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TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1245
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....king 3. The Ld. Commissioner of Income-tax (Appeals) erred on facts and in the circumstances of the case and in law in deleting the disallowance of setoff of brought forward business loss and unabsorbed depreciation without appreciating the facts of the case that the demerged company was used as a colorable device to reduce and set-off the losses against profits of another company. 4. The appellant craves to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal." 3. Briefly, the facts of the case are as under : The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of sale and services of diesel engines, its spare parts and related equipments. The return of income for the assessment year 2006-07 was filed on 23.11.2006 declaring total income of Rs.55,44,54,789/-. The said return of income was revised on 28.10.2007 at total income of Rs.29,84,61,310/-. Against the said return of income, the assessment was completed by the Addl. Commissioner of Income Tax, Range-1, Pune ('the Assessing Officer') vide order dated 30.12.2009....
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....wance of indirect expenses by applying Rule 8D(2)(iii) which is inserted w.e.f. assessment year 2007-08. However, the Assessing Officer relied upon the Special Bench of Mumbai Tribunal in the case of ITO vs. Daga Capital Management Pvt. Ltd. (SB-Mum. ITAT) wherein it has held that Rule 8D is procedural provisions is applicable in all the pending matters. 4. Being aggrieved by the above disallowances, an appeal was filed before the ld. CIT(A) who vide impugned order held that the provisions of Rule 8D cannot be applied retrospectively, however, restricted the disallowance to sum of Rs.70,000/-. As regards to the disallowance claim for set-off of brought forward business losses and unabsorbed depreciation losses pertaining to demerged undertaking vested with the respondent-assessee, the ld. CIT(A) held that once the demerger had been approved by the Hon'ble Bombay High Court, it is not within the jurisdiction of the Assessing Officer to question the motive behind the demerger. In the absence of any notification by the Central Government as provided under sub-section (5) of section 72A, the Assessing Officer cannot apply his own guidelines in order to arrive at whether or not the de....
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....ondent-assessee had no intention of carrying on the business of demerged undertaking. He further submitted that even though the Central Government has not prescribed any condition to determine whether or not scheme of demerger is genuine purpose, since the material on record clearly establishes that the scheme demerger is not for genuine purpose, the respondent-assessee is not entitled for benefit of set-off of brought forward business losses and unabsorbed depreciation losses. The ld. CIT(A) had failed to appreciate the purport of the provisions of section 72A(4) of the Act. Therefore, the order of the ld. CIT(A) should be reversed. 12. On the other hand, ld. AR submits that since the Central Government had not laid down the guidelines or conditions for the purpose of determining whether the scheme of demerger is for genuine purpose or not. It is beyond the scope of the Assessing Officer to go into behind the scheme of demerger. He further submitted that when the scheme of demerger was approved or sanctioned by the Hon'ble High Court, it is binding on everyone including the authorities of the income-tax department. The Hon'ble Bombay High Court had accorded its sanction to the sc....
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....er/amalgamation was accorded approval by the Hon'ble Jurisdictional High Court does not automatically entitled the assessee to claim the set-off of brought forward business loess. In the cases, amalgamation of scheme u/s 72A(1) in order to avail tax benefit of set-off of brought forward business losses, the Government had prescribed conditions like continuous holding the assets before and after amalgamation, carrying on the business of amalgamation company for minimum period of 5 years from the date of amalgamation etc, such conditions are not stipulated in the case of demerger which is governed by sub-section (4) of section 72A of the Act. The sub-section (5) of section 72A empowers the Central Government to prescribe the conditions and guidelines to determine whether the scheme of demerger is genuine purpose or not?. In the context of scheme of amalgamation, the Hon'ble Delhi High Court in the case of IEL Ltd. vs. Union of India, 195 ITR 232 (Delhi) held that the benefit of section 72A cannot be availed if the sole idea of the amalgamation was only to avail the benefit of carried forward business losses and unabsorbed depreciation losses as it is not for genuine purpose. The Hon'....
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....ome commercially insolvent or is likely to become commercially insolvent, then every effort should be made to prevent such a situation from arising and if an amalgamation takes place and conditions under sub-s. (1) of s. 72A are satisfied, then we see no reason as to why a declaration should not be accorded." 14. The ratio of the decision of the Hon'ble Delhi High Court in the case of IEL Ltd. (supra) was quoted with approval by the Hon'ble Jurisdictional High Court in the of Ballarpur Industries Ltd. vs. CIT, 398 ITR 145 (Bom.) by holding as under :- "14. The Division Bench of Delhi High Court has held in the aforesaid decision that once the declaration is granted under Section 72A of the Income Tax Act, the amalgamated company thus received the benefit inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. Upon fulfillment of the conditions specified in sub-section (2) of Section 72A, it holds that the benefit of Section 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. This decision supports the ....
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....under by a deeming fiction the accumulated loss or unabsorbed depreciation of the amalgamating company is treated to be a loss or, as the case may be, allowance for depreciation of the amalgamated company in the previous year in which the amalgamation was effected; but the amalgamated company, although a successor in interest, would be entitled to carry forward and set-off the accumulated loss and unabsorbed depreciation of the amalgamating company only where the amalgamating company was not, immediately before such amalgamation, financially viable and the amalgamation was in public interest. The expression "financial nonviability" had not been defined in the Act but the Finance Minister's speech, the notes on Clauses of the Bill and the Memorandum explaining the provisions thereof make it clear that the financial nonviability of an undertaking has been equated with the 'sickness' of such undertaking and obviously in the context of its revival by a sound undertaking the sickness must be of a temporary character and not any basic or permanent sickness. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a clo....