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Deputy Commissioner of Income Tax, Circle-6, Kolkata Versus M/s. Texmaco Ltd

2015 (9) TMI 1111 - ITAT KOLKATA

Set off of loss - whether CIT(A) erred in law in holding that the appellant is entitled for set off of unabsorbed business loss and depreciation relating to Neora Hydro Limited amalgamated with the assessee? - Held that:- No reason to interfere with the order of ld. CIT(Appeals) and we uphold the same particularly because in the present case assessee had furnished all the particulars regarding steps taken by amalgamating company towards business, as noted in the chart filed by ld. Senior counsel .....

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. Accordingly, we confirm the order of CIT(A) deleting the disallowance. Similar are the facts in AY 2007-08 and hence, taking a consistent view, we delete the disallowance in this year also - Decided against revenue. - I.T.A. No. 970/KOL/ 2012 - Dated:- 1-9-2015 - Shri S.V. Mehrotra and Shri Mahavir Singh, JJ For The Department : Shri S.M. Sarfarazut Tauheed, Sr. D.R., For The Assessee : Shri R.N. Bajoria, Sr. Counsel and Shri Ashim Chaudhury, Advocate, ORDER Per S.V. Mehrotra: This appeal has .....

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dictional Bench of the ITAT in the case of DCIT -vs.- Gujrat NRE Coke Limited (25 SOT 46). The order of the CIT(A) should be reversed and the order of the AO should be deleted. 2. That on the facts and the circumstances of the case, Ld. CIT(A) erred in law in holding that the interest of ₹ 54,63,630/- is allowable following similar judgment of the CIT(A) in earlier years. The department s appeals for earlier years for similar disallowance are pending before the ITAT. 2. Brief facts of the .....

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total income of ₹ 90,20,47,840/-. The assessment was completed at the total income of ₹ 97,00,52,907/-, inter alia, making addition of ₹ 54,63,630/- in respect of interest on advances to M/s. Neora Hydro Limited and disallowance of set off of accumulated business loss of amalgamating Company M/s. Neora Hydro Limited under section 72A of the Income Tax Act, 1961. Ld. CIT(Appeals) while partly allowing the assessee s appeal deleted both the above noted disallowances made by the .....

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was a joint-venture Company between Bagla Group and Texmaco Limited. Texmaco owned 50% shares of the Company and 50% shares were held by the Bagla Group. The Assessing Officer required the assessee to substantiate that the conditions prescribed in section 72A of the Income Tax Act were satisfied in respect of set off of loss of Neora Hydro Limited claimed by the assessee. The assessee in its reply pointed out that the Company was incorporated on 06.08.1999 and entered into an agreement with Gove .....

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al years prior to amalgamation with the assessee and that the business commenced before three years (even more than three years) earlier to the date of amalgamation and conditions prescribed under section 72A(2)(a) of the Income Tax Act were satisfied. The Assessing Officer did not accept the assessee s contention and observed that the date of commencement of generation of power was the most important fact to be taken into consideration to conclude when the business commenced. He observed that s .....

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rovals from various Government Departments for starting the ultimate business of power production. He observed that from the audited accounts for the year ended 31.03.2004, in the Directors report, detailed discussions were there about placement of orders, import of machineries and installation of the same and various steps taken in the process of establishing the Unit. He further pointed out that similarly, details were mentioned in the accounts for the subsequent years. Ld. CIT(Appeals) follow .....

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The Government of West Bengal through its State Electricity Board entered into an agreement dated 08.10.1999 with Neora Hydro Limited for banking and wheeling of power. ITAT has discussed the meaning of the words engaged in business and has held that engaged in business has a wider meaning. The assessee was engaged in the business and satisfied all the conditions laid down in section 72(A)(2)(a) of the Income Tax Act and was entitled for set off of unabsorbed business loss. 6.1. Ld. counsel fur .....

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al has elaborately considered the provisions of section 72A(2), in which in para 6.4 Tribunal after considering the decision of the Hon ble Andhra Pradesh High Court in the case of Sponge Iron India Limited reported in 111 CTR (AP) 67 and the decision of the Hon ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. reported in 91 ITR 170 (Guj.) observed that from these decisions it emanates that essential activity has to be commenced in the course of carrying on .....

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at the business had commenced. Under these facts and circumstances, the matter was restored to the file of Assessing Officer. However, in the present case, as pointed out earlier, the assessee had given all the necessary details and particulars in regard to the activities taken by Neora Hydro Limited. 7. We have considered the rival submissions and have perused the orders of lower authorities as well as the material available on record. We may gainfully refer to the provision of Section 72A(2) o .....

