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2015 (12) TMI 511 - AT - Income TaxValid demerger u/s 2(19AA) - carry forward of loss and unabsorbed deprecation - CIT(A) allowed the claim - Held that - No infirmity in the order of CIT A() was drawn to our notice by revenue. We are also of the view that CIT (A) has dealt with all the issue raised by AO and giving a categorical finding holding that assessee is eligible for carry forward of unabsorbed loses and unabsorbed depreciation. Further as in the case of demerged company revenue has already taken a stand that the transaction is of Demerger, now it cannot be allowed to take a different stand in case of resulting assessee Company. Revenue cannot blow hot and cold in same breathe. Therefore we confirm the order of CIT (A) and hold that it was a valid demerger as defined u/s 2(19AA) of the Income tax act and assessee company is eligible for benefit of Section 72A (4) for carry forward of losses and unabsorbed depreciation - Decided against revenue.
Issues Involved:
1. Validity of 'demerger' under section 2(19AA) of the Income Tax Act. 2. Eligibility of the assessee to carry forward loss and unabsorbed depreciation amounting to Rs. 46,57,12,585/-. Issue-wise Detailed Analysis: 1. Validity of 'demerger' under section 2(19AA) of the Income Tax Act: The revenue contended that the demerger did not satisfy the conditions under section 2(19AA) of the Income Tax Act due to discrepancies in the ratio of assets and liabilities transferred, inability to link liabilities to the resulting company, and disproportionate issue of shares and transfer of reserves. However, the learned Commissioner of Income-tax (Appeals) (CIT(A)) found that the demerger met all the conditions specified in section 2(19AA). - Property Transfer: The CIT(A) observed that all properties of the undertaking were transferred to the resulting company as per the Scheme of Arrangement (SOA) approved by the Hon'ble Delhi High Court. This was supported by the details in Annexure II of the SOA and the assessment order. - Liabilities Transfer: The CIT(A) confirmed that all liabilities relating to the sugar undertakings were transferred to the resulting company. This included secured loans amounting to Rs. 180.05 crore and unsecured loans of Rs. 2.55 crore, as detailed in the balance sheet of the demerged company and the SOA. - Values in Books: The properties and liabilities were transferred at values appearing in the books of the demerged company immediately before the demerger, satisfying the third condition under section 2(19AA). - Issuance of Shares: The resulting company issued shares to the shareholders of the demerged company on a proportionate basis (3 shares for every 4 shares held), as per the SOA and the resolution passed by the Board of Directors. - Shareholders: The shareholders holding not less than three-fourths in value of the shares in the demerged company became shareholders of the resulting company by virtue of the demerger. - Going Concern Basis: The transfer of the undertakings was on a going concern basis, as confirmed by the SOA. - Compliance with Conditions: No conditions were notified by the Central Government under sub-section (5) of section 72A, and the SOA was approved by the Hon'ble Delhi High Court, confirming the genuineness of the demerger. The CIT(A) concluded that the demerger complied with all conditions under section 2(19AA), and the transfer of business of two sugar undertakings to the appellant company was a valid demerger. 2. Eligibility of the assessee to carry forward loss and unabsorbed depreciation amounting to Rs. 46,57,12,585/-: The assessee argued that the demerger entitled it to carry forward unabsorbed business losses and depreciation under section 72A(4) of the Income Tax Act. The assessing officer (AO) had denied this benefit, asserting that the scheme did not constitute a valid demerger. - CIT(A) Observations: The CIT(A) observed that the assessee had duly calculated the amount of unabsorbed business loss and depreciation based on the demerger, which was reflected in the tax audit report submitted with the return. The AO did not dispute the quantification of these amounts. - Section 72A(4): The CIT(A) held that the assessee was entitled to set off and carry forward unabsorbed business loss and depreciation in terms of section 72A(4), as the demerger met the conditions specified in section 2(19AA). - Revenue's Stand: The CIT(A) noted that the revenue had accepted the demerger in the case of the demerged company, and it could not take a different stand in the case of the resulting company. The appellate tribunal upheld the CIT(A)'s decision, confirming that the demerger was valid under section 2(19AA) and the assessee was eligible for the benefit of section 72A(4) for carrying forward losses and unabsorbed depreciation amounting to Rs. 46,57,12,585/-. Conclusion: The appeal of the revenue was dismissed, and the order of the CIT(A) was confirmed, holding that the demerger was valid under section 2(19AA) and the assessee company was eligible to carry forward losses and unabsorbed depreciation. The tribunal emphasized that the revenue could not take inconsistent positions regarding the demerger in the cases of the demerged and resulting companies.
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