TaxTMI 
TaxTMI 
2014 (12) TMI 1315
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.... passed by the Ld. Assessing Officer [AO], is not based on the facts of the case of the appellant company and is bad in law and is thus totally arbitrary and uncalled for. 2. That on the facts and in the circumstances of the case of the appellant, the Ld. CIT(A) erred in confirming for the AY 2011-12, the entire disallowance of the Unabsorbed Business Loss u/s 72 of the Act and the Unabsorbed Depreciation u/s 32 of the Act amounting to Rs. 2,08,24,462/- against the Business Income of Rs. 1,12,51,059/- and Long Term Capital Gain of Rs. 95,73,403/-. (a) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) grossly failed to correctly appreciate the Order u/s. 154/143(3) of the Act dated 12/02/2009 passed in the case of the appellant for the AY 2006-07 wherein the figures of Rs. 18,86,074/- as balance unabsorbed business loss and Rs. 1,09,22,427/- as Unabsorbed Depreciation as Unabsorbed Depreciation related only to the particular ASSESSMENT YEAR 2000-01 and not upto ASSESSMENT YEAR 2000-01 as held by the Ld. A.O. (b) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred on facts while holding that the Appellant Co....
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....o such amalgamation w.e.f. 01/04/2010 all assets and liabilities of VIWL were merged and vested with the assessee and this fact was accepted in assessment proceedings and AO assessed the income accordingly. The assessee for relevant A.Y 2011-12 e-filed its Nil return of income on 30.09.2011 and then revised its return of income on 01.10.2012 at Nil income. The assessee on 24/06/2010 sold an immovable property for a consideration of Rs. 45,00,000/- and disclosed sale consideration in original and revised return of income. But from the Registered sale Deed, it was found that stamp duty valuation for the property had been considered at Rs. 1,06,49,000/-. Accordingly, assessee revised its computation of income showing long term capital gain on the basis of stamp duty valuation in terms of section 50C of the Act and submitted revised computation of income vide its letter dated 12/12/2013 during assessment proceedings. Assessee claimed unabsorbed depreciation and business losses to be set off against current year's income and entire details of the unabsorbed depreciation and unabsorbed business losses of earlier years were all furnished before AO during the course of the assessment proce....
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.... "I have carefully considered the facts of the case, the findings of the Assessing Officer as well as the arguments and submissions put forth on behalf of the appellant. As aforesaid, the claim of the appellant in respect of carry forward and set off of unabsorbed depreciation and business loss of the amalgamated company against the long term capital gains through a revised computation filed during the course of assessment proceedings. The Assessing Officer, in the first instance, rejected the claim of carry forward of unabsorbed depreciation and unabsorbed business loss of earlier years, even those quantified for A. Yr. 2006-07 on the ground that the appellant company had closed the business and the plant and machinery were not put to use in its business; secondly on the ground that the amalgamation was not obtained through the High Court of Calcutta by stating the correct facts and that and the statistical data furnished therein establish that the amalgamation opted by the assessee is not for genuine purpose as per sub-clause (iii) to clause (b) of sub-section (2) to the section 72A of I.T. Act, 1961 and thirdly, and most importantly, on the ground that claim preferred without f....
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....ess loss is at Rs. 18,86,074/- and unabsorbed depreciation available for set off in A. Yr. 2011-12, subject to other finding. In my view, is justified. In view of these facts and the finding of the Assessing Officer borne out from records, I do not consider it necessary to deal with the issue whether the plant and machinery of the amalgamated company, which were let out for some of the assessment years up to 30.4.2008, were put to use in the appellant's business. 5.1.3.2. The next issue for consideration is whether the amalgamation was not obtained through the High Court of Calcutta by stating the correct facts and that and the statistical. data furnished therein establish that the amalgamation opted by the assessee is not for genuine purpose as per sub-clause (iii) to clause (b) of sub-section (2) to the section 72A of I. T. Act, 1961. In regard to the observation of the Assessing Officer about the petition of amalgamation before Hon'ble Kolkata High Court, I am inclined to accept the submission of the appellant's AIR that full facts has been narrated before the Court including filing of the Balance Sheet of both the companies as required under the Companies Act 1956 ....
