COMMISSIONER OF INCOME TAX Vs. SIVALIK CELLULOSE LTD.

JUDGEMENT

(1.) THE following two questions of law were framed by the Court at the stage of admission:

(2.) THE brief facts are that the assessee who was originally incorporated in 1975, set up a paper plant, started incurring losses and faced winding up proceeding during which rehabilitation proposals were made. Subsequently, at the request of financial institutions who backed the rehabilitation plant, Hindustan Lever Ltd. (HLL) agreed to participate in the rehabilitation proposal and accordingly a scheme of compromise was drawn on 15.2.1990. In terms of this arrangement HLL had five nominees on the Board of Directors of the assessee; the promoter had one nominee and financial institutions had three nominees. The rehabilitation scheme was to end on 30.9.2004. HLL however decided not to continue with the operations of the company and withdraw from management on 30.9.2004. Possession of the plant was handed over by HLL to the financial institution, IDBI on 1.10.2004. IDBI thereafter acting as the largest shareholder resumed management of the affairs of the company. There was subsequent share transfers etc. with which this Court is not concerned.

(3.) SINCE the assessee was aggrieved by these additions it approached the CIT, who directed deletion of both the amounts. It was held by the CIT firstly that merely because the liability of 1.52 crores pertained to earlier years its deduction could not have been disallowed. It was observed that this liability has crystallized on account of Board Resolution of 4.12.2003. Speaking about the other amount i.e. 24.3 crores, the CIT noted as follows: