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2014 (12) TMI 1315

ppellant company? - scheme of amalgamation - Held that:- We, from the observation of the CIT, are clear that the section 72A and CBDT Circular explaining the above provision did not apply to the assessee company inasmuch as the fact that assessment company was the amalgamated company and not the amalgamating company. In such circumstances, according to us, the CIT(A) has not correctly interpreted this provision of section 72A of the Act. - Assessee is entitled for the claim of unabsorbed business loses and depreciation available for set off in the AY 2011-12. From the above, it is clear that the scheme of merger approved by Hon'ble High Court is in itself appreciation of facts that the merger and the amalgamation was carried out for the revival of the amalgamating company and that the amalgamation did serve genuine business purpose and hence, sec. 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 .....

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6-07 wherein the figures of ₹ 18,86,074/- as balance unabsorbed business loss and ₹ 1,09,22,427/- as Unabsorbed Depreciation as Unabsorbed Depreciation related only to the particular ASSESSMENT YEAR 2000-01 and not upto ASSESSMENT YEAR 2000-01 as held by the Ld. A.O. (b) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred on facts while holding that the Appellant Company claimed no loss in the Returns pertaining to AYs 2007-08 upto AY 2010-11. (c) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred on facts while confirming the view of the Ld. AO that since no addition of either business loss or unabsorbed depreciation was claimed by the Appellant Company through the AYs 2007-08 to 2010-11, the unabsorbed business of Rs.,18,86,074/- 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 ₹ .....

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aluation in terms of section 50C of the Act and submitted revised computation of income vide its letter dated 12/12/2013 during assessment proceedings. Assessee claimed unabsorbed depreciation and business losses to be set off against current year s income and entire details of the unabsorbed depreciation and unabsorbed business losses of earlier years were all furnished before AO during the course of the assessment proceedings. It was explained to AO that the setting off of unabsorbed depreciation had been claimed u/s 32(2) of the Act and unabsorbed business losses had been set off u/s 72 of the Act. But the AO disallowed the set off of the unabsorbed depreciation and unabsorbed business loss and also made further additions and computed total income assessee at ₹ 2,24,40,720/-. The AO 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 & .....

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secondly on the ground that the amalgamation was not obtained through the High Court of Calcutta by stating the correct facts and that and the statistical data furnished therein establish that the amalgamation opted by the assessee is not for genuine purpose as per sub-clause (iii) to clause (b) of sub-section (2) to the section 72A of I.T. Act, 1961 and thirdly, and most importantly, on the ground that claim preferred without filing a revised return of income cannot be entertained in the light of the decision of the Hon'ble Apex Court in the case of Goetze (India) Ltd. reported in [2006] 284 ITR 323(SC). 5.1.3.1. The first issue for determination is whether the plant and machinery was put to use in the business of the appellant company. As discussed earlier, the appellant 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 ap .....

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purpose as per sub-clause (iii) to clause (b) of sub-section (2) to the section 72A of I. T. Act, 1961. In regard to the observation of the Assessing Officer about the petition of amalgamation before Hon'ble Kolkata High Court, I am inclined to accept the submission of the appellant's AIR that full facts has been narrated before the Court including filing of the Balance Sheet of both the companies as required under the Companies Act 1956 and the Hon'ble Court has considered all the aspects of the matter before passing order approving the amalgamation. Therefore, there is no scope for the Assessing Officer to draw inference that the Hon'ble High Court has passed the merger order without considering all the relevant facts required for amalgamation of the companies 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 compan .....

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rship 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 the company or amalgamating company or demerged company, as the case may be, under the provisions of this Act, if the reorganisation of business or conversion or amalgamation or demerger had not taken place;]" The conditions laid down in sub-clause (iii) are for the revival of the amalgamating company and not of the amalgamated company of which certain assets were sold during the year under consideration. CBDT's Circular NO.229 dated 9th August, 1977 giving Explanatory Notes on the provisions of the Finance (No.2) Act, 1977 in respect of loss under sec. 72A and relaxation of the provisions relating to carry forward and 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 .....

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to be the loss for the previous year in which the amalgamation was effected, the amalgamated company will have the right to carry forward the loss for a period of eight assessment years immediately succeeding the assessment year relevant to the previous year in which the amalgamation was effected. 18.3. The declaration referred to in the preceding paragraph will be made by the Central Government only if the following conditions are fulfilled: (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reasons of its liability losses and other relevant factors; (b) the amalgamation was in the public interest; (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify to ensure that the benefit under this section is restricted 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 co .....

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sion in the preceding paragraphs, it is abundantly clear that the 'accumulated/unabsorbed business losses and unabsorbed depreciation related to the assessment years during which the amalgamated company had been carrying on its business activities. Therefore, in my opinion, in view of the express provisions of sec. 72A of the Act in as much as and that the appellant company was not entitled for the carry forward and set off of the aforesaid unabsorbed accumulated losses/business loss and unabsorbed depreciation in respect of the amalgamated company under the provisions of sec. 72 and 32(2) of the Act respectively, particularly when the amalgamation has not been carried out for the revival of the amalgamating company and that the amalgamation did not serve the genuine business purpose. Therefore, the action of the Assessing Officer in rejecting the 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 revis .....