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s of the book value of fixed assets held by it two years prior to the date of amalgamation ; (b) The amalgamated company - (i) Holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) Continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) Fulfils such other conditions as may b .....

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In the case of DCIT, Circle-12, Kolkata -vs.- M/s/. Gujarat NRE Coke Limited in ITA No. 2138/KOL/2007, the Tribunal has, inter alia, observed in para 10 as under:- ..... engaged in business does not imply engaged in production . If the legislature in its wisdom has not used the word engaged in production, it is not open to the assessing officer to import such word or meaning to the term engaged in business . The basic postulates of Interpretation of Statutes requires that the Literal Constructio .....

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d there is no requirement of start of production to be eligible for deduction, there may be many instances where the business may have commenced but the actual production may not have commenced but that would not imply that the business itself had not commenced and that an assessee would not be engaged in production. Therefore, it appears, the A.O. has narrowed down the requirement of the section without there being any such intendment within the section itself.... 8. By considering the totality .....

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ltantly, this ground filed by the Revenue stands dismissed. 9. Brief facts apropos Ground No. 2 are that the Assessing Officer noticed that upto 01.08.2007, Neora Hydro Limited was an independent Company to whom assessee had advanced total sum of ₹ 13.94 crores without charging interest. He observed that the interest-free advance had been given from Cash Credit Account on which interest had been paid by the assessee. He, therefore, disallowed a sum of ₹ 54,63,630/- out of interest pa .....

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nds of its own to advance money out of that to the sister concern. He pointed out that the assessee had 50% share in the sister concern which amalgamated with Group Company later on. There was a business interest of supply of electricity from the sister concern thereby giving rise to the business expediency. 11. Having heard the rival submissions and carefully gone through the record, we find that this issue is squarely covered by the decision dated 09.06.2015 of this Tribunal in assessee s own .....

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e 50% shares of NHL were also transferred by Bagla group to the associated concerns of the assessee by 31.3.2005. The assessee filed a scheme of amalgamation and as per the direction of the Hon'ble Calcutta High Court, NHL ultimately amalgamated with assessee with effect from 1.8.2007. We further find that the assessee had sufficient funds of its own to advance the loan to sister concern as is evident from the facts of the case discussed above. The assessee also had loans and advances taken .....

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be produced by NHL electric project. Therefore, there was commercial interest of assessee in Neora Hydro Electric Ltd., for advance in the money. The assessee had 50% shares in NHL while balance 50% was also transferred to the associated concerns of the assessee by 31.3.2005. We find that the assessee has relied on the case of CIT vs. Britannia Industries 280 ITR 525. The Hon'ble Calcutta High Court has held in this case as follows:- In this case, the question that is to be answered is: Whe .....

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e advance was made for the purpose of business within the meaning of section 36(1)(iii); that there was regular course of business between the assessee and the firm; and that the advances were made to MCAP in the regular course of business; such advances were made in the course of business for commercial expedience and for the purpose of business; the findings arrived at by the learned Tribunal were not perverse; the entire expenditure was made from the mixed account therefore, there would be a .....

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the respective assessment years involved in this appeal. In the result, the appeal fails and is accordingly hereby dismissed. 8. We further find that assessee also relied on the judgment of the jurisdictional High Court in the case of J.K. Industries Ltd. Vs. CIT (1999) 238 ITR 820 (Cal) wherein it is observed as under:- f) The appellant finances its subsidiaries as part of the appellant s business activity and its Memorandum of Association approves such activity. According to the appellant, fr .....

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pellant s cash profit after providing for tax addition and dividend amounted to ₹ 30.37 crore and the said interest-free loans of ₹ 7.30 crore were given out of the said internal accruals of the appellant. The Assessing Officer, however, by order dated March 26, 1999 disallowed the interest expenditure of ₹ 59,32,575/- on the assumption that the interest-free loans to the subsidiaries were made by the appellant out of the borrowed funds. g) Being dissatisfied, the appellant pre .....

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6 amounted to ₹ 1 crore. During the previous year end on March 31, 1996, the appellant advanced a further sum aggregating to ₹ 7.30 crore to its subsidiaries and during the previous year ended on March 31, 1996, the appellant s cash profit after providing for taxation and dividend amounted to ₹ 30.37 crore and the said interest-free loans of ₹ 87.30 crore were given out of the said internal accruals of the appellant. Thus, it should be presumed that the subsidiaries were .....

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