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2014 (12) TMI 1315

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..... ec. 72A of the Act will not apply to the case of the assessee, being the amalgamated company and not the amalgamating company. Disallowance of expenses debited on account of professional service charges for non-deduction of TDS u/s. 194J - addition u/s 40(a)(ia) - Held that:- The assessee stated that the assessee has deducted TDS on the above amounts of ₹ 2,62,492/- but could not produce the details before CIT(A) or before AO as the documents were not available or could not be traced at the relevant point of time. Accordingly, the assessee requested for setting aside the to the file of the AO. Ld. Sr. DR has not objected to the setting aside of this issue for verification of TDS deducted to the file of the AO. In term of the above, we remit this issue back to the file of the AO for verification of TDS deducted by the assessee. The AO will decide accordingly. This issue of assessee’s appeal is allowed for statistical purposes. - I.T.A No.1764/Kol/2014 - - - Dated:- 18-12-2014 - Shri Mahavir Singh, JM Shri Shamim Yahya, AM For the Appellant: Shri Ravi Tulsiyan, FCA For the Respondent: Shri N.B. Som, JCIT, ORDER Per Shri Mahavir Singh, JM : .....

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..... 8,86,074/- and unabsorbed depreciation of ₹ 1,09,22,427/- was only available for set off in the AY 2011-12 subject however to other findings. (d) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred on facts in not entertaining the revised working of the unabsorbed Business losses and Unabsorbed Depreciation of ₹ 6,07,11,696/- and ₹ 7,56,29,069/- respectively available for set off in the AY 2011-12. (e) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) failed to appreciate the provisions of law wherein, accepting that the Merger Order of the HC passed for the amalgamation was based on all consideration of full facts of the case of the Appellant and also accepting that the section 72A of the Act did not apply in the case of the Appellant Company being the amalgamated company and not the amalgamating Company, he still confirmed the action of the Ld. AO in rejecting the claim of the set off, alleging that the amalgamation was not carried out for the revival of the amalgamating company and that the amalgamation did not serve genuine business purpose. (f) That on the facts and circumstances of th .....

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..... O apart from disallowance of set off of unabsorbed depreciation and unabsorbed business loss also made addition (which are now in challenge before us apart from other additions made) of ₹ 9,71,006/- on ad-hoc basis on account of purchase of gifts etc. for travel agents in domestic and international trade fares for self promotions of tourism products and also disallowance of expenditure of ₹ 5,59,010/- for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. 4. Here it is to be mentioned that certain more facts relating to above issue are that assessee is a Private Limited Company established a chemical manufacturing unit at Dharwad in the year 1975 and continued its business of chemical manufacturing since then. Around 1998, this business of assessee was not doing well and due to incurring continuous loses, assessee decided to let out factory premises along with all the fixed assets to Deepak Nitrate Ltd. in the year 2005 but ownership of assets remained very much with the assessee and lease rentals had all along been offered as business income and was all through assessed as such. The assessee being the owner of fixed assets so leased, cl .....

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..... company had established a manufacturing unit to manufacture various chemicals in the year 1975 at Dharwad in the state of Karnataka and continued its chemical manufacturing business since then. The manufacturing unit started incurring some losses and there was a carry forward business loss as well as unabsorbed depreciation on the basis of the assessment made since 1993-94. As per the data furnished by the appellant, in A.Y 2001-02 the amount of unabsorbed Depreciation and carried forward business losses as per the return filed on 30th October 2001 was ₹ 3,91,21,624/- and ₹ 3,61,08,682/- respectively. The losses and unabsorbed depreciation have duly been assessed by the A.O in the respective assessment years and there being no sufficient profit in those years were duly allowed to be carried forward. These facts are verifiable from the respective assessment orders determining the amount of carry forward loss and unabsorbed depreciation. It is also an undisputed fact that the appellant continued the operating lease with M/s Deepak Nitrate Ltd. The agreement was extended from time to time and finally terminated on 30.04.2008 and that all along the lease rent has been' .....

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..... ies or that full facts were not placed before the Hon'ble Court for consideration. The finding of the Assessing Officer to this extent being farfetched is liable to be rejected. 5.1.3.3. Now, sub-clause (iii) of clause (b) of sub-section (2) of Section 72A of the Act lays down that the assessee fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. The Assessing Officer has made a point that the amalgamated company has violated the conditions; as laid down in the subclause on the ground that the amalgamated company has sold its assets and the amalgamation was made only with a view to set off of the losses on account of unabsorbed depreciation allowance and unabsorbed business loss. According to the Assessing Officer, the assessee being only name lender the benefit of carry forward of business loss and unabsorbed depreciation pertains to the machineries and the business which is wound up due to sale of plant and machineries with an intention to never come back to the business should not be allowed to adjust with the income generated from the busine .....

