TaxTMI 
TaxTMI 
2025 (9) TMI 893
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....dated 31.01.2020 31.01.2018 250/143(3) r.w.s. 147 of the Income Tax Act, 1961 2. The issues being common, interlinked and related to the same assessee for Assessment Years 2006-07 to 2008-09 therefore, all these appeals by the assessee have been heard together and accordingly, adjudicated by a common order. 3. First we take appeal of the assessee in ITA No. 1850/Del/2019 [Assessment Year 2006-07]. 1850/Del/2019 [Assessment Year 2006-07] 4. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing and trading of insect control and air care products. The return of the income for the year under appeal was filed on 30.11.2006, declaring total income NIL after claiming deduction u/s 80IB & 80IC of the Act. The case of the assessee was picked up for scrutiny and the assessment order was passed u/s 143(3) of the Act dated 24.12.2009 wherein certain additions were made however, the same were claimed as allowed u/s 80IB & 80IC of the Act. Thereafter, reassessment proceedings were initiated in the case of assessee u/s 147 of the act and notice u/s 148 was issued on 17.11.2011. In response assessee filed return of income on 21.12.20....
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....sessment. 1.3 That the Ld. CIT(A) erred in law in not appreciating that the alleged reasons to believe recorded are merely in the nature of pretence and vague as no fresh tangible material surfaced after completion of original assessment proceedings. 1.4 That the Ld. CIT(A) erred in law in not appreciating that the initiation of reassessment proceedings was merely on the basis of change of opinion on the same set of facts which were existing and considered at the time of original assessment concluded under section 143(3) of the Act. 1.5 That the Ld. CIT(A) erred in law in not appreciating that the satisfaction to be recorded under section 151(2) of the Act by the Ld. CIT in present case is neither proper nor satisfactory which can pass through the judicial scrutiny as mandated in law. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance made by the Ld. AO in relation to the salary expenditure of expatriates amounting to Rs. 3,45.62,000/- pertaining to year under consideration merely on alleged ground that the debit notes were received in the subsequent FY 2006-07. 2.1 That the....
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....eserves its right to add, alter, amend or withdraw any of the grounds of appeal or produce further documents either before or at the time of hearing of this Appeal." 7. Ground of appeal Nos.1 to 1.5 raised by the assessee are in respect to the re-opening of the assessment proceedings u/s 147 of the Act. Since all these grounds of appeal are in relation to the re-opening of assessment therefore, they are taken together for consideration. 8. Before us, Ld.AR for the assessee submits that the reasons were recorded for issue of notice u/s 148 on 17.11.2011 which are placed at page 1 & 2 of the Paper Book. Ld.AR stated that in these reasons, the AO observed that assessee has claimed expenses to the tune of INR 3,45,62,000/- which were related to the prior period expenses and therefore, the income to the extent of this amount has escaped assessment. Thereafter, various replies were filed by the assessee during period from 08.10.2011 to 06.03.2013 wherein all the facts were brought to the notice of the AO. After considering the submissions, no re-assessment order was passed consequent to the re-assessment proceedings initiated u/s 147 of the Act by way of issue of notice u/s 148 of ....
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....edings u/s 143(3) of the Act and were available when the AO alleged the escapement of income. He further submits that during the proceedings, it was stated that, there was no fresh material available with the AO at the time of recording satisfaction for issue of notice on 07.03.2013 therefore, he prayed that the re-assessment proceedings initiated, deserves to be hold bad in law and consequent order to be quashed. 12. On the other hand, Ld.CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that proper satisfaction was recorded at the time of re-opening of case in terms of notice issued on 07.03.2013 with respect to the earlier re-opening done on 17.11.2011, it is submitted that there were error and omissions in the reasons recorded, therefore, the AO dropped such proceedings and initiated such fresh proceedings. He further drew our attention to the copies of the invoices which were made basis for re-opening of assessment, according to which they were raised in subsequent AY i.e. in FY 2006-07 therefore, he submits that the provision made during the year under appeal with respect to such invoices is contrary and therefore, the assessee has....
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....e Act. 7. October 8, 2012 Copy of reasons furnished. It was alleged that an income of INR 3,45,62,000/- had escaped assessment as the amount of INR 3,45,62,000/- was debited in the current year whereas the invoice pertaining to the same was received during the next year i.e., AY 2007-08. It was further alleged that the Appellant had failed to disclose truly and fully, all the material facts related to the assessment. (refer page no. 3 of the Paper Book) 8. December 8, 2011 to March 6, 2013 The Appellant explained the facts of the case in detail. The proceedings u/s 148 of the Act were dropped by the AO as no order of reassessment was passed. (refer to facts stated at Page no. 8-9 of the Paper Book) 9. March 7, 2013 A second notice u/s 148 of the Act was issued by the Ld. AO. (enclosed as Annexure 1) 10. April 8, 2013 The Appellant filed its return of income in response to the second notice u/s 148 of the Act declaring the return of income at nil after claiming deduction under section 80IB/IC of the Act. Further, a request was made to furnish reasons recorded before the initiation of proceedings u/s 148 of the Act in view of GKN Driveshaft I....
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....scaped assessment within the meaning of section 147(c) of the IT Act, 1961. The escapement of the income has been by the reason of failure on the part of the assessee to disclose fully & truly, all material fact necessary for Since the assessment has been assessment. completed u/s 143(3) of the IT Act, 1961 and 4 years have since elapsed. The assessment record is being submitted for kind perusal and approval u/s 151(1) of the IT Act, 1961 for issuance of notice u/s 148 of the IT Act, 1961." 15. From the perusal of the aforesaid reasons, it could be seen that reassessment proceedings were initiated for the reasons that expenses to the extent of INR 3,45,62,000/- were claimed in P & L Account based on the claim made by S.C. Johnson Ltd. USA in the month of April 2006. Therefore, the AO was of the opinion that the same were to be debited in FY 2006-07. Further these contained the claims for previous assessment years also. Thereafter, the re- assessment proceedings were again initiated in terms of the notice issued on 07.01.2013 and the reasons recorded before the issue of re-assessment notice are as under :- 16. From the perusal of the aforesaid reasons, it could be seen that th....
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....lary which includes 3,45,62,000/- pertaining to assessment year under appeal. The AO has failed to appreciate that such financial statements alongwith the relevant notes were available with the AO when the assessment was completed u/s 143(3) and thereafter no fresh and tangible material is referred in the reasons recorded for issue of notice for reassessment of the completed proceedings. 20. From the perusal of the reasons recorded as well as perusal of the observation of the AO in disposing the objections raised by the assessee, we find that there is no quarrel that assessee has not truly and fully disclosed all the material facts necessary for the purpose of assessment. In the original assessment proceedings, the AO after considering all the material has framed an opinion. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. Not only material facts were disclosed by the assessee but also they were fully scrutinized by the AO in the original assessment proceedings and figure of income as well as the deductions was worked out by the AO. The claim of S.C. Johnson & Sons Inc. was du....