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came before tribunal in second appeal. 6. We have heard rival submissions and gone through facts and circumstances. First of all we will assimilate the issues discussed by CIT(A) and the same with regard to the disallowance of set off of unabsorbed business loss of ₹ 1,12,51,058 and unabsorbed depreciation at ₹ 1,00,73,403/- against business income and income from capital gains of the assessee respectively has firstly been dealt with in para 5.1.3.1 at pages 20-21 of his order accepting in full the contention of AO that assessment framed in this case for AY 2006-07 u/s 154/143(3) of the Act dated 12/02/2009 lay out unabsorbed business loss of ₹ 18,86,074/- and unabsorbed depreciation of ₹ 109,22,427/- was the total of the brought forward losses and unabsorbed depreciation allowed for adjustment upto AY 2006-07. The 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 o .....

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detailed Chart statement showing details of returned and assessed unabsorbed business losses and unabsorbed depreciation marked as Annexure 1 to the submissions made by assessee is enclosed. This chart drawn up by assessee, wherein details of the returned and assessed income and losses has been laid out and supporting documents in the form of the returns filed and various orders of the Income Tax Authorities have been enclosed in a paper book filed before tribunal by assessee. The relevant chart enclosed reads as under;- Annexure-1 Statement showing details of returned and assessed unabsorbed business losses and unabsorbed depreciation A.Y Total Loss Unabsorbed Business Loss Unabsorbed Depreciation 1993-94 -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) 3,61,08,682 3,91,21,624 2002-03 - As per return of income (computati .....

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94 10,283 10,283 Claimed in AY 2011-12 1994-95 16,66,397 16,66,397 Claimed in A.Y 2011-12 1995-96 29,74,536 29,74,536 Lapsed in A.Y 2003-04 34,93,386 34,93,386 Claimed in A.Y 2011-12 1996-97 4,31,294 4,31,294 Lapsed in A.Y. 2004-05 3,53,082 3,53,082 Claimed in A.Y 2011-12 1997-98 36,62,515 36,62,515 Lapsed in A.Y 2005-06 38,39,013 38,39,013 Claimed in A.Y 2011-12 1998-99 6,95,672 6,95,672 Claimed in A.Y 2006-07 48,99,002 7,11,242 Claimed in A.Y 2011-12 41,87,760 Balance e/f in A.Y. 2011-12 1999-2000 14,03,110 14,03,110 Claimed in A.Y 2006-07 51,93,356 51,93,356 Balance c/f in A.Y 2011-12 2000-01 488,01,172 29,15,098 Claimed in A.Y 2006-07 18,86,074 Balance e/f for A.Y 2000-01 12,32,477 Claimed in AY 2008-09 6,53,597 Lapsed in AY 2008-09 1,09,22,427 Balance c/f for AY 2000-01 1,09,22,427 Balance c/f in AY 2011-12 2001-02 total upto 2,21,40,383 2,21,40,383 Lapsed in 2009-10 87,44,678 87,44,678 Balance c/f in AY 2001-12 TOTAL C/F UPTO A.Y 2001-02 3,61,08,682 3,91,21,624 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 .....

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t 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: Total loss Unabsorbed Business loss Unabsorbed depreciation 2001-02 As noted in acknowledgment of returns For AY 2001-02 (pg 78-79 of assessee s paper book) 2,21,40,383 87,44,678 2002-03 (computation) (assessed as such as per IT clearance 2,75,34,163 pg 80 of apb 1,92,08,649 pg 93 .....

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96/- and the unabsorbed depreciation of ₹ 7,56,29,069/- was available for set off in the AY 2011-12. 9. Another aspect on which the lower authorities has denied the claim of unabsorbed business losses and unabsorbed depreciation was that Hon'ble Calcutta High Court has not gone into the facts while passing the order on amalgamation. We find that the merger order of Hon'ble Calcutta High Court passed for the amalgamation was based on all consideration of full facts of the case and hence, section 72A of the Act will not apply in the case. The CIT(A) still confirmed the action of 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 amalgamation did not serve genuine business purpose. CIT(A) also observed that since amalgamation was not carried out for revival of amalgamating company and since the amalgamated company had stopped its manufacturing activities and sold it plant and machinery and also the industrial plot, it all proved that the amalgamation was not for genuine purpose as per provisions of section 72A of the Act. This issue is even covered by various decisions of Hon&# .....

