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2015 (12) TMI 511 - ITAT DELHI

2015 (12) TMI 511 - ITAT DELHI - TMI - Valid ‘demerger’ u/s 2(19AA) - carry forward of loss and unabsorbed deprecation - CIT(A) allowed the claim - Held that:- No infirmity in the order of CIT A() was drawn to our notice by revenue. We are also of the view that CIT (A) has dealt with all the issue raised by AO and giving a categorical finding holding that assessee is eligible for carry forward of unabsorbed loses and unabsorbed depreciation. Further as in the case of demerged company revenue has .....

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ed:- 4-12-2015 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Petitioner : Sh. Trandeep Singh, CA For the Respondent : Sh.Balwan Chauhan, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 01. The present appeal filed by the revenue is directed against the order of learned CIT(A)-IX, New Delhi dated 30.09.2009 passed for the assessment year 2003-04. The revenue raised the following grounds of appeal: 1. On the facts and in the circumstances of the case, the ld C .....

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of the case are that the assessee was engaged in the business of manufacture and sale of sugar. The assessee filed return of income on 24.10.2003 declaring loss of ₹ 26,79,18,903/-. The case was selected for scrutiny and processed u/s 143(1) on 19.02.2004. Notices u/s 143(2) was issued. The assessing officer noticed in his order that the assessee failed to furnish accurate particulars of its income by wrongly claiming carry forward of brought forward losses, during the year under consider .....

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of siel Limited in to siel sugar limited as provided u/s 2 (19AA) of the Income tax Act and therefore unabsorbed business losses and unabsorbed depreciation is required to be carried forward in terms of section 72A(4) of the Income Tax Act. However AO was of the view that the scheme of arrangement is not a demerger as provided u/s 2(19AA) of the Income tax act because a. Ratio of assets and liabilities transferred to the demerged company are not accordance with the definition of demerger. b. Ass .....

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ed an appeal before the learned Commissioner of Income-tax (Appeals), who observed that the assessee company was entitled to set off and carryover of unabsorbed business loss and depreciation in term of section 72A(4) of the Act. The assessee company had already submitted working of unabsorbed depreciation and business loss available to it on the basis of demerger of two sugar undertakings vide tax audit report submitted with the return. The assessee company has duly calculated the amount of una .....

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ent of demerged company and result ting company as falling within the definition of demerger u/s 2(19AA0 of the income tax act and therefore no benefit of section 72A (4) can be given to the assessee. He relied on the order of AO for this. 06. Ld AR of the assessee submitted that CIT (A) has considered all the issue and held that assessee is entitled to the benefit of 72A(4) of the Act. He further submitted that in case of demerged company revenue has accepted the demerger u/s 2 (19AA) of the ac .....

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ered the rival contention as well as the scheme of filed before Honourable Delhi High court in Company petition no . 107 of 2003 as well as the assessment order in case of demerged company M/s Siel Limited. For considering the claim of the assessee u/s 74A(4) rws 2(19AA0 of the Income tax act it is necessary to puruse the respective provision of the law which are as under :- Section 2 (19AA) and 2 (19AAA) (19AA) "demerger", in relation to companies, means the transfer, pursuant to a sc .....

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demerger, become the liabilities of the resulting company by virtue of the demerger ; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger ; (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis ; (v) the shareholders holding not less than three-four .....

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emerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. Explanation - 1. For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation - 2. For the purposes of this .....

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e proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger. Explanation - 3. For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation - 4. For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central .....

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TING TO CARRY FORWARD AND SET OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE IN AMALGAMATION OR DEMERGER,ETC (4) Notwithstanding anything contained in any other provisions of this Act, in the case of a demerger, the accumulated loss and the allowance for unabsorbed depreciation of the demerged company shall- (a) where such loss or unabsorbed depreciation is directly relatable to the undertakings transferred to the resulting company, be allowed to be carried forward and set off in .....

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the case may be. (5) The Central Government may, for the purposes of this Act, by notification in the Official Gazette, specify such conditions as it considers necessary to ensure that the demerger is for genuine business purposes. (7) For the purposes of this section,- (a) "accumulated loss" means so much of the loss of the predecessor firm or the proprietary concern or the amalgamating company or the demerged company, as the case may be, under the head "Profits and gains of bus .....

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or the amalgamating company or the demerged company, as the case may be, which remains to be allowed and which would have been allowed to the predecessor firm or the proprietary concern or amalgamating company or demerged company, as the case may be, under the provisions of this Act, if the reorganization of business or amalgamation or demerger had not taken place. 08. Ld CIT (A) has dealt with all the issues raised by AO and has held that :- 7.7 . Position with regard to compliance of conditio .....

