TaxTMI 
TaxTMI 
2014 (12) TMI 1315
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....143(3) of the Income Tax Act 1961 (the Act) 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....
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....pproved by Hon'ble Calcutta High Court vide its Merger Order dated 08/08/2012. Pursuant to 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 losse....
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....ssessee preferred appeal before CIT(A). He confirmed the action of AO by observing as under: "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 7....
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....status of assessments of earlier years, the finding of the Assessing Officer that the unabsorbed business 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 Cou....
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....ty partnership or the amalgamating company or the demerged company. as the case may be. under the head "Profits and 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 de....
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.... an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, 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 b....
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....nd which would have been allowed to the amalgamating company under the provisions of the IT Act if the amalgamation had not I been effected. The term "specified authority" means 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 appella....
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....he amalgamating company, and further the amalgamated company has already stopped its manufacturing activities and sold its plant and machinery as also industrial plot during the year, which, 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 inco....
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....e, CIT(A) concluding that this action of AO in not entertaining the revised working of the unabsorbed business losses and unabsorbed depreciation of Rs. 6,07,11,696/- and Rs. 7,56,29,069/- respectively 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....
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.... (Pgs 155-158 of Pbk) - 2007-08 - A per return of income (computation) - 1,93,15,108 Pg 175 of Pbk -1,68,72,208 Pg 191 of Pbk - 24,42,900 Pg 191 of Pbk 2008-09 - As per return of income (computation) 12,32,477 Pg 227 of Pbk 12,32,477 Pg 227 of Pbk 2009-10 - As per return of income (computation) - 62,58,294 Pg260 of Pbk) - 44,61,429 (Pg 260 of Pbk) - 17,96,865 (Pg 260 of Pbk) 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 f....
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....0 Set off agst loss of AY 1999-00 29,15,09 2000-01 Set off agst loss of A.Y. 2000-01 2007-08 1,68,72,208 1,68,72,208 Balance c/f in AY 2011-12 24,42,900 24,42,900 Balance c/f in AY 2011-12 2008-09 12,32,477 (profit) 12,32,477 Set off agst los of AY 2000- 01 2009-10 44,61,429 44,61,429 Balance c/f in AY 2011-12 17,96,865 17,96,865 Balance c/f in AY 2011-12 2010-11 3,14,20,256 (profit) 1,92,08,649 Set off agst loss of AY 2002-03 1,05,91,688 Set off agst los of AY 2003- 04 16,19,919 Set off agst loss of AY 2004-05 BALANCE AVAILABLE FOR SET OFF IN A.Y 2011-12 6,07,11,696 7,56,29,069 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....
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.... 2,75,34,163 pg 80 of apb 1,92,08,649 pg 93 of apb 83,25,514 pg 93 apb 2003-04 - Assessed as per order u/s 154/143(3) (pg 102 of apb) 2,01,45,290 1,05,91,688 95,53,602 2004-05 As per appellate order u/s 250 (pgs 109-111 of apb) 4,39,77,821 3,58,89,625 80,88,196 2005-06 As per return of income - - - - - - (computation) 1,14,08,721 51,08,353 63,00,368 Pg 112 of apb pg 125 apb pg 125 apb The assessee claimed before us and filed evidences qua that, that above losses and depreciation were all duly assessed and all the supporting documents are all enclosed in assessee's paper book. The finding of the AO that the assessee company has not claimed losses in the returns pertaining to AYs 2007-08 upto AY 2010-11, from the documents filed before us, it is clear that all 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: -....
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....out for revival of amalgamating company and since the amalgamated company had stopped its manufacturing activities and sold it plant and machinery and also the industrial plot, it all proved that the amalgamation was not for genuine purpose as per provisions of section 72A of the Act. This issue is even covered by various decisions of Hon'ble Courts and the Coordinate Bench of this Tribunal, Kolkata "B" Bench in the case of ITA No. 201/Kol/2010 in ITO Vs. Purbanchal Power Co. Ltd. for AY 2006-07 dated 17.07.2014 considered this issue and has held that once the scheme of merger is approved by Hon'ble High Court the revenue cannot reconsider the same because revenue is also party before Hon'ble High Court, where in it held as under: "10. In view of the above factual position now we have to discuss the provisions of section 394A of the Companies Act, wherein notice has to be given to the central government for applications made u/s. 391 and 394 of the Act. The provision 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 e....
