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2015 (11) TMI 648 - KARNATAKA HIGH COURT

2015 (11) TMI 648 - KARNATAKA HIGH COURT - TMI - Disallowance of business loss and unabsorbed depreciation - whether the period of three years as prescribed u/s.72A(2)(a)(i) of the Act has to be computed including the period of setting up of business and not from the date of commencement of actual production? - Held that:- In the present case, the licence for setting up business of power generation, loans for the same, construction of the building and purchase of machinery etc., had started from .....

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r generation had begun from the year 2000, even though the production or generation of power, i.e., the commencement of business may have been with effect from 08.08.2003.

We may also mention that Section 72A of the Act provides for set off of accumulated loss and unabsorbed depreciation, which is for the benefit of the assessee-amalgamated company. Thus, in our view, when a provision is for the benefit of an assessee, it should be liberally interpreted in favour of the assessee which .....

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hasarathi, Adv ORDER This is the appeal filed by the Revenue challenging the order of the Tribunal dated 10.07.2009. The brief facts of this case are that the respondent-Company is engaged in the business of manufacture of beer, IML and speed zone. By an amalgamation Scheme, which was approved by the High Courts of Karnataka and Andhra Pradesh vide orders dated 08.03.2006 and 17.04.2006 respectively, M/s. Shree Vani Sugars and Industries Ltd., (hereinafter referred to as the Amalgamating Company .....

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the assessee-amalgamated company had declared its business income of ₹ 24,64,96,704/- and the brought forward losses of the amalgamating company, being ₹ 21,33,48,234/-, were set off against the above income. Out of the aforesaid business loss of amalgamating company, which was set off against the income of the respondent-amalgamated company for the relevant assessment year, the Assessing Officer disallowed the business loss and unabsorbed depreciation amounting to ₹ 3,48,87,61 .....

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d counsel for the Revenue as well as Sri S.Parthasarathi, appearing along with Ms.Jenita Chatterji, learned counsel for the respondent and perused the record. 4. This appeal was Admitted on 02.06.2010 for considering the following questions of law: i. Whether the Appellate Authorities were correct in holding that the period of three years as prescribed u/s.72A(2)(a)(i) of the Act has to be computed including the period of setting up of business and not from the date of commencement of actual pro .....

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s that even though the amalgamating company had been carrying on the business of manufacturing of sugar for the past several years but it had commenced its business of power generation only on 08.08.2003, which was within three years of the amalgamation, and thus the benefit of carrying forward of such losses of the amalgamating company could not be granted in favour of the assessee-amalgamated company. It is contended that even though the activities for establishing the power generation unit ma .....

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377; 3,48,87,613/- was the loss occurred from the power generation unit of the amalgamating company, the same could not be allowed. In support of his submission, learned counsel has submitted that Section 32 of the Act, which deals with depreciation where the tangible assets are used for purposes of business engaged in generation or generation and distribution of power, and as such the depreciation is to be granted only when the asset is actually used for such purpose. 6. Per contra, Sri Parthas .....

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ction 72A of the Act has rightly been given, as even though the commercial production or generation of power may have commenced from 08.08.2003, but it was engaged in the business of power generation from the year 2000, for which evidence had been duly adduced before the authorities below. 7. For proper perusal of this case, the relevant Sub-sections (1) and (2) of Section 72A of the Act are reproduced below: Sec.72A: Provisions relating to carry forward and set off of accumulated loss and unabs .....

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d in similar business, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. (2 .....

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xed 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 be prescribed to ensure the .....

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e assessment year 2005-06. It is also not in dispute that the amalgamating company was in business since 1984. It is admitted that in the year 2000, the amalgamating company had started work for establishment of power generation business and after establishing the unit, the power generation or such business had commenced from 08.08.2003. 9. In our view, commencement of business would be different from engaged in business . It is the latter phrase which has been used in Section 72A(2)(a). Commenc .....

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ction, the asset should be used for business, meaning thereby, after business commences, which is different from engagement in business. This, to our understanding, only clarifies that the phrases commencement of business and engaged in business are different. Former may apply for Section 32 but the latter would apply in the case of Section 72A of the Act. 11. In the present case, the licence for setting up business of power generation, loans for the same, construction of the building and purcha .....

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