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....ere processed u/s. 143 (1)- However, notice u/s. 148 was issued by AO, on basis of certain reasons recorded- Assessee objected to same before AO, that was rejected and assessment was completed u/ss. 143(3) and 147-CIT(A) found that reason recorded by Joint Commissioner of Income Tax, for according sanction, was merely recording 'I am Satisfied'-Action for sanction was alleged to be without application of mind and to be done in mechanical manner-Held, while according sanction, Joint Commissioner, Income Tax only recorded "Yes, I am satisfied"-Mechanical way of recording satisfaction by Joint Commissioner, that accorded sanction for issuing notice u/s. 147, was clearly unsustainable-On such consideration, both Appellate authorities interfered into matter- o error was committed warranting reconsideration-As far as explanation to S. 151, brought into force by Finance Act, 2008 was concerned, same only pertained to issuance of notice and not with regard to manner of recording satisfaction-Amended provision did not help Revenue-No question of law involved in matter, that warranted reconsideration- Revenue's Appeals dismissed." 24. Hon'ble High Court of Delhi in case ci....
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....imed that sum of Rs. 1 Crore was received towards share application amounts and a further sum of Thirty Five Lakhs was credited to it as an advance towards loan-Original assessment was completed u/s 143(3)- However, pursuant to reassessment notice, which was dropped due to technical reasons, and later notice was issued and assessments were taken up afresh-After considering submissions of assessee and documents produced in reassessment proceedings, AO added back a sum of Rs. 1,35,00,000/- - CIT(A) held against assessee an legality of reassessment notice but allowed assessee's appeal on merits holding that AO did not conduct appropriate enquiry to conclude that share inclusion and advance received were from bogus entities-Tribunal allowed assessee's appeal on merits- Revenue appealed against appellate order on merits- Assessee's cross appeal was on correctness of reopening of assessment- Tribunal upheld, assessee's cross- objections and dismissed Revenue's appeal holding that there was no proper application of mind by concerned sanctioning authority u/s Section 151 as a pre-condition for issuing notice u/s 147/ 148-Held, Section 151 stipulates that CIT(A), who was....
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....al of the assessee is partly allowed. 1470/Del/2020 [Assessment Year 2007-08] 31. In the instant appeal, Ground of appeal No.1 taken by the assessee with respect to re-opening of assessment being not pressed thus, dismissed. 32. Ground of appeal Nos. 2 to 2.5 raised by the assessee are in relation to the addition of INR 1,03,26,96,924/- in the book profit of the assessee. As these grounds are inter-related and inter-linked therefore, the same are taken together for consideration. 33. Brief facts of the case are that the assessee company had one owned fully and subsidiary company in the name of KAPL who had one subsidiary in the name of Roshni Appliances Pvt. Ltd. ("RAPL") and both these companies, KAPL & RAPL were amalgamated with the assessee company in terms of scheme of amalgamation approved by Hon'ble Delhi High Court on 09.10.2006 with the appointed dated on 01.06.2005. As a result of this amalgamation, total investment by the assessee of INR 7,46,71,55,000/- as against net assessed value of INR 235 crores of these two companies were taken. The assessee companies has followed the purchase method for accounting such transactions and accordingly, the differential....
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....if this adjustment is made in the book profit, the assessee is entitled to the MAT credit in the future years. According to Ld.AR, AO has failed to point out any defect and merely applied other method. Ld.AR placed reliance on the judgement of Co- ordinate Bench of Mumbai Tribunal in the case of Toyo Engineering India Ltd. in ITA No.3279/Mum/2008 wherein in similar type of claim of depreciation on Goodwill as the goodwill was recognized by using the purchase method. He also drew our attention to the common facts of the case of Toyo Engineering India Ltd. (supra) and of the assessee as tabulated in para 7.2.5 of the written submissions. He thus, submits that the adjustment made in the book profit declared by the assessee deserves to be deleted. The assessee also filed a detailed written submission in this regard containing various arguments which were made oral before us. The submissions so made by Ld.AR of the assessee is reproduced hereunder below for sake of convenience :- 2. At the outset, it is submitted that the above issue is only with respect of computation of income under section 115JB of the Act, and not under the normal provisions of the Act as the Assessee did n....
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....ompany), the said company is a 100% subsidiary of KAPL, and its entire share equity was held by KAPL as on May 31, 2005 (v) From the above fact, your Honours would appreciate that the Assessee had acquired the established business of the KAPL on valuable purchase consideration of approx. 746 Crores in a short span of time in order expand its business and leverage market network of KAPL and its established brand & goodwill for promoting its similar lines business in India & worldwide, though the book value of net assets of the KAPL as on May 31, 2005 was 235 Crores (Approx.) (vi) In the above backdrop, the Assessee company post acquisition of the entire share capital of the KAPL filed the Scheme of Amalgamation of KAPL & RAPL with the Assessee in March 2006 with the Appointed Date of Scheme as June 1, 2005 i.e. the date after the acquisition of the entire shareholding of KAPL for better and efficient conduct of running the businesses of two companies. The salient features of the Scheme are reproduced here-in-below for completeness of the facts: - A. Rationale of Scheme For the purpose of better, efficient and economical management, control and run....
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.... issued in lieu of the said investments of the shareholders of the respective Transferor Companies and such investments would be cancelled. D. Other Clauses: Accounting Treatment and Reduction in Securities Premium Account (Clause 10 of the Scheme at Page 82 PB 2) The detailed accounting treatment of the effect of the scheme of amalgamation is stated in the Scheme submitted before the Hon'ble High Court. Further, it is also not the case of the Department that the Assessee has not carried out accounting treatment and reduction in Securities Premium Account. The broad accounting treatment of each part of the Scheme is summarised below: - * 10A.1: The debit balance of the Profit & Loss account of SCJ (Transferee Company) would be adjusted with Securities Premium Account of the SCJ (Transferee Company). * 10A.2: The reduction of Securities Premium Account is part of the Scheme. * 10A.3: All assets and liabilities of the transferor companies vested with transferee company at their respective book values. The amalgamation would be accounted for by applying the purchase method of accounting as contained in Accounting Standard - 14: Accounti....
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....e of Amalgamation, otherwise the Company can adopt "Purchase Method". (ix) To summarise, the scheme of amalgamation was approved by the Hon'ble Delhi High Court vide its order dated October 9, 2006, with effect from June 1, 2005, wherein all the assets and liabilities of the transferor companies were transferred to the Assessee at book value. The investment held by the Assessee in the Transferor companies - KAPL and RAPL, was cancelled. Goodwill amounting to Rs. 511 Crores (approx.) was recognized in the books, being the difference between the investment in the transferor company and the value of net identifiable assets acquired and amortized over a period of 60 months. Please refer Audited Accounts for the AY 2006-07 at page 21-23 PB 2 wherein the Statutory Auditor had given full description of Scheme of Amalgamation and the manner of computation of Goodwill. (x) In accordance with Scheme, the aforesaid Goodwill was amortised over a period of 60 Months on a straight-line basis. The year under consideration the claim of amortisation of goodwill amounted to Rs. 85,21,54,503/-. 4. In the assessment proceedings, the Ld. AO denied the allowance of the amo....
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....our case is just opposite as the assessee is a loss making entity and the KAPL is a profit making entity before the merger. Further, the analysis of AS -14 by the Ld. AO on assumed fact is also not correct as the Scheme of Amalgamation in the present case is a composite Scheme of Amalgamation and Reduction of Share Premium Account of the Assessee as explained above. Be that as it may, the Ld. AO in point 5.2.6 (i) & (ii) explained/extracted the condition to be satisfied in the case of pooling of interest method and stated that only if the condition of 'pooling of interest method' are not satisfied, then companies should adopt 'purchase method'. The Ld. AO, on mere surmises and conjectures further " states that the Assessee had satisfied all the above conditions of the 'pooling of interest method' without appreciating that the Point (ii) & (iii) of the Para (e) of the AS-14 issued by ICAI is not at all applicable to the facts of the Assessee which states allotment of shares to shareholders of the Transferor Company (KAPL). In addition to above, the incorrect statement is made that the 'purchase method' does not allow recording of assets and l....