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....nd gains of business or profession" (not being a loss sustained in a speculation business) which such predecessor firm or the proprietary concern or the company or amalgamating company or demerged company, would have been entitled to carry forward and set off under the provisions of section 72 if the reorganisation of business or conversion or amalgamation or demerger had not taken place;]" , The sub-section defines the meaning of "unabsorbed depreciation" as follow: "[(b) "unabsorbed depreciation" means so much of the allowance for depreciation of the predecessor firm or the proprietary concern or the private company or unlisted public company before conversion into limited liability partnership or the amalgamating company or the demerged company, as the case may be, which remains to be allowed and which would have been allowed to the predecessor firm or the proprietary concern or the company or amalgamating company or demerged company, as the case may be, under the provisions of this Act, if the reorganisation of business or conversion or amalgamation or demerger had not taken place;]" The conditions laid down in sub-clause (iii) are for the revival of the amalgamating compan....
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....y, is satisfied that certain conditions specified in this behalf are fulfilled, the Central Government may make a declaration to that effect and thereupon, notwithstanding anything contained in any other provision of the IT Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of the Act relating to carry forward and set off of loss and allowance for depreciation shall apply accordingly. It is to be noted that as the unabsorbed loss of the amalgamating company is deemed to be the loss for the previous year in which the amalgamation was effected, the amalgamated company will have the right to carry forward the loss for a period of eight assessment years immediately succeeding the assessment year relevant to the previous year in which the amalgamation was effected. 18.3. The declaration referred to in the preceding paragraph will be made by the Central Government only if the following conditions are fulfilled: (a) the amalgamating company was not, immediately be....
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....ans such authority as the Central Government may, by notification in the Official Gazette, specify for the purposes of this provision. 18.5. The new s. 72A will come into force w.e.f. 1st April, 1978, and will accordingly apply in relation to the asst. yr, 1978-79 and subsequent years." SOURCE: [Reported in 1978 CTR (Jour) 26: (1978) 111 ITR (St) 9] From the express provisions of sec. 72A and the CBDT's Circular cited above, it is clear that these provisions relate of carry forward and set off of accumulated losses and unabsorbed depreciation of the amalgamating company and not that of the amalgamated company. From the foregoing discussion in the preceding paragraphs, it is abundantly clear that the 'accumulated/unabsorbed business losses and unabsorbed depreciation related to the assessment years during which the amalgamated company had been carrying on its business activities. Therefore, in my opinion, in view of the express provisions of sec. 72A of the Act in as much as and that the appellant company was not entitled for the carry forward and set off of the aforesaid unabsorbed accumulated losses/business loss and unabsorbed depreciation in respect of the amalgamated....
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...., as aforesaid, all go to show that the amalgamation is not for genuine purpose, as per provisions of sec. 72A of the Act. Therefore, I am of the considered view that the action of the Assessing Officer in not entertaining the revised working of Unabsorbed Business losses and Unabsorbed Depreciation of- Rs. 6,07,11,696/- and Rs. 7,56,29,069/- respectively and not adjusting/setting off of the resultant brought forward unabsorbed business loss and unabsorbed depreciation against income for AY 2011-12 (Business income and long term capital gain) is justified. Hence, these grounds of appeal are accordingly dismissed." Aggrieved, assessee came before tribunal in second appeal. 6. We have heard rival submissions and gone through facts and circumstances. First of all we will assimilate the issues discussed by CIT(A) and the same with regard to the disallowance of set off of unabsorbed business loss of Rs. 1,12,51,058 and unabsorbed depreciation at Rs. 1,00,73,403/- against business income and income from capital gains of the assessee respectively has firstly been dealt with in para 5.1.3.1 at pages 20-21 of his order accepting in full the contention of AO that assessment framed in this ....
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....ectively available for set off in the AY 2011-12 and not adjusting/setting off of the resultant brought forward unabsorbed business losses and unabsorbed depreciation against the income (business income and long term capital gain) for the AY 2011-12 as per the provisions of the Act . 7. From the above findings of CIT(A), now we have to examine the facts of the case. We find from the facts of the case that the manufacturing unit of the assessee started incurring losses and thus there was carry forward of business loss as well as unabsorbed depreciation on the basis of the assessments made since 1993-94. A detailed Chart "statement showing details of returned and assessed unabsorbed business losses and unabsorbed depreciation" marked as "Annexure 1" to the submissions made by assessee is enclosed. This chart drawn up by assessee, wherein details of the returned and assessed income and losses has been laid out and supporting documents in the form of the returns filed and various orders of the Income Tax Authorities have been enclosed in a paper book filed before tribunal by assessee. The relevant chart enclosed reads as under;- Annexure-1 Statement showing details of returned and a....
