 72A(2) of the Act.
75 In arriving at the above conclusion, we derive support from the decision of Coordinate Bench of Tribunal in ITA No. 1335/Ahd/2011 for AY 2007-08dated 8.12.2015 in the case of ITO v. The Ahmedabad Advance Mills Ltd. where too BIFR by an order dated 21.8.2006 provided inter- alia as 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 brought forward business losses. The limitation of 8 years applies to brought forward business losses. However accumulated losses have no such limit. The set off is of the accumulated losses against capital gain which are otherwise not permissible under IT Act. Since SICA has overriding power as discussed earlier, the set off of capital gain is permitted by BIFR against accumulated losses. Therefore while implementing the order of BIFR, assessing officer has to apply the order even if it is not consistent with the provisions of IT Act. Since the order of BIFR is inconsistent with the provisions of IT Act as far as setting off of accumulated losses beyond eight years against capital gin are concerned. But still BIFR order will prevail over the inconsistent provisions of IT Act. Accordingly appellant will be eligible to set off capital gains against accumulated losses even beyond 8 years. As mentioned by the appellant, in the immediately preceding year, assessing officer in the assessment order passed on 13.10.2008 allowed set off of accumulated losses beyond 8 years against long-term capital gains of Rs.15,87,02,368 and short-term capital gain of Rs.1634615. Since same assessing officer himself allowed set off of accumulated losses against capital gains in the immediate preceding year, I do not understand the change in his stand this year. In view of the clear order of BIFR which has become final, appellant is entitled to set off capital gains against accumulated losses even beyond 8 years. Assessing Officer is therefore directed to allow such set off."
77 The aforesaid decision was affirmed by the Coordinate Bench of ITAT by holding that BIFR direction binds the revenue authorities. Also Hon'ble Madras High Court in the case of CIT v. M/s 42 IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 Tube Investments of India Ltd. in Tax Case (Appeal) Nos 519 to 521 of 2005 dated 4.1.2012 in almost identical circumstances upheld the order of Tribunal holding that the BIFR's recommendation to the department to consider granting exemption from the provisions of section 43B should be treated as a mandate. It was held as under:
"12. It is also contended that even assuming that the Scheme had no overriding effect on the provisions of the Income Tax Act, a reading of the scheme does not show that it directed the allowing of the deduction under section 43B, except observing that the income tax authorities 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 been set off in the hands of merged company in the instant year as a result of merger would ultimately be taxed in AY 2013-14 by virtue of section 72A of the Act read with rule 9C of the Rules. On consideration of the above, we are of opinion 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 the claims made in the preceding year in the light of the observations and decision given in the preceding paras. However as regards the latter is concerned, the fact that losses claimed and allowed in the instant year may or may not result in taxable income in succeeding years does not change the legal effect of a claim in the instant year. Since we have already held that the claim in the instant year is maintainable, the issue of taxability of said claim in any subsequent year doesn't arise in view of the discussion in para 73 & 74 supra. We therefore reject the contention of the Revenue in not allowing the losses fully and also the taxability of the sum in subsequent year. We therefore, also reject the aforesaid objection of the AO.
79 Ex-consequenti, the AO is directed to allow (subject to availability) unabsorbed losses and unabsorbed deprecation of MSL to the appellant company. Ground 9 for AY 2012-13 is therefore allowed.
43IT(SS)A Nos.146 to 152/Kol/2017 Hindusthan Engineering & Ind. Ltd., AY 2009-10 to 2015-16 80 So far as remaining grounds in these appeals are concerned our findings are as under:
a) Grounds 3 to 5, 10 and 11 for AY 2012-13 were not pressed and are thus dismissed;
b) Grounds 7 for AY 2014-15 and Grounds 8 and 9 for AY 2015-16 are regarding levy of interest which are consequential in nature.
c) Grounds 4 to 6 for AY 2014-15 and Grounds 4 to 7 for AY 2015-16 relate to depreciation on assets of M/s MSL which claim is pari-materia with Grounds 6, 7, 8 for AY 2012-13 and thus following the reasoning given by us while deciding Grounds 6, 7, 8 for AY 2012-13, we also allow the claim for the AYs 2014-15 and, 2015-16. Thus the grounds raised are allowed.
d) The other substantive grounds raised ground 4 in AY 2009-10, grounds 4 to 10 in AY 2010-11, 2011-12 and 2013-14 and also Additional grounds 2 to 4 in AY 2013-14 have been academic in light of the findings while adjudicating the scope of the validity of the assessment under section 153A of the Act.
81 In the result, the appeals filed by the assessee are partly allowed.
Order is pronounced in the open court on 24th January, 2018
Sd/- Sd/-
(Dr. A. L. Saini) (Aby. T. Varkey)
Accountant Member Judicial Member
Dated : 24th January, 2018
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant - M/s. Hindusthan Engineering & Industries Ltd. C/o Salarpuria Jajodia & Co. 7, C. R. Avenue, Kolkata-700 072.
2 Respondent - DCIT, C.C-1(4), Kolkata
3. The CIT(A) , Kolkata.
4. CIT , Kolkata.
5. DR, Kolkata Benches, Kolkata /True Copy, By order, Sr. Pvt. Secretary