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....ies do not amalgamate for fun. The court will sanction a scheme only where all the concerned stake holders have been heard and it is open to the revenue i.e. the Income tax department, as one of the class of creditors, to put forward any objection it may have against the amalgamation the court will refuse sanction of amalgamation scheme, where the scheme proposed is not bona fide or workable or where it is shown that there is something wrong with the scheme. In case the purpose discernable behind the amalgamation scheme is to defeat the liabilities of revenue the court can refuse sanctioning the scheme. Hon'ble Gujarat High Court in Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re supra has laid down certain principles regarding the expression 'public interest' and the 'scheme of amalgamation' and the relevant paras of the judgment read as under: "Similar is the position in Rodwell Securities v. Inland Revenue Commissioners [1968] 1 All ER 257. The benefit of exemption from the stamp duty 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 comp....
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....dings were pending in a court of law) in respect of the companies and firms covered by the terms of reference. Commission was also directed to suggest the action which in the opinion of the Commission should be taken to act as a preventive in future cases and also to suggest measures which in the opinion of the Commission are necessary in order to ensure in the future that due and proper administration of the funds and assets of the companies and firms in the interest of investing public. Interest of the investing public is interest of general public which expression would be covered by "public interest". Pursuant to this directive and as a consequence of its finding, the Commission recommended introduction of a provision by which the court while examining the scheme of amalgamation, would have an opportunity to ascertain whether the affairs of the transferor-company which will be dissolved without winding up were carried on in a manner prejudicial to its members or public interest. This recommendation found its echo 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 fo....
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....y. Now, the property belonging to the transferor company is situate in Calcutta. The transferor-company is having its factory at Billimora. The transferor-company appears to have not done any business except acquiring capital asset from its parent company of which it was a subsidiary company and got it revalued so that by the process of revaluation, the equity shareholders of the transferor-company can get large number of shares of the transferee-company by the exchange ratio prescribed in the scheme of amalgamation. No apparent understandable purpose or object behind the scheme is discernible. The purpose and the only purpose appears to be to acquire capital asset of the DOC Pvt. Ltd. through the intermediary of the transferor-company which was created for that very purpose to meet the requirement of law, and in the process to defeat tax liability that would otherwise arise. If such be the scheme of amalgamation and if such is the use made of the transferor-company by those controlling it, it can never be said that the affairs of the transferor company sought to be amalgamated, created for the sole purpose of facilitating transfer of capital asset, through its medium, have not bee....
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....Hon'ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. Vs. Department of Income Tax (2013) 353 ITR 222 (Guj) has considered a scheme of arrangement proposed by assessee for transfer of passive infrastructure assets. The scheme was objected to by the Revenue and Hon'ble single judge of the very High Court considering this objection, inter alia, held that the transaction was void in view of the provisions of section 281of the Act and refused to sanction the scheme. Hon'ble High Court on appeal, Division Bench laid down certain principles as under (as reproduced from head notes): "Held, allowing the appeal, (i) that if any amount was required to be paid to the Income-tax Department by the transferor company, the Income-tax Department could be said to be a creditor so far as its claim against the transferor company was concerned. Considering the fact, it could not be said that the Income-tax Department had no locus standi to put forward its objections in this behalf. Even if no objections were received against the scheme pursuant to the public advertisement, yet the court was required to examine the scheme while giving its approval. The single judge had....
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....t the right of the Income-tax Department to take out appropriate proceedings regarding recovery of any tax from the transferor or transferee company as the case may be was to be kept intact and pending cases before the Tribunal were not be affected in view of the sanction of the scheme.] Order of the single judge in Vodafone Essar Gujarat Ltd., In re [2012] 342 ITR 135 (Guj) reversed." From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon'ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon'ble High Court no authority should be a....
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....s. 6,07,11,696/- and Rs. 7,56,29,069/- respectively available for set off in the AY 2011-12. From the above, it is clear that the scheme of merger approved by Hon'ble High Court is in itself appreciation of facts that the merger and the amalgamation was carried out for the revival of the amalgamating company and that the amalgamation did serve genuine business purpose and hence, sec. 72A of the Act will not apply to the case of the assessee, being the amalgamated company and not the amalgamating company. 12. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in restricting the disallowance of Rs. 1 lac on ad hoc basis out of the total addition made by AO at Rs. 9,71,006/- on account of purchase of gifts etc. for travel agents in domestic and international trade fare for sale promotion of tourism products. For this assessee has raised following ground no. 3: "3.That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred in confirming on an ad hoc basis, a sum of Rs. 1,00,000/- out of the disallowed sum of Rs. 9,71,006/- incurred for purchase of gifts etc for travel agents in domestic and int....