AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 483
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....mpany shall be the written down value of the transferred asset of demerged company. III Because the Ld. CIT(A) has erred in law and facts for deleting the addition of Rs. 1.81.24.500/- made on account of disallowance of depreciation on "Edible Oil Brand despite that as per provisions of Explanation of Section 43(1) of the Income tax Act, 1961, the actual cost of acquisition of the Edible Oil Brand is NIL as such no depreciation is available to the assessee company on the same. IV Because the Ld. CIT(A) has erred in law and facts for deleting the addition of Rs. 1,81,24,500/- made on account of disallowance of depreciation on Edible Oil Brand despite that the entire scheme of the demerger arrangement should have been taxed neutral but in this case, the assessee company has claimed huge depreciation and reduce its tax liability and other expenses. M/s Amrit Corp. Limited has because of the business loss not paid taxes in the entire amount of capital gain. V Because the Ld. CIT(A) has erred in facts for deleting the addition of Rs. 1.81.24.500/- made on account of disallowance of depreciation on Edible Oil Brand despite that on the demerger proceedings, the assessee company M/s ....
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.... brands were acquired by the assessee-company as part of demerger and vesting of the edible oil business into the assessee-company under the scheme of reorganization of Amrit Corp Limited (ACL) [formerly known as M/s. Amrit Banaspati Company Limited (ABCL)]. It is further observed that since the edible oil brands were self generated and existing at nil value in the books of the demerged company, the assessee-company (as a resulting company) ought to have recorded the acquisition of brand at nil value as per Explanation 7A to section 43(1) of the Act. The assessee- company had accordingly, it is further observed by the auditors, wrongly claimed depreciation of Rs. 1,81,24,500 on the edible oil brands. In response to the aforesaid, it is respectfully submitted that the Special Auditors have failed to correctly appreciate the scheme of reorganization and acquisition of edible oil brands by the assessee-company, as elaborated hereunder: Your honour's kind attention in this regard is invited to Para- IV of the Scheme of Arrangement. On perusal of the same, your honour will kindly notice that that the Scheme of Arrangement involved two separate and independent transactions involv....
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.... the same constitutes functioning business, the edible oil undertaking could function de hors 'the edible oil brand', and since the transfer of edible oil brand took place in exchange of consideration discharged by way of issuance of shares, the assessee was eligible to claim depreciation and deleted the disallowance. 9. We have given thoughtful consideration to the orders of the authorities below. Before proceeding further, let us examine the provisions of section 2(19AA) of the Act alongwith Explanations and the same read as under: "2 (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 that- (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of t....
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....lished 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." 10. After giving thoughtful consideration to the aforementioned relevant section, we have to say that the meaning of the term 'demerger' is not to be construed as per the scheme of arrangement worked out by the assessee company. It is true that as per Explanation 1, undertaking can be a part of an undertaking or a unit or division of an undertaking or even a business activity. Therefore, the contention of the assessee that transfer of edible oil brands is independent to the transfer of edible oil undertaking is accepted. 11. It is true that the brand was transferred prior to the transfer of undertakings and it is equally true that separate considerations have been determined and paid in respect of transfer of brands and transfer of undertaking we find that on the date of transfer of brand, its value in the books of transferor company....
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....al merger of Amrit Corp Ltd, brand 'Gagan' also stood transferred to the assessee and, therefore, there is no question of paying royalty to itself. 18. A perusal of the scheme of arrangement shows that while edible oil brands and edible oil undertaking were transfered on the merger, 'Gagan' brand was retained by Amrit Corp Ltd and this retention of brand by the transferor company was part of scheme of the merger. We find that the Assessing Officer has not disputed the fact that Gagan brand was used by the assessee. Therefore, considering the facts we do not find any error in payment of royalty by the assessee for use of Gagan brand. We decline to interfere with the findings of the ld. CIT(A). Ground Nos. 6 and 7 stand dismissed. 19. Ground No. 8 relates to the deletion of addition of Rs. 20,16,369/- made on account of G.P. rate. 20. The main reason for the impugned addition is the fall in GP rate for the year under consideration by below 0.44% as compared to the immediately preceding A.Y. We find that the Assessing Officer has applied adhoc 0.15% on the total of manufacturing and trading turnover declared by the assessee by rejecting the books of accounts and alleged that the as....