2019 (1) TMI 1599 - AT - Income Tax

Disallowance of business loss and unabsorbed depreciation of amalgamated company (Dolphin Laboratories) - Scheme of amalgamation conceived - cut off date OR appointed date OR date of amalgamation - HELD THAT - As per the scheme of merger, DLL(Dolphin Laboratories Ltd) was transferred fully to the assessee company against which the shareholders of DLL were allotted preference shares of the transferee company. It was an amalgamation as per the Income Tax Act, 1961 therefore the assessee is entitled to set off of brought forward losses and depreciation of amalgamating company as per the provisions of section 72A. The purpose of the cut of date of 30-09-2006 was the time limit for submission of objections/suggestions in respect of relief and concession. It is further noticed that the assessee company has also fulfilled all the conditions mentioned in Rule 9C of the I.T. Rule. The assessee has also submitted complete information in Form No. 62. The assessing officer has not disputed the non-fulfillment of any conditions after verification of the Form No. 62 filed by the assessee. We observe that the appointed date 01- 01-2006 is the date on which the assets and liabilities of the transferer company vest in transferee company. The assessee has made compliance to the conditions stipulated in Rule 9C of the I.T. Rule which is the requirement of section 72A. After considering the above facts and circumstances, we are inclined with the decision of the CIT(A) that the date of amalgamation is 01-01- 2006, therefore, the brought forward losses and the unabsorbed depreciation have been rightly set off in assessment year 2006-07. Accordingly this ground of appeal of the Revenue is dismissed. Disallowance of sale promotion expenses - CIT(A) has deleted the said addition on the ground that in the aforesaid order u/s. 154 the addition was already made - HELD THAT - It is noticed the aforesaid addition on account of disallowance of sale promotion expenses was made in the assessment order on 28-01-2013 u/s. 143(3)/153A/263 by the assessing officer stating that disallowance on sale promotion expenses was made as mentioned in the order u/s. 154. CIT(A) has deleted the said addition on the ground that in the aforesaid order u/s. 154 the addition of ₹ 22,95,000/- was already made. Before us the revenue has not disproved the aforesaid material facts, therefore, we do not find any error in the decision of ld. CIT(A). Accordingly, this ground of appeal of revenue is also dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of business loss of Dolphin Laboratories Ltd.
2. Deletion of addition on account of disallowance of unabsorbed depreciation of Dolphin Laboratories Ltd.
3. Deletion of addition on account of disallowance of sales promotion expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Business Loss of Dolphin Laboratories Ltd.:

The core issue revolves around whether the assessee was eligible to set off business losses of ?43,49,59,470/- of Dolphin Laboratories Ltd. (DLL) in the assessment year (A.Y.) 2006-07. The assessee, engaged in manufacturing and trading of pharmaceutical products, underwent a search action under section 132 of the Income Tax Act on 5.5.2008. Subsequently, the assessment under section 153A was finalized on 30th December 2009, allowing the set off of business losses of DLL. However, the CIT, Central Circle-2 Ahmedabad, passed an order under section 263 of the Act on 26th March 2012, setting aside the assessment to verify specific points.

The CIT(A) allowed the assessee's claim, stating that the appointed date of amalgamation was 01-01-2006, and thus the set off of losses was permissible under section 72A of the Act. The CIT(A) emphasized that the cut-off date of 30-09-2006 was for consideration of reliefs and concessions, not for the amalgamation date. The Tribunal upheld the CIT(A)'s decision, confirming that the appointed date of 01-01-2006 was the date of amalgamation, making the set off of losses valid for A.Y. 2006-07.

2. Deletion of Addition on Account of Disallowance of Unabsorbed Depreciation of Dolphin Laboratories Ltd.:

The second issue pertains to the disallowance of unabsorbed depreciation of ?4,67,16,865/- of DLL. Similar to the first issue, the CIT(A) allowed the claim of the assessee based on the appointed date of amalgamation being 01-01-2006. The CIT(A) noted that the scheme of amalgamation approved by BIFR referred to the appointed date as 01-01-2006 and not the cut-off date of 30-09-2006. The Tribunal agreed with the CIT(A), affirming that the unabsorbed depreciation was rightly set off in A.Y. 2006-07, as the appointed date was the relevant date for amalgamation under section 72A of the Act.

3. Deletion of Addition on Account of Disallowance of Sales Promotion Expenses:

The third issue involves the deletion of an addition of ?22,95,000/- on account of sales promotion expenses. The assessing officer had disallowed these expenses in the assessment order dated 28-01-2013 under sections 143(3)/153A/263, referring to an earlier order under section 154. The CIT(A) deleted the addition, noting that the disallowance had already been made in the order under section 154. The Tribunal found no error in the CIT(A)'s decision, as the revenue did not disprove the material facts, and thus upheld the deletion of the addition.

Conclusion:

In conclusion, the Tribunal dismissed the revenue's appeal on all three grounds, confirming the CIT(A)'s decisions regarding the set off of business losses, unabsorbed depreciation, and sales promotion expenses. The Tribunal emphasized that the appointed date of 01-01-2006 was the correct date for considering the amalgamation and subsequent set off of losses and depreciation under section 72A of the Income Tax Act.