Amalgamation reserve is accounting entry, not taxable income under section 28(iv) read with section 2(24)(vd)

ITAT Kolkata ruled that amalgamation reserve created in books of amalgamated company cannot be treated as income under section 28(iv) read with section 2(24)(vd). The tribunal held that such reserve is merely an accounting entry to balance books under double entry system, not representing real income or any benefit/perquisite from business activity. Following precedent from Delhi HC, the tribunal confirmed that when share exchange is based on fair valuation, no taxable benefit arises. Revenue's appeal was dismissed.

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Issues involved:
- Appeal by revenue and Cross Objection by assessee arising from order of CIT(A)-XII regarding Assessment Year 2003-04.
- Revenue's appeal against CIT(A)'s deletion of addition made by AO on account of amalgamation reserve as income u/s. 28(iv) read with section 2(24)(vd) of the Act.

Analysis:
1. Cross Objection Dismissal: The Cross Objection by the assessee was dismissed as not pressed since the counsel for the assessee stated lack of interest in prosecuting it, which was not objected by the Ld. CIT, DR.

2. Revenue's Appeal - Amalgamation Reserve: The main issue in the revenue's appeal was the deletion of the addition made by the AO on account of amalgamation reserve treated as income u/s. 28(iv) read with section 2(24)(vd) of the Act. The CIT(A) deleted the addition after considering submissions, citing a similar third member decision in another case.

3. Facts and Arguments: The assessee company engaged in manufacturing electrical goods created an amalgamation reserve following the amalgamation of three companies. The AO treated this reserve as income, triggering the appeal. The assessee argued that the reserve did not constitute a benefit or perquisite, and the exchange of shares was based on fair valuation, not resulting in any income or benefit.

4. Tribunal's Decision: The Tribunal heard both sides and found the reserve to be a simple accounting entry to balance the books post-amalgamation, following the decision of the Hon'ble Delhi High Court. As the exchange of shares was based on fair valuation, no benefit or perquisite was earned. Therefore, section 28(iv) of the Act did not apply, and the AO was unjustified in assessing the reserve as income.

5. Judgment: The Tribunal confirmed the CIT(A)'s order, dismissing the revenue's appeal. The decision highlighted that the amalgamation reserve did not represent real income and did not arise from the business activity, hence not constituting a benefit or perquisite. Consequently, the appeal of the revenue was dismissed, and the Cross Objection of the assessee was also dismissed as not pressed.

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