TMI Blog2022 (6) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the ld. CIT(A). Thus, we do not find any merit in the ground of appeal no.1 raised by the Revenue. Accordingly, the ground of appeal no.1 raised by the Revenue stands dismissed. Set-off of brought forward business losses and unabsorbed depreciation losses relating to the demerged undertaking - HELD THAT:- In the present case, admittedly, after the scheme of demerger, the appellant had not carried on any business of demerged undertaking and the fact that the assets transferred to the demerged unit were held for sale goes to demonstrate the intention of the appellant that they had no intention of carrying on business of demerged undertaking. The scheme of demerger was carried out only with sole object to avail the benefit of set-off of brought forward business losses and unabsorbed depreciation losses of demerged undertaking. Therefore, for this very reason, the Assessing Officer had denied the benefit of set-off of brought forward business losses. According to us, the reasoning of the Assessing Officer is consistent with object behind enactment of provisions of section 72A of the Act. Furthermore, sub-section (5) of section 72A has been enacted empowering the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward business loss and unabsorbed depreciation without appreciating the facts of the case that the demerged company was used as a colorable device to reduce and set-off the losses against profits of another company. 4. The appellant craves to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 3. Briefly, the facts of the case are as under : The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of sale and services of diesel engines, its spare parts and related equipments. The return of income for the assessment year 2006-07 was filed on 23.11.2006 declaring total income of Rs.55,44,54,789/-. The said return of income was revised on 28.10.2007 at total income of Rs.29,84,61,310/-. Against the said return of income, the assessment was completed by the Addl. Commissioner of Income Tax, Range-1, Pune ( the Assessing Officer ) vide order dated 30.12.2009 passed u/s 143(3) of the Income Tax Act, 1961 ( the Act ) at total income of Rs.49,78,29,562/- after disallowing set-off of brought forward business losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Bench of Mumbai Tribunal in the case of ITO vs. Daga Capital Management Pvt. Ltd. (SB-Mum. ITAT) wherein it has held that Rule 8D is procedural provisions is applicable in all the pending matters. 4. Being aggrieved by the above disallowances, an appeal was filed before the ld. CIT(A) who vide impugned order held that the provisions of Rule 8D cannot be applied retrospectively, however, restricted the disallowance to sum of Rs.70,000/-. As regards to the disallowance claim for set-off of brought forward business losses and unabsorbed depreciation losses pertaining to demerged undertaking vested with the respondent-assessee, the ld. CIT(A) held that once the demerger had been approved by the Hon ble Bombay High Court, it is not within the jurisdiction of the Assessing Officer to question the motive behind the demerger. In the absence of any notification by the Central Government as provided under sub-section (5) of section 72A, the Assessing Officer cannot apply his own guidelines in order to arrive at whether or not the demerger is for genuine purpose. Accordingly, the ld. CIT(A) directed the Assessing Officer to allow the set-off brought forward business losses an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the Central Government has not prescribed any condition to determine whether or not scheme of demerger is genuine purpose, since the material on record clearly establishes that the scheme demerger is not for genuine purpose, the respondent-assessee is not entitled for benefit of set-off of brought forward business losses and unabsorbed depreciation losses. The ld. CIT(A) had failed to appreciate the purport of the provisions of section 72A(4) of the Act. Therefore, the order of the ld. CIT(A) should be reversed. 12. On the other hand, ld. AR submits that since the Central Government had not laid down the guidelines or conditions for the purpose of determining whether the scheme of demerger is for genuine purpose or not. It is beyond the scope of the Assessing Officer to go into behind the scheme of demerger. He further submitted that when the scheme of demerger was approved or sanctioned by the Hon ble High Court, it is binding on everyone including the authorities of the income-tax department. The Hon ble Bombay High Court had accorded its sanction to the scheme of demerger, which means that the same has been done under statutory operations by virtue of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee to claim the set-off of brought forward business loess. In the cases, amalgamation of scheme u/s 72A(1) in order to avail tax benefit of set-off of brought forward business losses, the Government had prescribed conditions like continuous holding the assets before and after amalgamation, carrying on the business of amalgamation company for minimum period of 5 years from the date of amalgamation etc, such conditions are not stipulated in the case of demerger which is governed by sub-section (4) of section 72A of the Act. The sub-section (5) of section 72A empowers the Central Government to prescribe the conditions and guidelines to determine whether the scheme of demerger is genuine purpose or not?. In the context of scheme of amalgamation, the Hon ble Delhi High Court in the case of IEL Ltd. vs. Union of India, 195 ITR 232 (Delhi) held that the benefit of section 72A cannot be availed if the sole idea of the amalgamation was only to avail the benefit of carried forward business losses and unabsorbed depreciation losses as it is not for genuine purpose. The Hon ble Delhi High Court (supra) held as under : - 13. The object and purpose of introducing Section 72A u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be made to prevent such a situation from arising and if an amalgamation takes place and conditions under sub-s. (1) of s. 72A are satisfied, then we see no reason as to why a declaration should not be accorded. 14. The ratio of the decision of the Hon ble Delhi High Court in the case of IEL Ltd. (supra) was quoted with approval by the Hon ble Jurisdictional High Court in the of Ballarpur Industries Ltd. vs. CIT, 398 ITR 145 (Bom.) by holding as under :- 14. The Division Bench of Delhi High Court has held in the aforesaid decision that once the declaration is granted under Section 72A of the Income Tax Act, the amalgamated company thus received the benefit inasmuch as it is able to take advantage of the unabsorbed depreciation and accumulated losses. Upon fulfillment of the conditions specified in sub-section (2) of Section 72A, it holds that the benefit of Section 72A will not be obtained if the sole idea of amalgamating was not the revival of the amalgamating company but was only to take benefit of the carry forward losses and unabsorbed depreciation. This decision supports the view which we have taken. 15. We have gone through the provisions of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amalgamating company is treated to be a loss or, as the case may be, allowance for depreciation of the amalgamated company in the previous year in which the amalgamation was effected; but the amalgamated company, although a successor in interest, would be entitled to carry forward and set-off the accumulated loss and unabsorbed depreciation of the amalgamating company only where the amalgamating company was not, immediately before such amalgamation, financially viable and the amalgamation was in public interest. The expression financial nonviability had not been defined in the Act but the Finance Minister's speech, the notes on Clauses of the Bill and the Memorandum explaining the provisions thereof make it clear that the financial nonviability of an undertaking has been equated with the 'sickness' of such undertaking and obviously in the context of its revival by a sound undertaking the sickness must be of a temporary character and not any basic or permanent sickness. An undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face a closure; in other words, the financial non-viability spoken of by the section m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, does not alter the position for the reason that the Hon ble Jurisdictional High Court in the case of Ballarpur Industries Ltd. (supra) had approved the principle that the benefit of set-off of brought forward business losses cannot be allowed when sole idea behind the scheme of amalgamation is only to avail the benefit of set-off of brought forward business losses. 17. The ld. CIT(A) had granted the benefit of set-off of brought forward business losses in a perfunctory manner without looking into the objects behind the enactment of provisions of section 72A and appears to have been carried out by the submissions of the assessee that once the scheme of demerger is approved by the Hon ble High Court, the assessing authority cannot go behind the scheme of demerger ignoring the provisions of section 72A, which governed the set-off of brought forward business losses in the case of amalgamation/demerger etc, which prescribes the conditions to avail the benefit of the scheme. In the circumstances, we find that the order of ld. CIT(A) is illegal and unreasonable. Therefore, the order of the ld. CIT(A) is reversed and the ground of appeal no.2 and 3 filed by the Revenue stands allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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