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....bk) 2010-11 - As per return of income (computation) 3,14,20,256 Pg 292 of Pbk) 3,14,20,256 Pg 292 of Pbk) Further above losses and unabsorbed depreciation all having been assessed by AO in the respective assessment years, there being no sufficient profit in those years, the same were allowed to be carried forward but as and when, there was profit set off of the unabsorbed business losses and unabsorbed depreciation was allowed. A detailed chart "statement showing c/f and set off of unabsorbed business loses and the unabsorbed depreciation" marked as Annexure 2 enclosed to submissions of assessee. The respective assessment orders determining the amount of carry forward loss and unabsorbed depreciation were also enclosed. Copies of the returns filed for all the years for which losses/unabsorbed depreciation claimed were also enclosed. Relevant chart is enclosed as under:- Annexure -2 Statement of C/F and set off of unabsorbed Business Loss and Unabsorbed Depreciation A.Y Unabsorbed Business Loss Unabsorbed Depreciation 1993-94 10,283 10,283 Claimed in AY 2011-12 1994-95 16,66,397 16,66,397 Claimed in A....
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.... 2011-12 1,12,51,059 (profit) 1,12,51,059 Set off agst loss of AY 2004-05 1,00,73,403 10,283 Set off agst dep of AY 1993-94 16,66,397 Set off agst dep of AY 1994-95 34,93,386 Set off agst dep of AY 1995-96 3,53,082 Set off agst dep of AY 1996-97 38,39,013 Set off agst dep of AY 1997-98 7,11,242 Set off agst dep of AY 1998-99 BALANCE TO BE C/F A.Y 2011-12 4,94,60,637 6,55,55,666 From the above chart it is clear that unabsorbed business losses and unabsorbed depreciation at the end of AY 2010-11 comes to Rs. 6,07,11,696/- and Rs. 7,56,29,069/- respectively, which is available for set off in the AY 2011-12 being the year under appeal. 8. From the above details, it is clear that that out of the total unabsorbed business loss of Rs. 48,01,172/- and the unabsorbed depreciation of Rs. 1,09,22,427/- for the AY 2000-01 available for c/f and set off, after the set off of Rs. 18,86,074/- being the unabsorbed business loss and Rs. 1,09,22,427/- being the unabsorbed depreciation. The said order is worded as follows: "Balance business loss of Rs. 18,86,074/- and unabsorbed depreciation of Rs. 1,09,22,42....
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....ll returns were filed with the Income Tax Authorities and they were all assessed. (Copies of all the returns and the assessment orders are all duly filed in the assessee's paper book filed). The following are the figures for the AYs 2007-08 upto the AY 2010-11: - As per return of income - - - - - - 2007-08 (computation) 1,93,15,108 1,68,72,208 24,42,900 Pg 175 of pbk pg 191 of pbk pg 191 of pbk - As per return of income - - - - 2009-10 (computation) 62,58,294 44,61,429 17,96,865 (Pg 260 of pbk) (pg 260 of pbk) (pg 260 of pbk) Even these details were sent to the AO vide interim order dated 20.10.2014 for verification of the above stated facts regarding unabsorbed business loss and unabsorbed depreciation and AO vide remand report no. DCIT/Circle-10/Kolkata/Report/2014-15/7564 dated 12.11.2014 has admitted the above facts but also stated that the records of assessment year 2001-02 could not be located. When this report was confronted, Ld. counsel for assessee explained each and every item of the claim of unabsorbed business loss and unabsorbed depreciation, to which Ld. Sr. DR could not counter or explained. When Ld. S....
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....ovision of section 394A of the Companies Act, 1956 reads as under: "S. 394-A Notice to be given to Central Government for applications under sections 391 and 394 - The court shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections." The case law cited by revenue of Hon'ble Supreme Court in the case of Marshall Sons & Company India Ltd., supra wherein Their Lordships of the Supreme Court had made it clear that they have not expressed any opinion on the plea that the amalgamation itself is a device designed to evade the taxes legitimately payable by the subsidiary company. If the revenue thinks that they are entitled to raise such a plea in a proceeding under the Act, it is open to them to do so by way of separate proceedings according to law. The spirit of section 394 of the companies Act, 1956 provides that on every application under section 391 or section 394, the court shall give notice of such application to the Central Government and shall take into consideration the representations, if ....