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.... assumptions and judicial precedents on the issue of amalgamation decided by various courts including the Hon'ble Supreme Court which clearly held that the same would be termed as 'Goodwill'. (e) At Page 11-12 of the Assessment order (Point 5.2,6(1) & (ii), (page no. 78-79 of the Appeal Set) the I.d. AO extracted the provisions of section 211 of the Companies Act, 1956 and on the basis of its incorrect analysis of AS-14 and conclusion thereof stated the deviation by the Assessee in applying accounting as prescribed in AS-14 is nothing but a device deployed for avoidance of tax. (f) At Page 19 to 21 of the Assessment order (Point 5.2.6(iii) & (vii) and 5.3(i). (page no. 79-81 of the Appeal Set) the Ld. AO rejected the reliance of the Assessee in the case of Apollo Tyres us CIT, 255 ITR 273. Further, the Ld. AO, to make such addition in the book profits of the Assessee, placed reliance on the following decisions which are distinguishable both on fact as well as in law and context. * Mcdowell & Co. Ltd vs CTO, 154 ITR 148 * Padamasundara Rao vs State of Tamilnadu 255 ITR 147 * Sun Engg. Works vs CIT, 198 ITR 297 * Rain ....
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....n of the decision of Hon'ble Delhi High Court in the Writ Petition filed by the Assessee against the issuance of notice under section 148 of the Act for the AY 2007-08 & 2008-09, wherein the Hon'ble High Court held that the notice under section 148 of the Act are valid which was based upon the order passed in the year under consideration. The Ld. CIT(A) also emphasised that the Hon'ble High Court in the Writ Petitions observed that the Ld. AO is permitted to go into question of appropriateness of method applied in the Scheme as the Company Court has not return any finding on the same. (b) In para 15.4.3 & 15.4.4 at page 37 to 38 of the Appeal Set for the CIT(A) . Order, the Ld. CIT(A) based upon his analysis of AS-14 held that "Purchase Method" could only be applied when assets of transferor company are recorded at market value in the balance sheet of transferee company post amalgamation. It is submitted that the same is not correct as in "Purchase Method" assets could be recorded on carrying values of such assets. Based upon similar incorrect assumption, the l.d. CIT(A) confirmed the view of the Ld. AO that the Assessee has incorrectly applied "Purchase method....
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....tion ("the Scheme") under sections 391-394 of the Companies Act, 1956 with the appointed date of 1 June 2005. The Scheme was sanctioned by the Hon'ble Delhi High Court vide order dated 9 October 2006. 7.1.2 It is also submitted that the Assessee had acquired the entire share capital of KAPL in 2003-04/May 2005 by way of an outright purchase at market value for a total consideration of Rs. 746,71,55,000/-. The acquisition of the entire share capital of KAPI. was with the intention to acquire the business of KAPL with its market share, brand and goodwill in the market. In order to leverage such acquisition, the Assessee decided to merge KAPL and RAPL with its existing business by way consolidated Scheme of Amalgamation and Capital Reduction under section 391 to 394 of the Companies Act, 1956 before the Hon'ble Delhi High Court. 7.1.3 As per the scheme of amalgamation approved by the Hon'ble Delhi High Court vide order dated October 9, 2006, all the assets and liabilities of the Transferor companies were transferred to the Transferee at book value and based on the approved scheme of amalgamation, the difference between the value of investments in the book....
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....issued. 104.3 Transferee Company shall, upon the amalgamation becoming effective, record all assets and liabilities vested in Transferee Company pursuant to the book values of the Transferor Companies at the close of business of the day immediately preceding the Appointed Date. The amalgamation would be accounted for by applying the purchase method of accounting as contained in the "Accounting Standard 14: Accounting for Amalgamations" issued by the Institute of Chartered Accountants of India. ........................ 10A.5 The difference arising on account of the difference between the cost of investment in the books of Transferee Company and the amount by which assets of the Transferor Companies exceed the liabilities of the Transferor Companies shall be reflected by the Transferee Company as Goodwill for all intents and purposes." (Emphasis supplied) (refer page no 82 of PB 2) 7.1.6 In a recent decision, the Hon'ble Apex Court in the case of Dalmia Power Ltd vs ACIT: [2020] 420 ITR 339 (SC) (refer para 4.6 at page 259 of Case Law Paper Book 2 filed for AY 2009-10, 2010-11 & 2011-12 (hereinafter referred to as Case Law PB 2)), reitera....
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....forward any objection it may have against the amalgamation at the time the scheme of amalgamation is proposed before the court. The Tribunal thus held that: "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 allowed to tinker with the scheme." (refer para 11 at page 358 of Case Law PB 2) 7.1.10 Reliance is also placed on Electrocast Sales India Ltd. vs. DCIT [2018] 92 taxmann.com 85 (Kolkata - Trib.) (refer para 4.5 to 4.5.2 at page 371 to 372 of Case Law PB 2) & DCIT, Circle-11(1), Kolkata us JCT Limited, ITA No. 2389/Kol/2018 vide order dated July 8, 2020 (refer para 11, 12 and 13 at page 384 and 386 respectively of Case Law PB 2) wherein the Hon'ble Tribunal expressed the similar view in respect of the binding nature of Scheme on Revenue Authority. 7.1.11 Also, in the case of ACIT u Gautam Sarabhai Trust No. 23 (2002) (81 ITD 677) (Ahmedabad Bench 'B') it was held by....
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....ct to the provisions of the scheme whereby all the assets and liabilities of the transferor companies would be transferred to the transferee company at book value and the amalgamation would be accounted for under the "purchase method" as prescribed by the Accounting Standard - 14 on "Accounting for Amalgamations" issued by the Institute of Chartered Accountants of India. The Honourable High Court of Delhi approved the scheme of amalgamation vide its order dated October 09, 2006 and the same was filed with Registrar of Companies, New Delhi.on November 22. 2006. Accordingly these financial statements have been prepared for the amalgamated company. Other details pertaining to the scheme of amalgamation are stated below: ................. c) Amalgamation has been accounted for by following the "purchase method" as detailed in AS-14. d) In compliance with Accounting Standard - 14. Goodwill has been recognized in the books to the extent of Rs. 5.112,927 thousand being the difference between the Investment in the transferor company and the value of net identifiable assets acquired. Goodwill will be amortized over a period of 60 months. The good....
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.... pertinent to add that the observation made by the Hon'ble High Court must be read in the context that they were rendered. The Revenue in the Writ Petition alleged that the Assessee maintains de jure position but actually the merger/amalgamation has de facto followed the "Pooling of interest method" by which there could not have been accounting of goodwill (Para 9 on page 152 of Case Law PB 2 for the same order). The Revenue further stated that the enquiry is warranted as the Assessee did not disclose full and true facts and that the de facto position is different from the de jure position. (Para 11 on page 582 of Case Law PB 2 of the same order). The above contention of the Revenue before the High Court were factually incorrect, as de facto and de jure position is the same in the present case as evident from the Note 4 of Schedule 21 of the audited financial statements for FY 2005-06 (refer page 21-23 of PB) containing specific note on amalgamation quoted above. Thus, the observation of the Hon'ble High Court needs to be read to examine that whether the Assessee had strictly made compliance of the Approved Scheme in its books of accounts or whether it made deviations while....
