TMI Blog2010 (7) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... We may also mention here that the learned CIT(A) has deleted the addition made on this count and the Revenue has not preferred any ground against such deletion. subsidy received by the assessee - HELD THAT:- From the facts as the subsidy received are not the income of the assessee for the relevant assessment year the finding of the learned CIT(A) in deleting the same is found to be correct and also the same does not result in escapement of income which gives room for reopening. We may also mention here that the order of the learned CIT(A) in deleting this addition has also been accepted by the Revenue insofar as no ground has been raised against such deletion. In the circumstances, the appeal of the Revenue is partly allowed and the application under Rule 27 of the ITAT Rules raised by the assessee is admitted for adjudication and dismissed on merits. Consequently the reopening of the assessment is upheld and the Revenue s appeal stands partly allowed. - ORDER PER GEORGE MATHAN, JUDICIAL MEMBER : This is an appeal filed by the Revenue against the order of the learned CIT(Appeals)-III, Chennai in appeal No. 546/07-08/A-III dated 25-11-2008 for the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order dated 31-12-2007 which he said were the reasons for reopening the assessment. The same is as follows : M/s. TTK Health Care Ltd. took over the business of TTK Biomed Limited under the scheme of amalgamation and the appointed date was 1.7.1999. While examining the records for this assessment year the following points have been identified: 1. The company adopted the opening stock of TTK Biomed Limited as on 1.4.1999 instead of the stock as on 1.7.1999 (the date on which M/s. TTK Biomed Limited got amalgamation with the assessee company) resulting in under assessment of ₹ 6,91,58,608/-. 2. Excess grant of depreciation on plant and machinery transferred by TTK Biomed Limited to the assessee company is to the extent of ₹ 5,51,303/-. 3. Subsidy received by the company being ₹ 1,52,760/- was not assessed to tax. The amalgamating company TTK Biomed was manufacturing medical devices, condoms and latex gloves. TTK Biomed transferred the business of manufacture of medical devices on 30-9-1996 to TTK Maersk Limited for ₹ 21 crores. As part of the business has already been sold, the unabsorbed business loss and depreciation rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission that the assessee had not received any subsidy and the subsidy which was being talked about was the subsidy received during 1982-83, 1990-91 and 1991-92 by M/s. TTK Biomed Ltd. and which was recorded in the Balance Sheet of TTK Biomed Ltd. as subsidy. It was the submission that after the amalgamation the Balance Sheet of TTK Biomed Ltd. the capital reserves lying in the Balance Sheet of TTK Biomed Ltd. have been taken over by the assessee and shown under the head Capital Reserves . It was the submission that the learned CIT(A) had also verified the same and had given a finding in page 13 para 9.7 of his order and consequently this reason for reopening the assessment was also invalid. 9. In respect of the fourth reason being the carried forward of depreciation and business loss of TTK Biomed Ltd. it was the submission that as per section 72 amended with effect from 1.4.2000 the continuation of the same business had been omitted with effect from 1.4.2000 and consequently the carried forward unabsorbed depreciation and business loss was liable to be allowed in the hands of the assessee. It was the submission that the provisions of section 72A had not been invoked by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the brought forward losses of the amalgamating company TTK Biomed Ltd. was disallowed and would be considered after getting the records from the erstwhile AO of TTK Biomed Ltd. showed that all the necessary material facts were not before the AO while completing the original assessment. It was the further submission that the rectification order passed itself showed that the necessary material had to come from the AO of TTK Biomed, Mumbai and the assessee was unable to produce all the details necessary. It was the further submission that the provisions of section 72 was controlled by the provisions of Sec. 72A and insofar as sec. 72A relates to the carried forward and set off of accumulated losses and unabsorbed depreciation allowances on amalgamations or de-mergers and had contained the non obstante clause notwithstanding anything contained in any other provisions of this Act . It was the submission that the reopening was valid at least in respect of the fourth issue being the carried forward of depreciation and business loss. 11. In reply the authorized representative submitted that the reason recorded did not show that section 72A was being invoked. 12. In respect of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Rule 9C the assessee should manufacture or produce the articles to the extent of at least 50% of the installed capacity. The learned DR drew our attention to the chart at page 18 of the order of the learned CIT(A) in respect of the production details to show that out of 5 years after take over the assessee had not complied with the provisions of Rule 9C and after amalgamation the assessee company had not maintained the 50% level production of the installed capacity. It was the submission that as there was violation of the provisions of Rule 9C the assessee was not entitled to the set off of the carried forward losses and unabsorbed depreciation. 