Carry forward of investment allowance in amalgamation is limited by the remaining statutory period, with turnover-based expense allocation upheld.

In amalgamation cases, carry forward of unabsorbed investment allowance remains governed by section 32A and is confined to the balance unexpired period within the statutory eight-year ceiling from the original eligible year, so a fresh eight-year period is not available to the amalgamated company. Where common head office and non-manufacturing branch expenses cannot be reliably linked to specific units, turnover-based apportionment is an accepted method for deductions under sections 80HH, 80-I and 80-IA. For section 80HHC, excise duty and sales tax are excluded from total turnover because they are statutory levies without profit content. Interest disallowance on advances to a sister concern may be sustained where no fresh factual or legal basis justifies departure from earlier relief.

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Issues: (i) Whether the unabsorbed investment allowance of the amalgamating company could be carried forward by the amalgamated company for a fresh period of eight years from the year of amalgamation, or only for the remaining balance period under section 32A; (ii) whether common head office and non-manufacturing branch expenses were to be apportioned on the assessee's proposed basis or on turnover basis while computing deductions under sections 80HH, 80-I and 80-IA; (iii) whether excise duty and sales tax were to be excluded from total turnover for deduction under section 80HHC; and (iv) whether interest disallowance relating to interest-free advances to a sister concern was sustainable.

Issue (i): Whether the unabsorbed investment allowance of the amalgamating company could be carried forward by the amalgamated company for a fresh period of eight years from the year of amalgamation, or only for the remaining balance period under section 32A.

Analysis: Section 72A deals with carry forward and set off of accumulated loss and unabsorbed depreciation in amalgamation cases. It does not govern investment allowance. The carry forward of investment allowance is controlled by section 32A(6), which specifically provides that the amalgamated company may continue the balance of investment allowance, but the total carry forward period in the hands of the amalgamating and amalgamated companies together cannot exceed eight assessment years from the relevant starting point. The rehabilitation scheme and BIFR declaration referred to tax benefit under section 72A, but they did not override the statutory limit in section 32A(6).

Conclusion: The assessee was entitled only to the remaining unexpired period of carry forward, not to a fresh eight-year period; the claim for set off in the relevant assessment year was rejected.

Issue (ii): Whether common head office and non-manufacturing branch expenses were to be apportioned on the assessee's proposed basis or on turnover basis while computing deductions under sections 80HH, 80-I and 80-IA.

Analysis: Where expenditure cannot be properly identified with particular units, allocation on a turnover basis is an accepted and appropriate method. The assessee did not establish that its proposed method was more scientific or more accurate. The basis adopted by the Assessing Officer and affirmed by the CIT(A) was supported by the nature of the common expenses and the absence of reliable unit-wise identification.

Conclusion: The turnover-based allocation was upheld and the assessee's challenge failed.

Issue (iii): Whether excise duty and sales tax were to be excluded from total turnover for deduction under section 80HHC.

Analysis: Total turnover for section 80HHC purposes is confined to receipts having an element of profit. Excise duty and sales tax are statutory levies collected by the assessee and do not represent trading turnover carrying profit content. The issue was covered by binding jurisdictional precedent and approved by the Supreme Court.

Conclusion: Excise duty and sales tax were to be excluded from total turnover; the revenue's challenge failed.

Issue (iv): Whether interest disallowance relating to interest-free advances to a sister concern was sustainable.

Analysis: The same addition had been deleted in earlier years and the revenue had not shown any different factual or legal basis to depart from the earlier view. The CIT(A) followed the earlier orders and no infirmity was demonstrated in that approach.

Conclusion: The deletion of the interest disallowance was upheld.

Final Conclusion: The controversy on investment allowance was decided against the assessee, while the remaining issues were decided in its favour or in the assessee's favour by sustaining the relief granted and rejecting the revenue's objections; the composite result was only a partial success for the assessee in the tax appeal proceedings.

Ratio Decidendi: In amalgamation cases, the carry forward of investment allowance is governed by section 32A and remains subject to the statutory eight-year ceiling counting from the original eligible year, and common expenses may be allocated on turnover basis where the assessee cannot show a more reliable unit-wise method.

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