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....he Hon'ble Court refused to sanction the scheme of amalgamation formulated solely for the purpose of avoiding taxes. It was held that: "The court is charged with a duty, before it finally permits dissolution of the transferor-company by dissolving it without winding up, to ascertain whether its affairs have been carried on, not only in a manner not prejudicial to its members but in even public interest. The expression "public interest" must take its colour and content from the context in which it is used. The context in which the expression "public interest" is used, enables the court to find out why the transferor company came into existence, for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor company and why it was being dissolved by merging it with another company, Thot is the colour and content of the expression "public interest" as used in the second proviso to section 394(1) of the Act which have to be enquired into. If the only purpose appears to be to acquire certain capital asset through the intermediary of the transferor-company created for that very purpose ....
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....hat once the scheme is approved, it implies that the same has been done after duly considering the representations from the Government / revenue. Similar view was expressed by the Co-ordinate bench of this Tribunal in the case of Purbanchaal Power Co. Ltd. (supra) wherein it was held that :- " ... 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 (P.) Ltd. Inre, (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 allowed to tinker with the scheme. In the present case of the assessee, neither t....
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....es in scheme of amalgamation. 7.2.3 The Assessee further submits that the Net Assets Value (NAV) of KAPL on the aforesaid date of acquisition of share capital by the Assessee was significantly lower, and the price so paid for acquisition of such share capital is based upon the market share of the KAPL of its products including its brand name of products, goodwill and marketing network. The scheme of amalgamation and other arrangements in the scheme are the steps of consolidation of the business of the Assessee by way of acquisition of KAPL in substance. Hence, the effect of the same is given in the Scheme of Amalgamation with this very intention of the Assessee. 7.2.4 Coming back to applicability of Accounting Standard on Scheme of Amalgamation, the period of Amalgamation is governed by the Companies Act 1956 as the Scheme was adopted in FY 2005-06. It is important to note here that method of accounting for amalgamation depends upon the details of the 'scheme of amalgamation' and not on AS-14 in those periods as their mandatory requirement in the Companies Act, 1956 or any other statute that the accounting of amalgamation would strictly be in accordance wi....
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....4) Assessee's Case In this case, the Wholly Owned Subsidiary was merged with Transferee Company in Scheme of Amalgamation by accounting the merger following the "Purchase Method of AS-14". Identical to the facts of the case of Assessee In Original ITAT Order dated May 25, 2012 (Copy attached at page 473 to 482 of Case Law PB 2) Factual Details of the Case Para 16 on page no 477 of Case Law PB 2 - Casablancas Gannon Engineering Ltd. (CGEL) was wholly owned subsidiary of the assessee-company which got amalgamated with the appellant during the year. - The investment of the assessee-company in CGEL as at March 31, 2002 amounted to Rs. 7,81,72,000/-. (Purchased 60% Shares of CGEL in 1995 & remaining 40% in FY 2000-2001 (Para 17 of the same order at page 478 of Case Law PB 2) - As per the terms of the scheme of amalgamation, the shares of CGEL amounting to Rs. 7,81,72,000/- held by the assessee-company were cancelled and the difference between the value of assets and liabilities equal to Rs. 7,56,22,000 taken over from CGEL has been transferred as goodwill of the assessee-company. (Assets/Liabilities were taken on Book Value - refer Para 2....
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....epted the contention of the appellant and passed an order in favour of the taxpayer wherein it held that the appellant is eligible for depreciation on goodwill. Further, it held that Hon'ble Bombay High Court in the case of Sadanand S. Varde v State of Maharashtra (247 ITR 609), held that once the scheme is approved by the Court, it ecases to be a contract and it has the force of the statute. Therefore, neither the nature of goodwill nor the quantity of goodwill can be disputed. (refer para 7 and 8 at page 486 and 487 of Case Law PB 2) In view of the above order of the ITAT in Toyo (Supra), the use of 'Purchase Method' for accounting of amalgamation cannot be held inappropriate once it is approved in the Scheme of Amalgamation. 7.2.6 The Assessee further submits that the Hon'ble Bombay High Court in the case of Hindalco Industries Limited: 151 Comp Cases 446 (Bom) (refer para 15 and 16 at page 501 and 502 of Case Law PB 2) and the Hon'ble Gujarat High Court in the case of Western Alliance Power Limited vide order dated 22^nd March, 2011 in Company Petition No.12 of 2011 where it was held that the treatment sanctioned by the Court in the scheme of arr....
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....e deviation from the accounting standards; b. the reasons for such deviation; and c. the financial effect, if any, arising due to such deviation." In view of the above, if an item in the financial statements of a Company is treated differently pursuant to an Order made by the Court/Tribunal, as compared to the treatment required by an Accounting Standard, following disclosures should be made in the financial statements of the year in which different treatment has been given: 1. A description of the accounting treatment made along with the reason that the same has been adopted because of the Court/Tribunal Order. 2. Description of the difference between the accounting treatment prescribed in the Accounting Standard and that followed by the Company. 3. The financial impact, if any, arising due to such a difference. It is recommended that the above disclosures should be made by enterprises other than companies also in similar situations." (Emphasis supplied) 7.2.8 Kind attention is invited to the following extracts from "Implementation Guide on Reporting Standards (SA 700, SA 705 & SA 706)", issued by the Audit....
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.... in AS-14 was not mandatory. Further, the legislative framework as it existed prior to 2013 permitted the option to adopt either the "Pooling of Interest Method" or "Purchase Method" under the Companies Act, 1956 and same were not held violative of the provisions of Companies Act read with the applicable Accounting Standard as held in the decision in the case of Hindalco Industries Limited: 151 Comp Cases 446 (Bom) & others in the erstwhile Companies Act, 1956. (refer para 15 & 16 at page 501 and 502 of Case Law PB 2) 7.2.11 Coming to appropriateness of the use of "Purchase Method" in the Scheme of Amalgamation. The Relevant Extracts of Accounting Standard -14 are reproduced as under for ease of reference: - "Definitions 3. The following terms are used in this standard with the meanings specified: (a) Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies. (b)Transferor company means the company which is amalgamated into another company. (c) Transferee company means the company into which a transferor company is amalgamated. (d) ....
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.... in the nature of merger' when all the conditions listed in paragraph 3(e) are satisfied. There are, however, differing views regarding the nature of any further conditions that may apply. .... Main Principles 28. An amalgamation may be either - (a) an amalgamation in the nature of merger, or (b) an amalgamation in the nature of purchase. 29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied: i. All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. ii. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. iii. The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the tr....
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....36. In preparing the transferee company's financial statements, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the transferee company except as stated in paragraph 39. 37. Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee company's financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve. 38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortisation period should not exceed five years unless a somewhat longer peri....
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....is to apply "form" over the "substance" which is evident from the fact that the Para 42 of the AS-14 dealing with Treatment of Reserves Specified in a Scheme of Amalgamation is given precedence over the treatment of reserves prescribed under the AS-14 when it is stated that the treatment provided under the Scheme should be followed. This is also in consonance with "Preface of the Accounting Standard", "Implementation Guide on Reporting Standards (SA 700, SA 705 & SA 706)" as well as decision of the Company Court in the case of Hindalco (Supra) (refer from para 7.2.7 of the submission above). Therefore, the view of the Ld. AO/CIT(A) that "Goodwill" so recognised by the Assessee in its books of account on account accounting treatment in accordance with Scheme is in the nature 'Negative Capital Reserve', would not hold correct in view of the Para 42 of the AS-14. II. The Assessee has submitted the facts that KAPL being a 100% subsidiary of the Assessee, the adoption of purchase method was more appropriate since no fresh shares were issued by the Assessee in the amalgamated company to shareholders of the transferor amalgamating companies, viz., itself., Consequently, a....