13. In reply the learned authorized representative submitted that the disallowance of the carried forward of the unabsorbed depreciation and business losses, if any, on account of the violation of Rule 9C would have been done only at the end of the 5 years from the date of amalgamation. It was the submission that the set off should have been permitted for the first year and the disallowance, if any, could have been considered only in the fifth year. For this proposition he relied upon the decision of the Madras High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had no intention to continue with the business of M/s. TTK Biomed Ltd. The learned DR drew our attention to page 3 of the departmental paper book which was the copy of the agreement entered into between LIG and TTK Biomed Ltd. and the assessee in respect of the non-compete fee for not competing in the rubber contraceptives manufactured by M/s. TTK Biomed Ltd. in 2000. It was the submission that as per section 72A, after the amalgamation the assessee should take over and also continue the business of the amalgamating company whereas the fact that non compete agreements have been entered into shows that there was a total intention to discontinue the business and consequently the carried forward and set off of the unabsorbed depreciation and business losses was not permissible. 17. In reply the learned authorized representative submitted that the non-compete fee was payable to the amalgamating company and consequently the same could not be held against the assessee. He vehemently supported the order of the learned CIT(A). 18. We have considered the rival submissions. At the outset it may be mentioned here that the reasons recorded for reopening the assessment are not pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny ground against such deletion. 21. Coming to the third issue being the subsidy received by the assessee company of ₹ 19,52,760/- it is noticed that the said subsidy has been received by TTK Biomed Ltd. during the years 1982 and 1991 and the assessee has only after amalgamation shown the same under capital reserves. In the circumstances as the subsidy received are not the income of the assessee for the relevant assessment year the finding of the learned CIT(A) in deleting the same is found to be correct and also the same does not result in escapement of income which gives room for reopening. We may also mention here that the order of the learned CIT(A) in deleting this addition has also been accepted by the Revenue insofar as no ground has been raised against such deletion. 22. Coming to the fourth issue being against the set off of the unabsorbed business loss and carry forward of depreciation relating to the business of TTK Biomed Ltd. it is noticed that the assessee has challenged that section 72 has been considered and section72A has not been invoked by the AO. A perusal of the issues raised by the AO does not show that the AO has considered only section 72 and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances, the reopening on this count would be valid even though 4 year period has expired on account of the applicability of the proviso to section147. A perusal of the chart as extracted in the order of the learned CIT(A) in page 18 shows as under : ____________________________________ Production Details Surgeons Gloves: Period Installed capacity In Million Pcs Actual Prodn. Capacity In Million Pcs July-99 to June-00 30.00 10.14 July-00 to June-01 30,00 14.87 July-01 to June-02 30.00 17.85 July-02 to June-03 30.00 19.96 July-03 to June-04 30.00 2.54 _________________________________________________ A perusal of the provisions of section 72A read with Rule 9C clearly shows that the 5 years from the date of amalgamation as mentioned in section 72A(2)(iii) is the assessment years. This is because Rule 9C(b) specifies that the amalgamated co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the agreement entered into by the assessee with London International Group (LIG) that the assessee has agreed in para 6 of the said agreement that the equipment relating to the manufacture of the rubber contraceptives lying with TTK Biomed Ltd. shall be dismantled and rendered unsuable for manufacture of rubber contraceptives and at the option of LIG the equipment may be sold/transferred to LIG or any of their associates at the valuation which will not exceed inter company debt between TTK-LIG and BIOMED at the date of the agreement and which debt shall be extinguished to that extent. Thus the assessee has not used any of the equipment in respect of the rubber contraceptives manufacturing process of TTK Biomed Ltd. The assessee has also not placed before us any evidence to show that such machinery had continued to be used in respect of the manufacture of rubber contraceptives. Here it may also be mentioned that the chart, which has been referred to earlier and which has been extracted from the order of the learned CIT(A) from page 18 of his order, is in respect of the production details of surgeons gloves and not in respect of rubber contraceptives. Thus the assessee has practi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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