2017 (7) TMI 1217 - HC - Income Tax

Set off of current year looses and brought forward losses/unabsorbed depreciation - scheme of amalgamation - Held that - Assessing Officer is directed to allow set off of current year looses and brought forward losses/unabsorbed depreciation of M/s. Modern Terry Towels Ltd. as per Section 72A against the income of the appellant. At the same time, the AO shall pass a protective assessment order in the case of appellant for A.Y. 2010-11 presuming that no amalgamation has taken place. In case, the amalgamation scheme were not to be sanctioned by BIFR or the higher Courts with effect from 01-01-2008, then the protective assessment completed by the AO shall prevail over the substantive assessment. This ground of appeal is allowed.

Summary

Issues:
1. Set off of current year and brought forward losses against income.
2. Validity of protective assessment orders.
3. Application of merger scheme in tax assessments.

Issue 1: Set off of losses against income
The appeals challenged the Tribunal's decision to dismiss the department's appeals regarding the set off of current year and brought forward losses against income. The substantial questions of law framed included whether the ITAT was justified in allowing the set off despite the merger issue not being finalized. The Tribunal relied on previous decisions and held that the set off should be allowed as per Section 72A, even in the absence of finality on the merger issue. The decisions in similar cases favored the assessee, leading to the dismissal of the Revenue's appeals.

Issue 2: Validity of protective assessment orders
The Tribunal upheld the validity of protective assessment orders passed by the AO in cases where the amalgamation scheme was not finalized. The orders directed the AO to allow set off of losses and depreciation against income while passing protective assessment orders presuming no amalgamation had taken place. The Tribunal cited previous orders from the CIT(A) and directed the AO to follow suit, allowing the set off and passing protective assessments if the amalgamation scheme was not sanctioned by the BIFR or higher Courts.

Issue 3: Application of merger scheme in tax assessments
The Tribunal emphasized the finality of the BIFR order regarding the merger, which had not been challenged or overturned. It was noted that the BIFR order determined the effective date of the amalgamation, impacting the tax assessments. The Tribunal found no substantial question of law arising from the appeals and dismissed them, affirming the decisions based on the existing merger scheme and legal precedents.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the application of Section 72A for set off of losses against income, the validity of protective assessment orders in case of pending mergers, and the impact of finalized merger schemes on tax assessments. The judgments were based on legal provisions, previous decisions, and the finality of the BIFR order, leading to the dismissal of the Revenue's appeals.