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....that "However, the Company could have accounted for amalgamation under "pooling of interest method" as per the Accounting Standard - 14. Had the Company accounted for the amalgamation under "pooling of interest method" there would have been no impact on the Profit & Loss Account in substance" (refer para (f) to note 4 of Schedule 21 of the Annual Report at Page no 23 of PB 2) 7.2.13 In light of the above, the Assessee most humbly submits that the 'Purchase Method' under AS-14 was correctly applied by the Assessee, and the action of the Ld. AO/CIT(A) on the interpretation of AS-14 is incorrect and liable to be set aside. 7.3 The scope and powers of the Ld. AO to tinker with book profit under section 115JB of the Act is impermissible on the facts of the case considering various judicial precedents. 7.3.1 Section 115JB of the Act provides that for computing the book profits, certain specified adjustments are to be carried on the net profit reported in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. 7.3.2 The specific adjustments have been prescribed in Expl....
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.... including the Income Tax Authorities. The detailed submission is made in earlier part, hence the same is not repeated. (b) The financial statements for FY 2005-06 were prepared on the basis of the terms of the Scheme as approved by the Hon'ble Delhi High Court. The same were duly approved by the statutory auditors, the members in the Annual General Meeting as well as by the Registrar of Companies, to be in accordance with the provisions of the Companies Act, 1956. (c) It is specifically mentioned in Note 2(a) of Schedule 21 of the audited financial statements for FY 2005-06 (refer page no 17 of PB) that the same have been prepared to comply in all material respects with the mandatory Accounting Standards issued by the ICAI and that the accounting policies have been consistently applied as in the previous year, except for certain changes duly disclosed therein. (d) Further attention is drawn to Note 4 of Schedule 21 of the audited financial statements of the Assessee for FY 2005-06 (refer Page no 21 to 23 of PB 2) containing specific note on amalgamation, which reads as under: "4 . Amalgamation The company entered into a scheme of am....
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....pproved by the Court/ Tribunal would be in compliance with the provisions of sections 210/211 of the Companies Act, provided, appropriate disclosures as required in law are made by the Company in the financial statements of the year in which the order is to be given effect to. The relevant extracts of the guidelines issued by the ICAI are reproduced hereunder: "Announcement Disclosures in cases where a Court/Tribunal makes an order sanctioning an accounting treatment which is different from that prescribed by an Accounting Standard Paragraph 4.2 of the 'Preface to the Statements of Accounting Standards'(revised 2004) provides as under: "4.2 The Accounting Standards by their very nature cannot and do not override the local regulations which govern the preparation and presentation of financial statements in the country. However, the ICAI will determine the extent of disclosure to be made in financial statements and the auditor's report thereon. Such disclosure may be by way of appropriate notes explaining the treatment of particular items. Such explanatory notes will be only in the nature of clarification and therefore need not be treated as adv....
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....n, the departure is not a non-compliance with the framework but compliance with a modified framework. If the effect of doing this is material, the auditor should describe the resultant deviation from the framework in sufficient detail in an emphasis of matter paragraph." (Emphasis supplied) (g) The Bombay High Court in the case of Hindalco Industries Limited: 151 Comp Cases 446 (Bom) (refer para 15 and 16 at page 501 and 502 of Case Law PB 2) and the Gujarat High Court in the case of Western Alliance Power Limited vide order dated 22nd March, 2011 in Company Petition No.12 of 2011 held that the treatment sanctioned by the Court in the scheme of arrangement could not be considered to be violative of the provisions of Companies Act read with the applicable Accounting Standard, provided appropriate disclosures were made in the financial statements of the company. (h) In the case of Hindalco Industries (supra), the Hon'ble Bombay High Court even held that explanatory notes to the financial statements were only in the nature of clarification and therefore, need not be treated as adverse comments on the related financial statements. (refer para 15 at page 5....
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....r with and make adjustment to the same, except to the extent permitted under the relevant clauses of Explanation 1 to section 115JB of the Act. 7.3.10 Reference in this regard may be made to the landmark decision of the Supreme Court in the case of Apollo Tyres Ltd vs CIT: 255 ITR 273 (SC), wherein the Hon'ble Apex Court held as under: "The above speech shows that the income-tax authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that section 115J was introduced in the Income-tax Act with a deeming provision which makes the company liable to pay tax on at least 30 per cent. of its book profits as shown in its own account. For the said purpose, section 115J makes the income reflected in the company's books of account the deemed income for the purpose of assessing the tax. If we examine the said provision in the above background, we notice that the use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies A....
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.... Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JB." (Emphasis supplied) (refer para 5 at page 510 to 511 of Case Law PB 2) 7.3.11 To the same effect is the decision of the Supreme Court in the case of Malayala Manorama Co Ltd vs CIT: 216 CTR 102 (SC) as well as the decision in the following cases: - CIT vs HCL Comnet Systems & Services Ltd: 305 ITR 409 (SC) [refer para 7 at page 516 and 517 of Case Law PB 2] - Kinetic Motor Co Ltd: 262 ITR 340 (Bom) - IT vs Rubamin (P) Ltd: 218 CTR 162 (Guj) - DCIT vs Farmson Pharmaceuticals Gujarat Ltd: 241 CTR 568 (Guj) - CIT vs Sona Woollen Mills P Ltd: 300 ITR 202 (P&H) 7.3.12 Once the scheme of amalgamation has been approved by the Hon'ble High Court and financial statements are drawn up in accordance with such approved scheme, the Ld. AO is not correct in law in alleging that the financial statements of the Assessee do not state the true and fair view or that the adoption of Purchase Method of accounting is a device deployed to avoid ta....
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....nt Limited (26 taxmann.com 281), wherein it was held that loss incurred by assesse-company on transfer of its investment division to another company was to be debited to its profit and loss account and said loss was not required to be added back while computing book profit under section 115JB. 7.3.17 It is further submitted that 'provision for diminution in the value of investment' means creating a provision from the value of investment meaning thereby the very investment must be in existence. However, in the present facts of the case, the investment is not in existence but have been cancelled under the Scheme of Amalgamation. Thus, in no manner such loss can be termed as 'provision for diminution in the value of investment/ asset'. Further it is submitted that it is a case of permanent reduction in the value of investment. Permanent reduction could be in cases like reduction of share capital due to heavy losses, liquidation of companies resulting in reduction in value of share. Reliance is placed Hon'ble Mumbai Tribunal in case of DCIT v. M/s. Reach Data Services India Pvt. Ltd. (I.T.A. No.5798/Mum/2011), wherein the Hon'ble Tribunal has held that ....
