2014 (12) TMI 1315 - AT - Income Tax

Disallowance of unabsorbed business loss and unabsorbed depreciation against business income and long term capital gains - whether the plant and machinery was put to use in the business of the appellant 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 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.

Summary

Issues Involved:
1. Disallowance of unabsorbed business loss and unabsorbed depreciation against business income and long-term capital gains.
2. Disallowance of expenses for purchase of gifts for travel agents.
3. Disallowance of expenses for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Unabsorbed Business Loss and Unabsorbed Depreciation:
The first issue pertains to the disallowance of unabsorbed business loss and unabsorbed depreciation against business income and long-term capital gains. The CIT(A) confirmed the AO's action, noting that the appellant company had not claimed any business loss or unabsorbed depreciation in the returns for AYs 2007-08 to 2010-11. The CIT(A) also questioned the genuineness of the amalgamation, suggesting it was not carried out for the revival of the amalgamating company and did not serve a genuine business purpose as per section 72A of the Act.

The Tribunal found that the CIT(A)'s findings were incorrect. The assessee had provided detailed charts and supporting documents showing continuous claims of unabsorbed business losses and depreciation since AY 2001-02, which were accepted by the Income Tax Authorities. The Tribunal noted that the unabsorbed business losses and depreciation for AY 2011-12 were Rs. 6,07,11,696 and Rs. 7,56,29,069, respectively, contrary to the AO's claim of Rs. 18,86,074 and Rs. 1,09,22,427. The Tribunal also emphasized that the merger order by the Hon'ble Calcutta High Court was based on full consideration of the facts, and section 72A did not apply as the assessee was the amalgamated company, not the amalgamating company. Thus, the Tribunal allowed the set-off of the unabsorbed business losses and depreciation.

2. Disallowance of Expenses for Purchase of Gifts for Travel Agents:
The second issue involved the disallowance of Rs. 9,71,006 on account of purchases of gifts for travel agents. The CIT(A) restricted the disallowance to Rs. 1,00,000 on an ad hoc basis. The assessee withdrew this ground due to the smallness of the amount, and the Tribunal dismissed this issue accordingly.

3. Disallowance of Expenses for Non-Deduction of TDS under Section 40(a)(ia):
The third issue concerned the disallowance of Rs. 2,62,492 for non-deduction of TDS under section 40(a)(ia). The assessee claimed that TDS was deducted but could not provide the details at the relevant time. The Tribunal remitted the issue back to the AO for verification of TDS deduction, directing the AO to decide accordingly.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, permitting the set-off of unabsorbed business losses and depreciation, dismissing the issue regarding the purchase of gifts due to withdrawal, and remitting the issue of TDS deduction back to the AO for verification.