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..... nd set off of accumulated business loss and unabsorbed depreciation in certain cases of amalgamation under New s. 72A is reproduced below for the sake of clarity: 18.1 Under the existing provisions of the IT Act, so much of the business loss of a year as cannot be set off against the other income of -the assessee for that year can be carried forward and set off by him against the profits of the following year from any business carried on by him. If the loss cannot be wholly so set off, the amount not so set off can be carried forward to the next following year and so on, upto a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. The benefit of carry forward and set off of business loss, is, however, not available unless the business in which the loss was originally sustained is continued to be carried on by the assessee. Further, only the assessee who incurred the loss has the right to carry forward the same, so that the successor in business cannot claim to carry forward the loss incurred by his predecessor. Similarly, if a business carried on by one assessee is taken over by another, the unabsorbed depreciation a .....

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..... ricted to amalgamations which would facilitate rehabilitation or revival of the business of the amalgamating company. Even after a declaration has been made by the Central Government under sub-so (l) of new S. 72A, the accumulated loss shall not be set off and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the following further conditions are fulfilled: (i) during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company; without only modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently; (ii) the amalgamated company furnishes, along with its return of income for the assessment year for which such set off or allowance is claimed, a certificate from the specified authority to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating company. 18.4 For the purposes .....

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..... e claim of the appellant company for set off of the unabsorbed business loss and unabsorbed depreciation of the amalgamated company is confirmed. 5.1.3.4. Now, the last issue which is to be decided is whether claim of set off of the capital gains arising from the transfer of industrial plot of land during- the year as' per the revised computation was admissible when the deduction was not claimed in a voluntary return of income' or a revised return of income under sec. 139(5) of the Act in the light of the decision of the Apex Court cited supra: The facts are that the appellant had disclosed the capital gains on the sale of land on. the basis of the value as per the registered sale deed. During the course of assessment proceedings, it transpired that capital gains ought to have been worked out on the basis of value taken by the Registering Authority for the purpose of stamp duty under sec. 50C of the Act. The appellant, therefore, filed a revised computation working out the capital gains on the basis of the fair market value as per provisions of sec. 50C at ₹ 95,73,403/- and also claimed set .off of the same against unabsorbed depreciation and unabsorbed business lo .....

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..... e CIT(A) confirmed the finding of AO that the assessee claimed no loss in the returns pertaining to AYs 2007-08 upto AY 2010-11 and thus he concluded that since no business loss or unabsorbed depreciation was claimed, in AYs 2007-08 to 2010-11, unabsorbed business loss of ₹ 18,86,074/- and unabsorbed depreciation of ₹ 1,09,22,427/- was only available figure for set off in AY 2011-12 subject however to other findings. He also observed that Hon ble Calcutta High Court passed merger order for the amalgamation of the assessee company without considering all the relevant facts. As regard to the applicability of section 72A of the Act, CIT(A) has not agreed with the findings of AO but accepted the contention of assessee that the said section did not apply to the case of assessee inasmuch as the fact are that assessee was the amalgamated company and not the amalgamating company. However, in total contradiction to the above, CIT(A) without any basis stated that the merger order of High Court passed for amalgamation was not based on consideration of full facts of the case and also accepting that section 72A of the Act did not apply in the case of assessee, still confirmed the ac .....

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..... -10,283 -10,283 1994-95 -16,66,397 -16,66,397 1995-96 -64,67,922 -29,74,536 -34,93,386 1996-97 -7,84,376 -4,31,294 -3,53,082 1997-98 -75,01,528 -36,62,515 -38,39,013 1998-99 -55,94,674 -6,95,672 -48,99,002 1999-00 -65,96,466 -14,03,110 -51,93,356 2000-01 -1,57,23,599 -48,01,172 -1,09,22,427 2001-02 -3,08,85,061 -2,21,40,383 -87,44,678 TOTAL As noted in acknowledgement of return for A.Y 2001-02 (Pg 78-79 of ppbk) .....

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..... 91 of Pbk 2008-09 - As per return of income (computation) 12,32,477 Pg 227 of Pbk 12,32,477 Pg 227 of Pbk 2009-10 - As per return of income (computation) - 62,58,294 Pg260 of Pbk) - 44,61,429 (Pg 260 of Pbk) - 17,96,865 (Pg 260 of Pbk) 2010-11 - As per return of income (computation) 3,14,20,256 Pg 292 of Pbk) 3,14,20,256 Pg 292 of Pbk) Further above losses and unabsorbed depreciation all having been assessed by AO in the respective assessment years, there being no sufficient profit in those years, the same were allowed to be carried forward but as and when, there was profit set off of the unabsorbed business losses and unabsorbed depreciation was allowed. A detailed chart statement showing c/f and set off of unabsorbed business loses and the unabsorbed depreciation marked as Annexure 2 enclosed to submissions of assessee. The respective assessment orders determining the amount of carry fo .....