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....ead with section 211(3A) & (3B) of the Companies Act, 1956. (c) The Ld. AO also failed to appreciate that the interplay of Scheme of Amalgamation and Accounting Standard as existed during the relevant period wherein the choice of method accounting under AS-14 was optional and not mandatory. (d) The Ld. AO also failed to appreciate that the 'Purchase Method' also allows carrying the values of assets and liabilities at Book Value and it is not restricted to 'Pooling of Interests of Method'. (e) The Ld. AO placed reliance on Accounting Standard -1 to apply doctrine of substance over form. However, the Ld. AO failed to appreciate that the substance of the present case is implementation of the Scheme of Amalgamation as approved by the Hon'ble High Court which has been duly carried out by the Assessee. Further, if the reference of substance is made to the Scheme as approved by the Court, then it is well settled in law that the Scheme is treated as sacrosanct and status of Statute which operates in rem. (f) The Assessee also states that Ld. AO also failed to take account the Preface of Accounting Standard which clearly says that Acco....
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....egations, fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the profit and loss account or in the Balance Sheet. (2) If accounting policies, accounting standards not adopted for preparing such accounts and method, rate of depreciation which have been incorrectly adopted for preparation of profit and loss account laid before the Annual General Meeting. Except for the above two cases. the Assessing Officer has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus, it is clear that under MAT, the Assessing Officer should take the net profit as computed by the assessee and then make the adjustments under section 115JB of the Act. (refer para 18 at page 242 to 243 of Case Law PB 2) (i) Your Honours would appreciate that the decision clearly states that the power to tinker with the book profits arises only in two circumstances, firstly If the AO has discovered that profit and loss account is not drawn up in accordance with Part II and Part III of Schedule VI to the Companies Act. However, the Assessing Officer cannot disturb the Net Profit as show....
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....ailed written submission which is reproduced as under :- BEFORE THE HON'BLE MEMBERS INCOME TAX APPELLATE TRIBUNAL G-BENCH, NEW DELHI In the case of : SC Johnsons Products Pvt. Ltd. (Now known as Brillon Consumer Products Pvt. Ltd. ) Appeal No. : 1850/Del/2019 Asstt. Year : 2006-07 Date of hearing: 24-04-2024 and 25-04-2024 MAY IT PLEASE YOUR HONOURS Sub: Written Submission in the above case- reg. During the course of hearing, elaborate arguments had been made by the undersigned and upheld by the Ld. CIT(A) in respect of the issue of addition made by the Assessing officer to the book profit under 115JB of the Income Tax Act, 1961 on account of amortisation of goodwill. The arguments made included three main aspects. Firstly, it was explained that the as per the provisions of the Income Tax Act, for the 'specific' purpose of computation of book profit under section 115JB of the I.T. Act, the AO was not barred from examining and adjudicating on the point of as to whether the Profit and loss account was prepared in accordance with provisions of the Part-Il and Part-III of the schedule Vi of the Companies Act ....
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....kata Tribunal) (vi) JCT Ltd. Vs. DCIT, ITA No. 2389/Kol/2018 (vii) ITAT, Ahmedabad in the case of ACIT Vs. Gautam Sarabhai Trust No. 23 (2002) (81 ITD 677) (viii) Hon'ble ITAT, Mumbai in the case of Keva Fragrance P.Ltd. Vs. DCIT, ITA No. 334/M/2020 (AY 2016-17) Since, it was contended that above judgements were distinguishable of facts and not applicable to the case of the assessee, the Hon'ble Bench had desired that a written submission may be given on this aspect. Accordingly, following submission is being made in this regard, which may kindly be taken into consideration: 2. Main thrust of the arguments of the assessee by way of citing above case laws has been that once the scheme is approved by the Court, it can not be questioned by the Revenue i.e. Income Tax Department. However, none of the above decisions relied by the assessee deal with the question as to whether the assessing officer had legal competence to disturb the net profit shown in the Profit and Loss account of the assessee (i.e. resultant entity subsequent to amalgamation) under section 115JB of the I.T. Act if such account was not found in accordance with the p....
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....is a specific and deeming provision. It results in an assessee having to pay tax, which otherwise may not have been payable. As per section 115JB, for the purpose of determining the book profit on which tax is to be calculated, the profit and loss account should be prepared in a specific manner. This provision cannot be considered as subordinate to any other statute or any order approving a scheme under the Companies Act. Section 115JB provide complete mechanism for computing the book profit and tax thereon. Therefore, the assessing officer was under legal duty to make adjustment to net profit as shown in profit and loss account prepared by the assessee to bring it in conformity with provisions of section 115JB of the I.T. Act. This calculation of book profit under section 115 JB of the income tax act is subsequent to preparation of accounts by the assessee as per the scheme approved and it does not interfere with scheme approved by the Hon'ble High Court. The exercise undertaken by the Assessing officer do not disturb the profit and loss account prepared by the assessee under the Companies Act except for the limited purpose of computing book profit under the provision of secti....
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....w is squarely supported as per following decisions discussed in Para 15.5, Page 38 to 41 of CIT(A)'s order. (i) Special Bench, Hon'ble ITAT, Hyderabad's decision in the case of Rain Commodities Ltd. Vs. ACIT, 131 TTJ 514 (ii) Decision of Hon'ble ITAT, Cochin in the case of Padinjarekara Agencies Pvt. Ltd. Vs. ACIT, ITA No. 375/Coch/2014 (AY 2005-06) (iii) Decision of Hon'ble ITAT, Lucknow in the case of M/s L.H. Sugar Factory Ltd. ITA No. 417 and 418/LKW/2013 (AY 2008-09 and 2009-10) (iv) Decision of Hon'ble ITAT, Mumbai the case of M/S. JSW Steel Limited Vs. ACIT, ITA No. 923/Bang/2009 3.6 In addition to the above, kind attention of Hon'ble Bench is also drawn to Para 7 Page 21, which deals with 'Consideration by SCJPPL', of Scheme of Amalgamation (Page 79 of Paper Book-II submitted by the assessee for AY 2006-07). As per the same, just prior to amalgamation, entire share capital of 'Karamchand Appliances Private Limited' was held by the assessee company. Further, entire share capital of 'Roshni Appliances Private Limited' was held by 'Karamchand Appliances Private Limited'. Fu....
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....affairs. It is not the case that as a result of amalgamation in question, the assessee company had acquired some new intangible assets contributing towards goodwill, which it was not having prior to amalgamation. 3.7 In light of above discussion, it would be pertinent to highlight comment of the Auditors in para-4(e) of Notes to Accounts ( Schedule 21) for FY 2005-06 (Page 23 of Paper Book-Il filed by the assessee) . "As per the sanctioned scheme of amalgamation by the honourable Delhi High Court, the assets and liabilities of the transferor company have been transferred to the transferee company at book value and accounted for the amalgamation under "purchase method". However, the company could have accounted for amalgamation under "pooling of interest method" as per the Accounting Standard-14. Had the company accounted for the amalgamation under pooling of interest method, there would have been no impact on the profit and loss account in substance." From careful reading of language used in above comments by the Auditors, it is evident that even Auditors were of the view that the assessee could have accounted for amalgamation under "pooling of interest m....
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....l generated as a result of such merger. As per submission of the assessee, it has taken excess of value of investment made in 'Karamchand Appliances Private Limited' over book value of net assets of 'Karamchand Appliances Private Limited' as goodwill. In this regard, it is pertinent to highlight that book value of assets of "Karamchand Appliances Private Limited' do not reflect fair market value of such assets as on the date of merger. Fair market value of assets of 'Karamchand Appliances Private Limited' will be higher than the book value of such assets as significant part of such assets is in the form of immovable property like land, which appreciates significantly with passage of considerable time (Refer to page -9 of Paper Book-Il filed by the assessee). There is significant time gap of many years between date of merger and the date on which assets of 'Karamchand Appliances Private Limited' were accounted for the first time. Therefore, significant part of the amount paid by assessee company for purchasing shares of Karamchand appliances are likely to be towards enhanced value of assets, particularly immovable assets, of the transferor compani....
