TaxTMI 
TaxTMI 
2013 (11) TMI 1313
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.... assessee claimed a set off of loss of Rs. 12.53 crore u/s.72A of the Act. However, in the revised computation of income, the amount of brought forward loss was reduced to Rs. 7.73 crore on account of amalgamation of BTPU alone. The Assessing Officer considered the provisions of section 72A and came to the conclusion that no set off of such loss was permissible due to the reasons, which can be summarized as under :- (i) The condition laid down in section 72A(2)(b)(i) requiring the amalgamated company to hold continuously for a minimum period of five years from the date of amalgamation at least three-fourth of the book value of fixed assets of the amalgamating company was not satisfied. It can be seen that the A.O. has drawn a table on page No. 9 of his order by which he computed 43.79% representing the disposal of assets of the amalgamating company by the assessee in the very first year of the amalgamation. (ii) The assessee-company was not able to substantiate that the Scheme of Amalgamation was with a view to revive the business of the amalgamating company and amalgamation was for a genuine business purposes. This, in his opinion, was violation of sect....
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....f BTPU is to be deemed as the brought forward loss of the assessee company eligible for set off and carry forward. Sub-section (2) of section 72A sets out some conditions to be fulfilled before claiming set off or carry forward of accumulated loss and unabsorbed depreciation of the amalgamating company as per subsection (1) of section 72A. Such conditions are required to be fulfilled by the amalgamating company and also the amalgamated company. The Assessing Officer has not disputed the compliance of conditions by the amalgamating company, being BTPU, as given in clause (a) of sub-section (2) to section 72A. Controversy has been raised in relation to the fulfillment of conditions by the amalgamated company as given under clause (b) of section 72A(2) of the Act. The first objection of the Assessing Officer is that the assessee-company ought to have held continuously for a minimum period of five years from the date of amalgamation at least three fourths of the book value of the fixed assets of the amalgamating company. As per the AO's calculation, the assessee disposed of 43.79% of the assets of BTPU which violated the requisite condition. It has been observed in an earlier part of t....
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....er of amalgamating companies in respect of which it succeeds in satisfying the conditions u/s 72A(2)(b). If, say, out of three amalgamations, the amalgamated company proves the fulfillment of conditions as per section 72A(2)(b) in respect of one or two amalgamating companies, then it shall be entitled to the benefit u/s 72A(1) in respect of such one or two companies. It is not the case that the benefit u/s 72A(1) shall be allowed or denied for all the amalgamating companies taken together as one unit on the cumulative satisfaction of the requisite conditions of section 72A(2)(b) in respect of such companies. Reverting to the facts of the present case, it is observed that there were two amalgamations with the assessee company, viz. of BTPU and BSPPL. The assessee claimed set off and carry forward of business losses and unabsorbed depreciation of BTPU alone. In order to claim such benefit, it was incumbent upon the asseessee not to dispose of more than 25% of the assets of BTPU alone. Disposal of assets of BSPPL could have been included in the total disposal of assets, as has been done by the AO, if the assessee had claimed set off and carry forward of the accumulated loss and unabso....
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....s from the date of amalgamation. The second clause states that the amalgamated company shall furnish to the Assessing Officer a certificate in Form No. 62 duly verified by an Accountant showing particulars of production along with return of income "for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for the subsequent assessment years relevant to previous years falling within five years from the date of amalgamation". On going through clause (a) of Rule 9C, we find that the amalgamated company is required to achieve the level of production of at least 50% of the installed capacity of the undertaking of the amalgamating company 'before the end of four years from the date of amalgamation'. A cursory perusal simply divulges that the requirement of achieving production of at least 50% of the installed capacity of the undertaking is to be fulfilled before the end of four years from the date of amalgamation. This production level may be achieved in the first year or second year or third year or even before the end of the fourth year. There is nothing in the phraseology of the Rule that the said level of production must be ....
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....forts taken by the amalgamated company for reviving the business of amalgamating company. 8. The last requisite condition which, in the opinion of the Assessing Officer, was not fulfilled is about the failure of the assessee to furnish the certificate in the Form No. 62. It is axiomatic that the same is not applicable in the previous year relevant to assessment year under consideration. The language of clause (b) of Rule 9C is categorical in stating that the amalgamated company has to "furnish to the Assessing Officer a certificate in Form No. 62 ....... along with the return of income for the assessment year relevant to previous year during which prescribed level of production is achieved................". Thus, it is manifest that the requirement of furnishing Form No. 62 will arise for the first time only when the amalgamated company fulfills the condition of achieving the level of production of at least 50% of the installed capacity of the undertaking of the amalgamating company within four years from the date of amalgamation. As the assessee admittedly did not achieve the production at the desired level of the installed capacity and it is not the fourth year from the date of ....
