BIFR-sanctioned amalgamation permits loss carry forward and blocks section 263 revision absent error and Revenue prejudice.

A BIFR-sanctioned amalgamation of a sick industrial company satisfies the statutory basis for carry forward and set-off of losses under section 72A of the Income-tax Act, because the sanctioned scheme implies the requisite findings on sickness, revival and public interest. The assessee was therefore entitled to claim the amalgamated company's losses, especially as the issue had already been accepted in its earlier case. Revision under section 263 was also unavailable because the assessment order was not shown to be both erroneous and prejudicial to the Revenue; the Assessing Officer had applied the governing legal position correctly, so the revisional order was unsustainable.

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Issues: (i) Whether the assessee was entitled to carry forward and set off the losses of the amalgamated company under the scheme sanctioned by the BIFR. (ii) Whether the Commissioner could revise the assessment under section 263 of the Income-tax Act, 1961 in the facts of the case.

Issue (i): Whether the assessee was entitled to carry forward and set off the losses of the amalgamated company under the scheme sanctioned by the BIFR.

Analysis: The question was governed by the interplay between section 32(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 and section 72A of the Income-tax Act, 1961. Where a scheme of amalgamation of a sick industrial company is sanctioned by the BIFR, the statutory requirements underlying section 72A stand satisfied, because the Board's sanction necessarily implies satisfaction as to sickness, revival, and public interest. The prior decision in the assessee's own case had already held that the loss claim arising from such amalgamation was allowable.

Conclusion: The assessee was entitled to the set-off claim, and the answer on this issue is in favour of the assessee.

Issue (ii): Whether the Commissioner could revise the assessment under section 263 of the Income-tax Act, 1961 in the facts of the case.

Analysis: Revision under section 263 can be sustained only if the assessment order is both erroneous and prejudicial to the interests of the Revenue. Since the Assessing Officer had followed the legal position governing BIFR-sanctioned amalgamation and allowance of losses, the assessment could not be treated as erroneous. The twin statutory conditions for revision were therefore not met concurrently.

Conclusion: The revisional order was unsustainable, and the answer on this issue is in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessee obtained the substantive tax relief sought, with the Revenue's challenge failing on both the allowance of set-off and the revisional jurisdiction issue.

Ratio Decidendi: A BIFR-sanctioned amalgamation of a sick industrial company satisfies the statutory basis for granting carry forward and set-off of losses under section 72A, and revision under section 263 cannot be invoked unless the assessment order is simultaneously erroneous and prejudicial to the Revenue.

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