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....ments prepared and presented on the basis of such accounting policies. For this purpose, the major considerations governing the selection and application of accounting policies are the following, namely :-- (i) Prudence .- Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information; cash or mercantile basis of accounting. 19. In light of the above, the Appellant submits that the reassessment for year under consideration is not based upon fresh tangible material surfaced post completion of the original assessment of AY 2006-07, and is thus clearly distinguishable from the reopening done in the AY 2007-08 and 2008-09. In any case, the reasons so recorded are merely based upon objections of the Revenue Audit Party which is not in consonance with provisions of section 145(1) of the Act read with Accounting Standard notified by the Central Government vide notification dated 25 January 1996 (applicable for the year under consideration). Accordingly, it is prayed that ground 1 to 1.5 of the Assessee's Appeal of AY 2006-07 may kindly ....
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....feree at the relevant "carrying amounts," i.e. points. The criteria applicable, it is urged is 'pooling of interests method' in para 3 (e) of AS-14. On the other hand the reason recorded for issue of notice u/s 148 indicate that while the assessee maintains this de jure position but actually the merger/amalgamation has de facto followed the 'pooling of interests method' by which there could not have been accounting for goodwill. It is contended that the assessee in effect did not disclose full and true facts in its return of income 10. Counsel for the revenue argues that the assessee also annexed the order of the Company Court when it has recognized and approved the scheme of amalgamation under sections 391 and 394 of the Companies Act. However, a perusal of paras t and 2 of the scheme approved on 09.10.2006, shows that all assets and liabilities of the transferor companies have passed on, in totality, to the transferee company thus indicating that it is a pooling of interest method of amalgamation. It is thus, argued that clearly, on examination of the scheme of merger, especially the clauses which deals with amalgamation. 3.1 to 3.2.11 (which deal with th....
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....firmed by the Hon'ble Delhi High Court has to be mandatorily followed by the Appellant as it is binding both on the Department and the Appellant 26. It is submitted that Karamchand Appliances Private Limited ("KAPL") and Roshni Appliances Private Limited ("KAPI."). [RAPL itself being wholly owned subsidiary of KAPI] (collectively referred as "Transferor companies"). were amalgamated with the Appellant through a scheme of amalgamation ("the Scheme") under sections 391-394 of the Companies Act, 1956 with the appointed date of 1 June 2005. The Scheme was sanctioned by the Delhi High Court vide order dated 9 October 2006 (refer Page no 31-94 of Paper Book - II). 27. It is further submitted that as per the scheme of amalgamation approved by the Delhi High Court, all the assets and liabilities of the Transferor companies were transferred to the Transferee at book value and that based on the approved scheme of amalgamation. the difference between the value of investments in the books of accounts for the equity shares held in the Transferor companies and the amount of net assets received, approx. INR 510 crores, was recorded and amortized through profit & loss account....
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.... prescribed accounting practices: I. The Appellant has submitted the facts that KAPL being a 100% subsidiary of the Assessee, the adoption of purchase method was more appropriate since no fresh shares were issued by the Assessee in the amalgamated company to shareholders of the transferor amalgamating companies. viz., itself. Consequently, amalgamation of the subsidiary companies with the holding company, leading to cancellation of investment, does not fulfil the conditions mentioned in paragraph 29 (ii) and (iii) of AS-14 (Page 109 of Paper Book 2) for the same to qualify as "Amalgamation in the nature of merger" requiring accounting under "pooling of interests method" as per paragraph 33-35 of AS-14(Page 108 of Paper Book 2). Accordingly, the nature of amalgamation read with Para 29 and 30 of the AS-14 (Page 107 of Paper Book 2) must be treated as amalgamation in the nature of purchase. II. The Appellant further submits that the assessing authorities also misdirected themselves when they observed that in case of the purchase method, the assets and liability of the transferor company must be recorded on 'market value' as against 'book value' appli....
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....andated by AS-14 from the Institute of Chartered Accountants of India and certified by the statutory auditors. It may also be noted that the Appellant did not claim the amortization under the normal provisions of the Act. However, the said amortization debited to the profit and loss account as per the accounting treatment approved in the Scheme, it is stated, was not added back for arriving at the book profit under section 115JB of the Act . 35. The Hon'ble Delhi High Court approved the accounting treatment set forth in the Scheme, viz., purchase method of accounting under AS-14 (refer para 10A.3 and para 10A.5 at Page no 82-83 of Paper Book 2). It is relevant to mention the decision of Hon'ble Apex Court in the case of Dalmia Power Ltd vs ACIT: [2020] 420 ITR 339 (SC), reiterated the dictum of law laid down in an earlier decision reported as J.K. (Bom) (P) Lid us. New Kaiser-I-Hind Spg. & Wvg. Co Ltd: [1970} 40 Comp. Cas. 689 that such schemes are binding on both the assessee and the Department and made the following pertinent observations: "4.6 Pursuant thereto, the Schemes were sanctioned by the NCLT, Chennai vide Orders 16.10.2017, 20.10.2017, 26.10.20....
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....nch also recognized by Courts, the Revenue has an opportunity before such Courts to object such Schemes if they being formulated to deploy a device to avoid tax but in no manner, they can discard such scheme in the course of assessment as has been done in the present case. 39. It is settled position in law that while preparing financial statements under sections 210/211 of the Companies Act, every company is mandatorily required to follow accounting treatment accorded in the scheme of arrangement approved/ sanctioned by the Court: the same is also binding on the statutory auditor. 40. The guidelines framed by the ICAI provide that the accounting treatment approved by the Court/ Tribunal would be in compliance with the provisions of sections 210/211 of the Companies Act, provided, appropriate disclosures as required in law are made by the Company in the financial statements of the year in which the order is to be given effect to. The details submissions in this regard have been made in para para 7.2.6 to para 7.233 at Page no 28-39 of the written submission - Part 2. 41. That apart, in the facts of the present case, it is reiterated that the adoption of pu....
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....Ltd vs CIT: 255 ITR 273 (SC). 45. Once the scheme of amalgamation has been approved by the Hon'ble High Court and financial statements are drawn up in accordance with such approved scheme, the Ld. AO is not correct in law in alleging that the financial statements of the Assessee do not state the true and fair view or that the adoption of Purchase Method of accounting is a device deployed to avoid tax, to justify tinkering with the net profit shown in the audited financial statements to compute book profit in terms of section 115JB of the Act. 46. It is the respectful submission of the Appellant that the amount of goodwill amortized to the profit and loss account is correctly reduced from the book profit computed under section 115JB of the Act and the action of the assessing authorities in adding the same back to the net profit for the purpose of computing book profit under the aforesaid section is unsustainable in law not being in consonance with the provisions of Section 115JB of the Act. 39. Heard the contentions of both the parties and perused the material available on record. In the instant case, two companies namely, RAPL and KAPL were amalgamated with....