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gs shall vest in the appellant company upon sanction of the Scheme. Details of the assets of sugar undertakings transferred to the appellant company are as given in Annexure II of the Scheme. Further, it has also been specifically mentioned in para 1 of Part 5 of the Scheme that w.e.f. the appointed date, the undertakings of the sugar group together and in particular with all the moveable and immovable assets of what-so-ever nature and capable to passing of physical delivery or otherwise be vest .....

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de-merger. In the assessment order, the AO has observed that appellant company has not been able to link all the liabilities transferred by the demerged company i.e. Siel Ltd. to the appellant company. It has also been stated that liability transferred, especially loans of banks & financial institutions cannot be linked with the demerged company. The appellant company with regard to these observations of the AO has submitted that all the liabilities relating to sugar undertakings have been .....

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Page 75 - 83 of the Paper Book). On Page 77 details of secured & unsecured loans of sugar business and other business of Siel Ltd. have been given. As per these details secured and unsecured loans consisted of following amounts:- Secured Loans. Amount in crores Rs. Bank loans 24.02 Cash credit/overdrafts 59.28 Loan from Fin. Institutions 96.75 TOTAL 180.05 Unsecured Loans: Deposits - others 1.12 Short term loans 1.43 TOTAL 2.55 It has been submitted that above figures given in the Balance Sh .....

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credits/overdrafts mentioned above aggregating ₹ 83.30 crore (24.02+ 59.28) are for working capital requirement as also mentioned in Annexure II of SOA and details of which are given above with reference to the Balance Sheet as on 30.9.2002 are specifically relating to sugar units and have been transferred to the appellant company. Loans from financial institutions amounting to ₹ 96.75 crore are also specifically mentioned in SOA on Page 31 under clause (c) of Part III, which consis .....

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in sugar units as per break up given in Balance Sheet. Further amount of ₹ 1.43 crore also is specifically related to sugar units as per balance sheet and same has been stated to be in the nature of Sales Tax Department loans and loans from Sugar Development Fund. These loans are also reflected in the unit-wise Balance Sheet of demerged company as on 31.3.2002, though the figures on the above date are somewhat different. In view of the above details submitted by the appellant company whic .....

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in section 2(19AA) of the Act. Accordingly, in my view conditions with regard to transfer of loans have been fully complied with. iii) Third condition provided in section 2(19AA) of the Act is that properties & loans of the undertakings transferred by the demerged companies are at the values appearing in the books of accounts of demerged company immediately before demerger. As discussed in (i) & (ii) above, properties as well as liabilities have been transferred by the demerged company a .....

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as made a statement that demerger does not meet the requirement but no reasons for arriving at this conclusion has been given. According to the appellant, it was explained to the AO during the assessment proceedings that as per SOA, the company had to issue 3 shares for 4 shares held by a shareholder in demerged company. Total share capital of Siel Ltd. was ₹ 41.26 crore against the same the appellant has allotted share capital of ₹ 30.95 crore. Accordingly, condition regarding allot .....

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iled. Since, the order of High Court was dated 26.8.2003, actual allotment of share capital to shareholders could have been made only after order of the court. In the Balance Sheet as on 31.3.2003, the amount of share capital to be allotted/subsequently allotted has been shown as capital suspense and a note in respect thereof as Note No. 8 to Schedule 12 has been given in the Balance Sheet. The appellant company has also submitted copy of resolution dated 5.9.2003 passed in the meeting of the Bo .....

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ide its order dated 26.8.2003. In view of the above facts, it is very clear that the appellant has allotted the share capital on proportionate basis to shareholders of demerged company in term of SOA. Hence, conditions regarding allotment of share capital on proportionate basis has also been complied with. v) Fifth condition of section 2(19AA) is also regarding allotment of share capital by resulting company. It provides shareholders holding not less than 3/4th in value of shares in the demerged .....

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ncern basis. vii) Last condition is that demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government. Sub-section (5) provides that the Central Govt. may for the purpose of this Act, by notification in the official gazette specify such conditions, as if consider necessary to ensure that demerger is for genuine business purposes. So far no condition has been notified by the Central Govt. under this sub-section. Therefore, there is .....

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d to other companies namely Shivaji Marg properties and Siel Holdings Ltd. It has also been observed that lenders were also part of SOA. On the basis of these observations, she has stated that object of SOA was quite different. The appellant in this regard has submitted that these observations have no legal sanctity and have no bearing as regards compliance of conditions for transfer of running business of 2 sugar undertakings to the appellant company in term of section 2(19AA) of the act. The a .....

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