Carry forward of losses under sanctioned amalgamation upheld; revision power cannot be used where the assessment follows the governing legal position.

The sanctioned amalgamation under the sick-industries framework was treated as satisfying the conditions relevant to carry forward and set off losses under Section 72A of the Income-tax Act, because Section 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 gave effect to the Board-approved scheme. On that basis, the Assessing Officer's allowance of the loss claim was not erroneous. The Commissioner's revisional power under Section 263 could not be exercised absent both error and prejudice, so revision was not sustainable. The assessee's entitlement to carry forward losses was upheld.

---

---

Issues: Whether the assessee was entitled to carry forward and set off losses under Section 72A of the Income-tax Act, 1961 in the light of the sanctioned scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, and whether the Commissioner could invoke revisional jurisdiction under Section 263 of the Income-tax Act, 1961.

Analysis: The claim for carry forward of losses arose from an amalgamation sanctioned in proceedings under the special sick-industry legislation. The statutory interplay between Section 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 and Section 72A of the Income-tax Act, 1961 was treated as decisive, because sanction of the scheme by the Board necessarily imports satisfaction of the conditions relevant to the benefit under Section 72A. On that footing, the Assessing Officer's allowance of the claim could not be described as erroneous. Since Section 263 requires both error and prejudice to coexist, the Commissioner could not revise the assessment when the assessment had followed the applicable legal position.

Conclusion: The assessee's entitlement to carry forward losses was upheld and the revision under Section 263 was not sustainable.

---