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..... 2002-03 1,92,08,649 1,92,08,649 Claimed in AY 2010-11 83,25,514 83,25,514 Balance c/f in AY 302-23 2003-04 1,05,91,688 1,05,91,688 Claimed in AY 2010-11 95,53,602 95,53,603 Balance c/f in AY 2011-12 2004-05 3,58,89,625 16,19,919 Claimed in AY 2010-11 3,42,69,706 Balance c/f in AY 2010-11 1,12,51,059 Claimed in AY 2011-12 2,3018,647 Balance e/f in AY 2011-12 80,88,196 80,88,196 Balance c/f in AY 2011-12 2005-06 51,08,353 51,08,353 Balance c/f in AY 2011-12 63,00,368 63,00,368 Balance c/f in AY 2011-12 2006-07 50,13,880 (profit) 6,95,672 Set off agst loss of AY 1998-99 14,03,110 Set off agst loss of AY 1999-00 29,15,09 2000-01 Set off agst loss of A.Y. 2000-01 .....

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..... ried forward for future set off We find that AO, out of nowhere, totally on his assumptions and presumptions laid out that unabsorbed business loss of ₹ 18,86,074/- and unabsorbed depreciation of ₹ 1,09,22,427/- for the AY 2000-01 was the total of the brought forward losses and unabsorbed depreciation allowed for adjustment up AY 2006-07. This fact is totally contradictory to what has now been placed by assessee before us as is clear from the above chart and supporting evidences. The facts of the case are that the claim of the business losses and the unabsorbed depreciation and its claim of carry forward and set off, which have all been detailed in Annexure-1 as stated above, clearly lays out that it is a fact well documented, supported, and claimed before Income Tax Authorities since AY 2001-02 upto the AY 2006-07, and there has been continuous claim of unabsorbed business loss and of unabsorbed depreciation which has been duly accepted as such by the Income Tax Authorities. From the above chart it is clear that it is a simple matter of fact that the unabsorbed business losses and unabsorbed depreciation for the AYs 2001-02 to 2006-07 were clearly as under: .....

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..... - - - - 2009-10 (computation) 62,58,294 44,61,429 17,96,865 (Pg 260 of pbk) (pg 260 of pbk) (pg 260 of pbk) Even these details were sent to the AO vide interim order dated 20.10.2014 for verification of the above stated facts regarding unabsorbed business loss and unabsorbed depreciation and AO vide remand report no. DCIT/Circle-10/Kolkata/Report/2014-15/7564 dated 12.11.2014 has admitted the above facts but also stated that the records of assessment year 2001-02 could not be located. When this report was confronted, Ld. counsel for assessee explained each and every item of the claim of unabsorbed business loss and unabsorbed depreciation, to which Ld. Sr. DR could not counter or explained. When Ld. Sr. DR was again put to this report, he could not support the same qua the facts and figures because assessee has filed complete documents in the shape of returns of income filed by assessee, assessments framed by AO or processing done by department u/s 143(1) of the Act. From the above, it is clear that the un .....

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..... e into consideration the representations, if any, made to it by that Government before passing any order under any of these sections. The case law cited by revenue of Hon ble Supreme Court in the case of Marshall Sons Company India Ltd., supra wherein Their Lordships of the Supreme Court had made it clear that they have not expressed any opinion on the plea that the amalgamation itself is a device designed to evade the taxes legitimately payable by the subsidiary company. If the revenue thinks that they are entitled to raise such a plea in a proceeding under the Act, it is open to them to do so by way of separate proceedings according to law. The spirit of section 394 of the companies Act, 1956 provides that on every application under section 391 or section 394, the court shall give notice of such application to the Central Government and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of the said sections. In the present case before us, in this view of the matter, we feel that the Company Law has recognised the fact that there are several areas in this field where even the joint will of management an .....

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..... tatute. The observation relied upon reads as under: It is worthwhile observing that where you have a chain of companies it is always possible by arranging the transfer in a certain way, to obtain the benefit of exemption under the section. It cannot be said that this observation had laid down a broad proposition of law. The observation cannot be torn out of context and when read in the context, it only means that an arrangement can be made by the assessee so as to incur the least liability for the tax and to such a proposition, I do not take any exception. The expression public interest standing by itself is likely to appear to be vague without any specific connotation. It is capable of more than one meaning. Therefore, in order to ascertain the true meaning of public interest used in a given statute, it is to be construed in the context of the legislation in which it is used, provision in which it is used, and the purpose sought to be achieved by the use of the expression. Where alternative constructions are equally open that alternative is to be chosen which will be consistent with the smooth working of the system which statute purports to be regulating and that al .....

