TaxTMI 
TaxTMI 
2015 (12) TMI 511
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....was changed w.e.f 16.06.2004 to Mawana Sugars Limited. The facts in brief of the case are that the assessee was engaged in the business of manufacture and sale of sugar. The assessee filed return of income on 24.10.2003 declaring loss of Rs. 26,79,18,903/-. The case was selected for scrutiny and processed u/s 143(1) on 19.02.2004. Notices u/s 143(2) was issued. The assessing officer noticed in his order that the assessee failed to furnish accurate particulars of its income by wrongly claiming carry forward of brought forward losses, during the year under consideration. The assessing officer completed assessment at total loss of Rs. 26,79,18,903/-. 03. According to the scheme of arrangement u/s 391 and 394 of The Companies Act 1956 as approved by Hon. Delhi high court vide its order dated 26/08/2003, sugar business of siel limited ( demerged Company) was transferred to Siel Sugars Limited ( Resulting company as per section 2 (19AAA) ) (assessee) w.e.f. 1.10.2002. Assessee pleaded during assessment proceedings that there is demerger of sugar business of siel Limited in to siel sugar limited as provided u/s 2 (19AA) of the Income tax Act and therefore unabsorbed business losses and....
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.... and in case of resulting company , assessee revenue is pleading that it is not demerger. For supporting this he placed before the bench copy of the assessment order u/s 143(3) for AY 2003-04 in case of demerged Company where in it is held that transfer of assets to resulting companies falls under the category of demerger only holding transaction of transfer of assets as not transfer u/s 47 (vib) of the Income tax act and no capital loss was allowed to the assessee. 07. We have carefully considered the rival contention as well as the scheme of filed before Honourable Delhi High court in Company petition no . 107 of 2003 as well as the assessment order in case of demerged company M/s Siel Limited. For considering the claim of the assessee u/s 74A(4) rws 2(19AA0 of the Income tax act it is necessary to puruse the respective provision of the law which are as under :- Section 2 (19AA) and 2 (19AAA) (19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner th....
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.... which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger. Explanation - 3. For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation - 4. For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government ; (19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company ; Section 72A (4) PROVISIONS RELATING TO CARRY FORWARD AND SET OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE IN AMALGAMATION OR DEMERGER,ETC (4) Notwithstanding anything contained in an....
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....) of the Act is discussed in the following paras :- i) The first condition as prescribed in section 2(19AA) of the Act is that all the property of the undertaking transferred by the demerged company becomes property of the resulting company. As per the SOA approved by Hon'ble High Court running business of two sugar undertakings have been transferred to the appellant company. It has been provided in clause (c) of Part II of the Scheme that business of two sugar undertakings shall vest in the appellant company upon sanction of the Scheme. Details of the assets of sugar undertakings transferred to the appellant company are as given in Annexure II of the Scheme. Further, it has also been specifically mentioned in para 1 of Part 5 of the Scheme that w.e.f. the appointed date, the undertakings of the sugar group together and in particular with all the moveable and immovable assets of what-so-ever nature and capable to passing of physical delivery or otherwise be vested in the appellant company. Accordingly, assets relating to sugar undertakings have vested in the appellant company. From the assessment order, I find that the AO has also not raised any issue regarding vesting....
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.... Rs. 83.30 crore (24.02+ 59.28) are for working capital requirement as also mentioned in Annexure II of SOA and details of which are given above with reference to the Balance Sheet as on 30.9.2002 are specifically relating to sugar units and have been transferred to the appellant company. Loans from financial institutions amounting to Rs. 96.75 crore are also specifically mentioned in SOA on Page 31 under clause (c) of Part III, which consists of term loans of Rs. 73.90 crore and zero coupan debentures of Rs. 22.85 crore. Institution wise details of above mentioned term loan of Rs. 73.90 crore and zero coupan debentures of Rs. 22.85 crore, which are also specifically related to sugar units have been given in institution-wise details (also submitted to AO as per assessment record). As regards unsecured loans of Rs. 2.55 crore, it has been submitted that amount of Rs. 1.12 crore represent the deposits received in sugar units as per break up given in Balance Sheet. Further amount of Rs. 1.43 crore also is specifically related to sugar units as per balance sheet and same has been stated to be in the nature of Sales Tax Department loans and loans from Sugar Development....
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....The appointed date for the purpose of SOA has been 1.10.02. Accordingly, all the assets and liabilities deemed to have been transferred to the appellant company w.e.f. 1.10.2002. In view of above position, Balance Sheet in the case of appellant company has been prepared on 31.3.2003 and return of income for A.Y. under appeal (2003-04) was filed. Since, the order of High Court was dated 26.8.2003, actual allotment of share capital to shareholders could have been made only after order of the court. In the Balance Sheet as on 31.3.2003, the amount of share capital to be allotted/subsequently allotted has been shown as capital suspense and a note in respect thereof as Note No. 8 to Schedule 12 has been given in the Balance Sheet. The appellant company has also submitted copy of resolution dated 5.9.2003 passed in the meeting of the Board of Directors of appellant company fixing record date for the purpose of allotment of share capital to the shareholders in the ratio of 3 shares for every 4 equity shares held in Siel Ltd. as on 30.10.2003. Further, a copy of resolution passed on 30.12.2003 allotting the share capital has been submitted. Return filed in Form No.2 for allotment of share ....
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....rent. The appellant in this regard has submitted that these observations have no legal sanctity and have no bearing as regards compliance of conditions for transfer of running business of 2 sugar undertakings to the appellant company in term of section 2(19AA) of the act. The appellant company has made detailed submissions in respect of each of the above mentioned observations of the AO. 7.9 I have considered these observations of the AO in light of conditions provided in section 2(19AA) of the Act. Each of the conditions provided therein has been duly discussed above. There is no condition provided in section 2(19AA) of the Act to the effect that through same SOA assets cannot be transferred to any other company or restructuring of loans cannot be made. I find that transfer of properties and investments to other companies namely Shivaji Marg properties and Siel Holdings Ltd. have no bearings as regards transfer of undertakings to the appellant company. In respect of transfer of reserves also, there is no condition provided in section 2(19AA) of the Act. In fact, it has been correctly submitted that reserve is only a balancing figure and it is the difference between the as....