TMI Blog2017 (5) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in question does not qualify to be a ‘demerger’ in terms of section 2(19AA) of the Act. In the present scheme of arrangement, the consideration in lieu of the transfer of specified assets and liabilities of the two divisions is received by the assessee company, whereas in order to qualify to be a ‘demerger’ in terms of section 2(19AA) of the Act, the consideration to be paid by the resulting company is by way of issuance of shares to the shareholders of the demerged company. In the above background, the provisions of sub-section(4) of section 72A of the Act are not attracted in relation to the instant scheme of arrangement. Decision of the CIT(A) in holding that the accumulated loss and unabsorbed depreciation relating to the transferred divisions have to remain with the assessee company for set-off and carry forward for set-off in future years, deserves to be affirmed. - Decided against revenue - ITA No.3529/MUM/2013, And C.O.No.138/Mum/2014 - - - Dated:- 24-5-2017 - SHRI G.S.PANNU, ACCOUNTANT MEMBER, AND SHRI AMARJIT SINGH, JUDICIAL MEMBER For The Revenue : Shri Rahul Raman For The Assessee : Mrs. Arti Vissanji ORDER PER G.S.PANNU,A.M: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the conditions as envisaged in the Scheme of the conditions stipulated in the demerger have been duly complied with by the assessee company. 3. Grounds of appeal raised by the assessee in its cross objection read as under:- 1. On the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) ought to have held that the reassessment proceedings initiated by the Ld. Assessing Officer are improper and bad-in-law and accordingly the order passed by him dated 16th December, 2010 under Section 143(3) read with Section 147 is bad-in-law and has to be quashed . 4. Although the Revenue has raised multiple Grounds of appeal, but in sum and substance, the singular issue raised by the Revenue is against the decision of the CIT(A) in holding that the provisions of Sec. 72A(4) of the Act are not attracted with regard to the restructuring undertaken in terms of the scheme of arrangement/demerger approved by the Hon'ble Bombay High Court vide order dated 8.6.2005. 5. Briefly put, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 in which public are substantially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absorbed 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 the hands of the resulting company; (b) where such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as the case may be . 5.2 Sub-section(4) of section 72A is in respect of a case of demerger and prescribes that the accumulated losses and unabsorbed depreciation of the demerged company shall be allowed to carry forward in the hands of the resulting company only in case such losses or unabsorbed depreciation is relatable to the undertaking transferred to the resulting company. In a case where the loss or unabsorbed depreciation is not directly relatable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Bombay High Court vide order dated 8/6/2005. According to the assessee provisions of section 72A(4) of the Act could not be invoked in this case, because the scheme of arrangement does not result in a demerger as understood for the purposes of section 72A(4) r.w.s. 2(19AA) of the Act. The CIT(A) took note of the aforesaid plea of the assessee and held that the transfer of divisions in terms of the scheme approved by the Hon'ble Bombay High Court does not constitute a demerger as defined in section 2(19AA) of the Act and hence the provisions of section 72A(4) were not attracted in the present case. The relevant finding of the CIT(A) in this regard can be appreciated on going through the following discussion:- 5.19. I agree with the appellant company that- (i) The transfer of Divisions under the Scheme, duly approved by the Bombay High Court vide its Order dated 8th June, 2005 does not constitute demerger as defined in section 2(19AA) of the Act. Hence, the-appellant is not a demerged company as defined in Section 2(19AAA) and the transferee companies cannot be considered as a resulting company as defined in Section 2(41A) of the Act because of the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the 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 except where the resulting company itself is a shareholder of the demerged company; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is received by the assessee company, whereas in order to qualify to be a demerger in terms of section 2(19AA) of the Act, the consideration to be paid by the resulting company is by way of issuance of shares to the shareholders of the demerged company. On these factual findings of the CIT(A), there is no negation by the Revenue. Be that as it may, it is quite clear that the factual matrix clearly points out that the instant scheme of arrangement is not a demerger as defined in section 2(19AA) of the Act; thus, assessee also does not qualify to be a demerged company as specified in section 2(19AAA) of the Act and Relene Petrochemicals Pvt. Ltd, and NOCIL Petrochemicals Ltd. also do not qualify to be resulting companies within the meaning of section 2(41A) of the Act. In the above background, the provisions of sub-section(4) of section 72A of the Act are not attracted in relation to the instant scheme of arrangement. 7.3 Notably, the points raised by the Revenue before us do not meet with any of the findings recorded by the CIT(A), which are based on the applicable legal position and, therefore, we do not find any justification to interfere with the ultimate decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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