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.... that there is no failure on the part of the assessee to fulfill the requisite conditions for claiming set off of brought forward business losses and unabsorbed depreciation of BTPU in year under consideration. This impugned order is overturned on this issue and this ground is allowed. 12. Second issue in this appeal is against considering income from sale of shares of Bayer (India) Ltd. as 'Business income' instead of 'Capital gains' as claimed by the assessee. 13. The facts apropos this issue are that the assessee lodged a claim during the course of assessment proceedings that profit on sale of investment was shown twice, viz., firstly, by crediting a sum of Rs. 66,57,463/- to the profit and loss accounts and secondly, by including a sum of Rs. 63,10,102/- under the head 'Capital gains' as long term capital gain. The AO found correct the assessee's contention and permitted withdrawal of Rs.63.10 lac as long term capital gain. The assessee contended before the ld. CIT(A) that such profit arose from sale of shares held as investment and hence the amount of capital gain should have been retained by reducing the amount of business income. The ld. CIT(A) upheld the assessment order ....
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....are that the assessee initially claimed a sum of Rs. 2,10,26,593/- as long term capital loss on sale of Harmer & Reimmer (H&R) Business. The assessee was required to furnish details of the sale of the aforesaid business and valuation of assets. The assessee furnished the details in the following form :- Particulars Amount Amount Sale consideration 71241450 Less : Assets transferred WDV of fixed assets transferred 214791 Debtors 35383316 Inventories 32478214 Loan of HRFFPL 17400000 Miscellaneous receivable 6792902 Bayer Cropscience Ltd. (1180) 92268043 Loss - 21026593 17. The assessee submitted that H&R Business was forming a part of the assessee's undertaking which was sold on 31.3.2004. Decision to sell H&R Business was taken as a part of global decision by the Bayer group of companies. It was explained that the business was transferred to M/s Symrise for a lump sum consideration of Rs. 7,12,41,450/- resulting into loss of Rs. 2,10,26,593/-. The assessee elaborated that the fixed assets, debtors, investors, loan to HRFFL and miscellaneous receivables relating to b....
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....eration for transfer of all other item of assets at their book value. That is how he worked out difference of Rs. 1.18 crore by holding that the inventory valuing Rs.3.24 crore was transferred to the transferee only at Rs.1.18 crore. Relying on the judgment of Hon'ble Supreme Court in the case of ALA Firm Vs. CIT (1991) 189 ITR 285 (SC) holding that closing stock should be valued at market price at the time of closure of business, the Assessing Officer held that the closing stock was required to be valued at the market rate. Considering the GP rate of 36.50% as declared by the assessee for the year in question, the Assessing Officer computed market value of inventories at Rs. 4.43 crore w.r.t. the book value of Rs.3.24 crore. By considering this market value at Rs. 4.43 crore vis-à-vis the actual value of transfer of inventories at Rs. 1.18 crore, the Assessing Officer came to hold that the assessee suppressed the income of Rs. 3.28 cores. Taking into consideration the fact that the H&R Business was transferred on 30.09.2002 and thereafter it was carried out by the assessee as a custodian of the transferee, the Assessing Officer held that the income of Rs. 3.28 crore was req....
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....to the decision of Bayer Group in Germany to hive off this business globally. Pending certain legal formalities, the assessee agreed to carry out the business on behalf of the buyer i.e. Symrise Ltd., as their custodian in India with the clear understanding that "any loss/profit arising out of the operations would belong to the buyer". This is what the assessee gave in writing to the AO, which has been reproduced on page 4 of the assessment order itself. The above narration of the facts leads us to irresistible conclusion that the business of H&R division was transferred by the assessee to Symrise Ltd. on 30.9.2002. The assessee agreed to and, in fact, carried out business on behalf of the Symrise Ltd. as their custodian in India from 1.10.2002 till 31.3.2004 and transferred profit/loss arising out of such operations to the buyer. It is a clear cut case of transferring the business on 30.09.2002 and carrying on the business from 1.10.2002 for and on behalf of the Symrise Ltd., who acquired the status of owner of H&R Business from the date of transfer in the year 2002. We fail to comprehend as to how the assessee can blow hot and cold in the same breath. On one hand it is claiming t....