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....thod is preferred over the pulling of interest method. 41. The scheme of amalgamation was approved by Hon'ble Delhi High Court wherein Hon'ble High Court has considered all the aspects as detailed in the scheme by the assessee. Therefore, we do not find any error in the treatment given by the assessee in the books of accounts which is based on the scheme approved by the Hon'ble High Court. 42. It is further seen in the case if pulling of interest method as prescribed in Accounting Standard-14 is followed, the necessary entry to the effect of loss on such amalgamation i.e. negative earnings is to be disclosed in the financial statement on the assets side of the Balance Sheet which has to be amortized in the books of account either in one go or as decided in five years. In such circumstances, there would be no change in the financial results of the assessee as under the payment method, the assessee has claimed depreciation on goodwill whereas under pulling of interest method, losses would be claimed in the Profit & Loss Account. Thus, in our considered opinion, as has been observed by the Statutory Auditors also, the accounting treatment either by purchase method or....
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..... ============= Document 1 5 13 CFORM FOR RECORDING THE REASONS FOR INITIAT U/S.147 AND FOR OBTAINING THE APPROVAL OF THE COMMISSIONER OF INCOME TAX / C'ENTRAL BOARD OF DIRECT TAXES. EDINGS ----- Name & Address of the Assessee M/s S. C. Johnson Products Pvt. Ltd. M-69, M-Block Market Greater Kailash Part-I N. Delhi 2 | PAN/GIR No. AAACL3128M į 3 Status Company 14 District / Circle Circle-7(1), New Delhi 3 [ Assessment Year in respect of which it is proposed to issue notice u/s.148 |2006-07 6 The quantum of income, which has escaped assessment. Rs .. 34562000/- 7 Whether the provisions of section 147(a) or 147(b) are applicable or both the sections are applicable |NO 0 : Whether the assessment is proposed to be made for the first time. If the reply is in affirmative, please state (i) Whether any voluntary return has already been filed ; and (ii) If so . the date of filing the said return NO If the answer to item 8 is in the negative please state til The income originally assessed (j) Whether it is a case of under : assessment. assessment at too ! low rate. assessment which has been made the subject of excessive relief or allowing of e....
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....rk for issuance of notice u/s 148 & LESWHERE Act, 1961. 2 Dy. Commissioner of Income Ti Circle-7 (1), New De 12 . Whether the Addl. CIT is satisfied on the reasons recorded by the ACIT, that it is a fit case for the issue of a notice u's. 148 - : The A'O has recorded extensive house On the bank of reason recorded. I the A.O., I am satisfied that this or fit case for wings of morice nfs 148. (Sukhvir Chaudhary) Addl. Commissioner of Income Tax, Range-7, New Delhi 13. Whether the CIT is satisfied on the reasons recorded by the ACIT/Addl. CIT. that it is a fit case for the issue of a notice u.s. 148 Je , 9 am Artistier . Rizemar 6/03/2013 12 . Whether the Addl. CIT is satisfied on the reasons recorded by the ACIT, that it is a fit case for the issue of a notice u's. 148 - : The A'O has recorded extensive house On the bank of reason recorded. I the A.O., I am satisfied that this or fit case for wings of morice nfs 148. (Sukhvir Chaudhary) Addl. Commissioner of Income Tax, Range-7, New Delhi 6/03/2013 (Rajnish Kumar) Commissioner of Income Tax, Delhi - III, New Delhi Document 4 For the year ended March 31, 2006 Value (Rs. 000) 24,505 For the year ended M....
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....nabove in support of the grounds raised against this disallowance made in AY 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12. Hence, these submissions are not being repeated for the sake of brevity. Respectfully Submitted. Sincerely, smile Shruti Khimta Authorised Representative Document 6 6. Above submission may kindly be taken into consideration for all assessment years (AY_2007-08 to A.Y. 2011-12) having the issue of addition made under section 115JB in the case of assessee. Yours faithfully, Enel: As Above (DHARM VEER SINGH) CIT(DR), G-Bench ITAT, New Delhi. Copy to : The Assessee - for information Document 7 Before the Ilon'ble Income Tax Appellate Tribunal CITAT") Bench- 'G'. New Delhi In the matter of: SC Johnson Products Private Limited (now known as Brillon Consumer Products Private Limited) Assessment year (AY') 2006-07 Income Tax Appeal No. 1850/Del/2019 The present appeal was listed for a hearing before the Hon'ble G Bench on April 25, 2024. Thereafter, the matter was listed for clarifications on August 2, 2024. During the hearing, the Hon ble Bench sought certain clarificationis from the Appellant on the arguments made by the L.d. Depart....
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....USA in April' 2006. As the claim was received in F.Y. 2006-07. the same would be debited in F.Y. 2006-07 (A.Y. 2007-8). The mistake has resulted in under assessment of income of Rs. 34562000/- for A.Y. 2006-07. Further, the assessee had deducted Rs. 16.33,167/- on account of vehicle depreciation as per Income Tax Act, from the taxable income but the same has not been taken in valuation of FBT. The mistake has resulted in under assessment of Fringe benefit value of Rs. 1633167/- involving potential tax effect of 109945/ -. I have therefore, reason to believe that an amount of Rs. 34562000/-+ Rs. 16.33.167/- have escaped assessment within the meaning of section 147(c ) & 115 WG of the IT Act, 1961. The escapement of the income has been by the reason of failure on the part of the assessee to disclose fully & truly. all materint fiets necessary for assessment. Since the assessment has been completed u/s 143(3) of the IT Act, 1961 and 4 years have since elapsed ..... " (refer page no 6-7 of Paper Book) 5. Your Honours' would note that the reasons stated herein-above only rely and refer to the material on record at time of the original assessment order and there is no subs....
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.... order. Hence, the reliance of the Ld. DR on the order of the Hon'ble Delhi High Court to seek the validation of the Section 148 notice for the AY 2006-07 is misconceived and factually distinct. 11. It is respectfully submitted that in AY 2006-07, there was admittedly no fresh material available on record, on the basis of which belief has been formed by the Ld. AO that some income has escaped assessment. It is evident from the reasons recorded that the reassessment is being made on the material which were already on record. At the cost of repitition, the relevant portion of the reasons recorded is extracted below: "The original assessment us/ 143(3) was completed in December 2009 at un income of Nil after making certain adjustments and setting off of B/F losses/unabsorbed depreciation and allowing deduction u/s 80 1B/80IC. Perusal of records revealed that amount of Rs. 34562000/- was debited to Profit and loss of claim received from S.C. Johnson Ltd USA in April' 2006. As the claim was received in F.Y. 2006-07, the same would be debited in F.Y. 2006-07 (A.Y., 2007-8). The mistake has resulted in under assessment of income of Rs. 34562000/- for A.Y. 2006-07." 12. There is p....
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....cision of the Apex Court in the case of Calcutta Discount Co. Ltd. v. ITO |1961] 41 ITR 191 (SC) came to the conclusion that if the rationale for re-opening is purely factual, unless fresh facts or material having a "live link" with the issue, that can lead to inference of concealment of material facts cannot be gone into; the earlier assessment order becomes conclusive. (refer para 15-17 at Page no 588-589 of Paper Book 2) 6. Before concluding, only for the sake of completeness, the brief facts leading to the reassessment proceedings for the subject year are detailed below for the Hon'ble Bench's ready reference. a. The Appellant received a debit note from S.C. Johnson and Son Ine .. USA for salary of expatriates deputed to the Appellant's business in India during the FY 2005-06. The Appellant had duly withheld and deposited taxes on the payment made to the expatriates during the captioned assessment year. Copy of the income tax returns for FY 2005-06 in respect of the expatriates is enclosed at page no. 37 to 38 of the Paper Book. b. However, while the services were rendered by the expatriates to the Appellant as employees in the captioned assessment year, the debit note....