Amalgamation expenses under section 35DD must be claimed in equal 1/5th installments over five years, not 2/5th in single year

ITAT Mumbai held that under section 35DD, amalgamation expenses must be claimed in 5 equal annual installments of 1/5th each, rejecting the assessee's claim for 2/5th deduction in one year. However, the tribunal accepted that AY 2007-08 should be treated as the first year for claiming merger expenses since amalgamation became operational only after HC approval during that year, not from the effective date of 01.04.2005. Regarding MAT credit under section 115JAA, the matter was remitted to the assessing officer for verification of documentary evidence submitted under the VSVS scheme.

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Issues Involved:

1. Disallowance of merger expenses under Section 35DD.
2. Admission of additional grounds regarding merger expenses.
3. Non-allowance of MAT credit under Section 115JAA.
4. Consequential relief and general grounds.

Summary:

Disallowance of Merger Expenses under Section 35DD:

The assessee claimed 2/5th of merger expenses for AY 2007-08, arguing the merger was effective from 01/04/2005 but approved in October and December 2006. The Assessing Officer disallowed the claim, stating only 1/5th is allowable annually under Section 35DD. The CIT(A) upheld this disallowance. The Tribunal confirmed that Section 35DD allows only 1/5th of expenses per year, dismissing Ground No. 3.

Admission of Additional Grounds Regarding Merger Expenses:

The assessee raised an additional ground to treat AY 2007-08 as the first year for claiming merger expenses if Ground No. 3 was dismissed. The Tribunal admitted this ground, citing it as a pure legal issue. It concluded that AY 2007-08 should be the first year for claiming expenses under Section 35DD, as the amalgamation became operative post High Court approvals received in the financial year relevant to AY 2007-08. Thus, the additional ground was allowed in favor of the assessee.

Non-Allowance of MAT Credit under Section 115JAA:

The assessee's claim for MAT credit for AY 2006-07 was denied by the lower authorities, who argued that the assessed income under normal provisions was higher than under Section 115JB. The assessee contended they had opted for the Vivad se Vishwas Scheme (VSVS) and chose to carry forward MAT credit. The Tribunal remitted the issue back to the Assessing Officer for verification based on documentary evidence, directing that the claim be allowed if substantiated.

Consequential Relief and General Grounds:

Grounds No. 1, 2, and 8 were deemed general and did not require separate adjudication. Grounds No. 5 to 7 were consequential and also did not need separate adjudication.

Conclusion:

The appeal was partly allowed, with the Tribunal dismissing the claim for 2/5th of merger expenses but allowing the additional ground to treat AY 2007-08 as the first year for claiming merger expenses. The issue of MAT credit was remitted back for verification.

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