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....ty was denied on the construction of statute granting exemption but the following observation was relied upon in support of the submission that a mere setting up of a chain of companies is not open to lurking suspicion, that it has been done with an avowed object of defeating taxing statute. The observation relied upon reads as under: "It is worthwhile observing that where you have a chain of companies it is always possible by arranging the transfer in a certain way, to obtain the benefit of exemption under the section. " It cannot be said that this observation had laid down a broad proposition of law. The observation cannot be torn out of context and when read in the context, it only means that an arrangement can be made by the assessee so as to incur the least liability for the tax and to such a proposition, I do not take any exception. The expression "public interest" standing by itself is likely to appear to be vague without any specific connotation. It is capable of more than one meaning. Therefore, in order to ascertain the true meaning of " public interest " used in a given statute, it is to be construed in the context of the legislation in which it is used, provision in ....
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....cho in the second proviso to section 394(1). Apart from the recommendation, the voluminous report of the Commission throws a lurid light on how the machinery of company formation and company management were used to subserve the interest of those controlling the affairs of the company with scant regard for the interest of the society or event of the investing public. The expression "public interest" is to be found in the second proviso and in the context of a company which, if, scheme of amalgamation is sanctioned, is likely to lose its identity by getting merged with the transferee-company. It is to be dissolved without winding up. In winding up the manner in which affairs of a company are conducted can be probed in depth; but a scheme of amalgamation which provides for merger of the transferor company with the transferee-company, would destroy any opportunity for examination of the affairs of the transferor-company. The second proviso would provide the last opportunity to peep into the affairs of the transferor company before it gets virtually extinct. The court is, therefore, charged with a duty before it finally confirms burial-cum-cremation of the transferor-company, to peep ....
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....fairs of the transferor company sought to be amalgamated, created for the sole purpose of facilitating transfer of capital asset, through its medium, have not been carried on in a manner prejudicial to public interest. Public interest looms large in this background, and the machinery of judicial process is sought to be utilised for defeating public interest and the court would not lend its assistance to defeat public interest, namely, tax provision. It must be confessed that it is open to a party to so arrange its affairs so as to reduce its tax liability. The assessee or party can arrange its affairs so that he or it may not incur any tax liability. But it must be within the power of the party to arrange its affairs. If the party seeks assistance of the court only to reduce tax liability, the court should be the last instrument to grant such assistance or judicial process to defeat a tax liability, or even to avoid tax liability. If the party has so arranged its affairs, as to reduce or even avoid tax liability and the taxing authority disputes it, and the matter is brought before the court, the court would adjudicate upon the dispute between the revenue and the assessee on the ....
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....heme pursuant to the public advertisement, yet the court was required to examine the scheme while giving its approval. The single judge had rightly allowed the Income-tax Department to have its say by raising objections in connection with the scheme in question. A similar objection had been raised by the Income-tax Department before the Delhi High Court which had considered the objections raised by the Incometax Department on its own merits. The Income-tax Department had the right to place its objections against sanctioning of the scheme in question. The Income-tax Department would be free to examine the aspect of any tax payable as a result of the scheme. (ii) That there was nothing wrong if the company wanted to reconstruct its business in an alternative form by dividing telecommunication business and telecommunication infrastructure business in the manner carried on by the appellant, in a manner that the telecommunications infrastructure business would be carried on by the transferee company. The business would be continued and carried on by substantially the same persons who were presently carrying on the consolidated business since both the transferor and the transferee comp....
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....tter of public policy, once a scheme of amalgamation is approved by Hon'ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquidator nor the Regional Director nor Central Government raised any objection to the scheme of amalgamation. In such circumstances, we are of the view that the revenue has nothing to say at the time of approval of scheme by Hon'ble High Court in the present case. 12. In view of the above facts and legal position discussed above, it is not open to the revenue to go into the amalgamation reserve as per amalgamation scheme approved by Hon'ble Calcutta High Court. We answer the first issue framed by us in negative i.e. against revenue and in favour of assessee for the reasons stated above." 10. Further, as regards to the applicability of section 72A of the Act, we are of the view that in view of provisions of sec. 72A of the Act and CBDT's Circular cited above clarifying the provision, it is clear that these provisions relate of carry forward and set off of accumulated losses and unabsorbed depreciation of the amalgamating company and not that of the amalgamated company. From ....