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arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same. In our view, it is one of the functions of the court to ascertain whether the proposed scheme of merger or amalgamation is not violative of any provisions of law or is not contrary to public policy. The public policy or public interest has been discussed by Hon ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. In re, supra Hon ble Gujarat High Court has considered that the scheme of amalgamation is framed for achieving some object but companies do not amalgamate for fun. The court will sanction a scheme only where all the concerned stake holders have been heard and it is open to the revenue i.e. the Income tax department, as one of the class of creditors, to put forward any objection it may have against the amalgamation the court will refuse sanction of amalgamation scheme, where the scheme proposed is not bona .....

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d content from the context in which it is used. If such should be the construction of the expression "public interest", it would be necessary to see the setting in which it is placed. To recall earlier controversy "public interest" in company law is a new and recent entrant. The second proviso to section 394(1) was added by Amending Act of 1965, pursuant to the recommendations of Vivian Bose Commission of Dalmia and Jain concerns. The Vivian Bose Commission was appointed to inquire into and report on the administration of certain companies controlled by Shri Ramkrishna Dalmia and Shanti Prasad Jain and two others and especially about the irregularities, fraud or breaches of trust or action in disregard of honest commercial practices, contravention of any law (except contravention in respect of which criminal proceedings were pending in a court of law) in respect of the companies and firms covered by the terms of reference. Commission was also directed to suggest the action which in the opinion of the Commission should be taken to act as a preventive in future cases and also to suggest measures which in the opinion of the Commission are necessary in order to ensu .....

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t was sought to be achieved through creation of the transferor-company and why it is now being dissolved by merging it with another company. All these aspects will have to be examined in the context of the satisfaction of the court whether its affairs have not been carried on in a manner prejudicial to public interest. That is the colour and content of the expression " public interest " as used in section 394(1), second proviso, and the facts of this case will have to be examined keeping in view the colour and content of the expression " public interest ". The scheme of amalgamation must have some purpose or object to achieve. It was repeatedly inquired what purpose or object was to be achieved by a scheme of amalgamation offered for court's sanction. It was said that the property belonging to the transferor-company will be available to the transferee-company. Now, the property belonging to the transferor company is situate in Calcutta. The transferor-company is having its factory at Billimora. The transferor-company appears to have not done any business except acquiring capital asset from its parent company of which it was a subsidiary company and got it re .....

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osed to public interest and on this ground the court would not sanction the scheme of amalgamation. 11. In view of the judgment of Hon ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re supra, we are of the view that court has power to ensure that amalgamation is not at the expense of public interest and that it is quite fair, reasonable, workable and is such that a reasonable man would approve the same. The court must be satisfied that the charge of evasion of tax alleged by any of the parties is not true before sanctioning a scheme of amalgamation and it would not approve the scheme of amalgamation, which is intended to avoid a tax otherwise payable. Even the court has power to issue appropriate directions while approving the scheme where it cannot be positively inferred that the scheme is solely intended to avoid a tax. Hon ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. Vs. Department of Income Tax (2013) 353 ITR 222 (Guj) has considered a scheme of arrangement proposed by assessee for transfer of passive infrastructure assets. The scheme was objected to by the Revenue and Hon ble single judge of the very High Cour .....

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x Department of assessing, levying and collecting tax from the appellant were not confiscated or expropriated so as to extinguish such rights. A contention that the recovery of the outstanding tax may be affected by transfer of passive infrastructure assets, apart from being incorrect, could not be equated with expropriation or confiscation or extinguishment of rights of the Income-tax Department. (iv) That the equity shareholders, secured and unsecured creditors of the appellant and the Regional Director had approved the scheme of arrangement. The sanction was to be granted to the scheme of arrangement under sections 391 and 394 of the 1956 Act while the right of the Income-tax Department to recover the dues in accordance with law irrespective of the sanction of the scheme was to be protected. [The court observed that the right of the Income-tax Department to take out appropriate proceedings regarding recovery of any tax from the transferor or transferee company as the case may be was to be kept intact and pending cases before the Tribunal were not be affected in view of the sanction of the scheme.] Order of the single judge in Vodafone Essar Gujarat Ltd., In re [2012] 342 ITR 135 .....

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epreciation in respect of the amalgamated company under the provisions of sec. 72 and 32(2) of the Act respectively, particularly when the amalgamation has not been carried out for the revival of the amalgamating company and that the amalgamation did not serve the genuine business purpose. We, from the above observation of the CIT, are clear that the section 72A and CBDT Circular explaining the above provision did not apply to the assessee company inasmuch as the fact that assessment company was the amalgamated company and not the amalgamating company. In such circumstances, according to us, the CIT(A) has not correctly interpreted this provision of section 72A of the Act. 11. Thus, we are of the view that assessee is entitled for the claim of unabsorbed business loses and depreciation of ₹ 6,07,11,696/- and ₹ 7,56,29,069/- respectively available for set off in the AY 2011-12. From the above, it is clear that the scheme of merger approved by Hon'ble High Court is in itself appreciation of facts that the merger and the amalgamation was carried out for the revival of the amalgamating company and that the amalgamation did serve genuine business purpose and hence, sec. .....

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