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....omputed income of Rs.3.28 crore from the transfer of stock by relying on the decision of the Hon'ble Summit Court in the case of A.L.A Firms (supra), as against a claim of loss by the assessee. This judgment has been pressed into service by the AO to drive home the point that the inventories at the time of closure of business should be valued at the market rate, which he computed at Rs. 4.43 crore, by adding mark up to the book value of inventories. The crux of the Assessing Officer's opinion is that the inventories should be valued by applying the market rate in view of the judgment of Hon'ble Supreme Court in the case of ALA Firm (supra). Per contra, the ld. AR strongly urged that the correct judgment to be applied in the facts and circumstances of the present case is Sakthi Trading Co. VS. CIT (2001) 250 ITR 871 (SC) and not A.L.A. Firm (supra) which has been wrongly followed by the authorities below. 23. We would examine the facts and ratio of A.L.A Firm VS. CIT (1991) 189 ITR 285 (SC), which forms the bedrock of the decision of the authorities below. The assessee in that case was a partnership firm carrying on in Malaya a money lending business and, as part of and incidental ....
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....l basis, that is every asset of the partnership should be converted into money at its market value and the account of each partner should be settled on that basis. It was, therefore, held that in order to arrive at the correct picture of the trading results of the partnership on the date when it ceases to function, the valuation of the stock in hand should be made on the basis of the prevailing market price. Once this principle is applied and the stock-in-trade is valued at market price, the surplus, if any, has to get reflected as the profits of the firm and charged to tax. 24. The ld. AR argued that the authorities below were not justified in applying the judgment in the case of A.L.A. Firm (supra), which was not germane to the issue under consideration. He strongly accentuated on the judgment in Sakthi Trading Co. VS. CIT (2001) 250 ITR 871 (SC) to buttress his contention that the stock was not required to be valued at market price. 25. Let us examine the facts of Sakthi Trading Co. (supra) in which the assessee a registered firm with six partners was dissolved on February 6, 1984 due to death of one partner. The said firm was reconstituted with effect from the next day, that ....
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....artner or otherwise, and the business is continued by the reconstituted firm, then the stock need not be valued at market price in preference to the regular method of valuation. Continuation of the business by the firm itself is a guiding criterion. Where the business is discontinued by the firm, then stock is invariably required to be valued at market price. If however, the business is continued by the firm then the stock should be valued as per the regular method of valuation irrespective of the fact that there was a change in constitution or dissolution or otherwise. The decisive factor is the continuation of business by the firm itself. 27. When we advert to the facts of the instant case, it comes to the fore that the business of H&R unit with all its assets including stock in trade was transferred by the assessee to Symrise Ltd., which is an altogether a different concern. Accordingly, all the ties between the assessee company as owner and the business were ceased. In such a situation, it is difficult to hold that the case of the assessee is covered by the judgment in the case of Sakthi Trading (supra) as has been contended by the ld. AR. After dealing with this argument rais....
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....rrect and second, even if such a value is presumed to be correct, still no addition can be eventually made. 30. As far as the first reason goes, it is seen that the AO applied the GP rate for the A.Y. 2004-05 for valuing the stock in trade for the A.Y. 2003-04 as on the date of transfer, which patently is unsustainable. Even if the AO is presumed to be correct that stock is to be valued at market value on the date of transfer of business on 30.09.2002, still the actual price of the stock realized, that is, Rs 1.18 crore will have to be considered as market value of the stock on that date. The authorities below have no where held that such value of stock actually realized by the assessee is concocted or in any manner does not represent its true market price. 31. The case of A.L.A. Firm (supra) should be seen in the light of its own facts. The question about the difference in valuation of stock arose as there was evidence to show that the market price of the stock was more than that recorded in its books. This fact is noticeable from that assessee recording higher market value in its books by showing certain profit on revaluation of stock but choosing to claim it as not taxable. It....
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....realized on the transfer of such stock to Symrise Ltd. It is not possible to make addition of Rs.3.28 crore by taking the market value of stock transferred as on the date of transfer without considering the second part of the transaction, being the transfer of stock at actual price realized, which event also took place in the relevant year. When we consider the actual sale price of stock at Rs.1.18 crore, it comes to the fore that there is net loss as claimed by the assessee on the composite transaction of firstly valuing the stock at market price on 30.09.2002 and then its sale during the year. The AO considered only first part of the transaction overlooking the second part, which also ought to have been considered. We, therefore, overturn the impugned order on this issue by which the Assessing Officer's computation of income of Rs. 3.28 crore from the transfer of inventories was accepted by the ld. CIT(A). 33. In the result, the appeal is partly allowed. A.Y. 2003-04 34. First ground of the appeal regarding initiation of reassessment proceedings was not pressed by learned AR. The same is accordingly dismissed. 35. The second issue is against the determination of income at Rs.....