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..... ny with scant regard for the interest of the society or event of the investing public. The expression public interest is to be found in the second proviso and in the context of a company which, if, scheme of amalgamation is sanctioned, is likely to lose its identity by getting merged with the transferee-company. It is to be dissolved without winding up. In winding up the manner in which affairs of a company are conducted can be probed in depth; but a scheme of amalgamation which provides for merger of the transferor company with the transferee-company, would destroy any opportunity for examination of the affairs of the transferor-company. The second proviso would provide the last opportunity to peep into the affairs of the transferor company before it gets virtually extinct. The court is, therefore, charged with a duty before it finally confirms burial-cum-cremation of the transferor-company, to peep into its affairs to ascertain whether they have been carried on not only in a manner not prejudicial to its members but in even public interest. The expression public interest must take its colour and content from the context in which it is used. The context in which the express .....

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..... inery of judicial process is sought to be utilised for defeating public interest and the court would not lend its assistance to defeat public interest, namely, tax provision. It must be confessed that it is open to a party to so arrange its affairs so as to reduce its tax liability. The assessee or party can arrange its affairs so that he or it may not incur any tax liability. But it must be within the power of the party to arrange its affairs. If the party seeks assistance of the court only to reduce tax liability, the court should be the last instrument to grant such assistance or judicial process to defeat a tax liability, or even to avoid tax liability. If the party has so arranged its affairs, as to reduce or even avoid tax liability and the taxing authority disputes it, and the matter is brought before the court, the court would adjudicate upon the dispute between the revenue and the assessee on the rival contentions. That is not the situation here. In such a situation, the court would not be concerned as to the modality of avoidance of tax but here the tax cannot be avoided unless the court lends its assistance, namely, by sanctioning the scheme of amalgamation. In other .....

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..... bjection had been raised by the Income-tax Department before the Delhi High Court which had considered the objections raised by the Incometax Department on its own merits. The Income-tax Department had the right to place its objections against sanctioning of the scheme in question. The Income-tax Department would be free to examine the aspect of any tax payable as a result of the scheme. (ii) That there was nothing wrong if the company wanted to reconstruct its business in an alternative form by dividing telecommunication business and telecommunication infrastructure business in the manner carried on by the appellant, in a manner that the telecommunications infrastructure business would be carried on by the transferee company. The business would be continued and carried on by substantially the same persons who were presently carrying on the consolidated business since both the transferor and the transferee companies were wholly owned subsidiaries of one company which would continue to carry on the businesses. It necessarily implied that once a scheme was a reconstruction it was bound to be recognised as an arrangement and/or compromise under section 391. The Income-tax Departmen .....

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..... bjection to the scheme of amalgamation. In such circumstances, we are of the view that the revenue has nothing to say at the time of approval of scheme by Hon ble High Court in the present case. 12. In view of the above facts and legal position discussed above, it is not open to the revenue to go into the amalgamation reserve as per amalgamation scheme approved by Hon ble Calcutta High Court. We answer the first issue framed by us in negative i.e. against revenue and in favour of assessee for the reasons stated above. 10. Further, as regards to the applicability of section 72A of the Act, we are of the view that in view of provisions of sec. 72A of the Act and CBDT's Circular cited above clarifying the provision, it is clear that these provisions relate of carry forward and set off of accumulated losses and unabsorbed depreciation of the amalgamating company and not that of the amalgamated company. From the above, it is clear that the 'accumulated/unabsorbed business losses and unabsorbed depreciation related to assessment years during which the amalgamated company had been carrying on its business activities. But, here the CIT(A) observed that, in my opinion, in vi .....

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..... At the outset, Ld. counsel for the assessee stated that he is not interest in prosecuting this ground and the same may be treated as withdrawn due to smallness of amount. The CIT, DR has not objected to the withdrawal. Hence, withdrawal is permitted. This issue of assessee s appeal is dismissed. 13. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses debited on account of professional service charges for non-deduction of TDS u/s. 194J of the Act by invoking the provision of section 40(a)(ia) of the Act. For this assessee has raised following ground no.4: That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred in confirming the disallowance of ₹ 2,62,492/- on account of non deduction of TDS u/s 40(a)(ia) of the Act. 14. At the outset, Ld. counsel for the assessee stated that the assessee has deducted TDS on the above amounts of ₹ 2,62,492/- but could not produce the details before CIT(A) or before AO as the documents were not available or could not be traced at the relevant point of time. Accordingly, Ld. counsel for the assessee requested for setting aside the to the .....

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