2018 (3) TMI 473 - AT - Income Tax

Non granting the benefit of brought forward losses of amalgamating company in the hands of the amalgamated company - Held that - We hold that the accumulated losses of amalgamating companies, comprising of unabsorbed short term capital loss of ₹ 10,26,44,123/- ; unabsorbed long term capital loss of ₹ 6,34,784/- and unabsorbed business loss of ₹ 6,63,574/- , would belong to the amalgamated company pursuant to clause in para 10(iii) of the scheme of amalgamation which was approved by the Hon ble Calcutta High Court vide order dated 6.10.2010. Since the losses belonged to the amalgamated company i.e the assessee herein, the provisions of section 72 and section 74 of the Act would come into play with respect to set off of the same against the respective incomes of the assessee. The provisions of non-compliance of section 72A of the Act as narrated by the CIT-A does not hold any water. Accordingly, the Grounds 1 & 2 raised by the assessee are allowed. Disallowance of Long Term Capital Loss without Securities Transaction Tax (STT) and not allowing the same to be carried forwarded - Held that - Hon ble Supreme Court in the case of K.P.Varghese vs ITO (1981 (9) TMI 1 - SUPREME Court) had held that It is a well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. (underlining provided by us). To throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, that he did not receive any consideration beyond that declared by him. Though this decision was rendered in the context of erstwhile provisions of section 52(2) of the Act which was later omitted from the statute, the ratio decidendi would be applicable to the facts of the instant case. No enquiries whatsoever were conducted in the hands of the purchaser of shares. We find that the entire disallowance of long term capital loss had been made only out of surmises, suspicion and conjectures. Entitled to claim the long term capital loss of ₹ 62,12,753/- and the same would be eligible to be carried forward to subsequent years for set off against long term capital gains u/s 74 of the Act.

Issues Involved:
1. Set-off of brought forward losses of amalgamating company in the hands of the amalgamated company.
2. Disallowance of Long Term Capital Loss without Securities Transaction Tax (STT).

Issue-wise Detailed Analysis:

1. Set-off of Brought Forward Losses:

The primary issue in the appeal was whether the revenue's action in not granting the benefit of brought forward losses of the amalgamating company to the amalgamated company was justified. The assessee filed a revised return claiming unabsorbed short-term capital loss and unabsorbed business loss from the amalgamating companies. The Assessing Officer (AO) denied the set-off, invoking section 79 of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted that section 79 was not applicable but denied the claim on the ground that the amalgamating companies did not own an 'industrial undertaking' as defined under section 72A of the Act.

The Tribunal noted that the scheme of amalgamation was approved by the Calcutta High Court, which included a clause allowing the accumulated losses of the amalgamating companies to be carried forward and vested with the amalgamated company. The Tribunal emphasized that the scheme, once sanctioned by the High Court, becomes binding on all parties, including statutory authorities. The Tribunal cited several judicial precedents, including decisions from the Gujarat High Court, Bombay High Court, and the Supreme Court, to support the view that the revenue cannot object to the scheme after its sanction unless an appeal is filed under section 391(7) of the Companies Act, 1956.

The Tribunal concluded that the accumulated losses of the amalgamating companies would belong to the amalgamated company as per the scheme approved by the High Court. Therefore, the provisions of section 72 and section 74 of the Act would apply, allowing the set-off of these losses against the respective incomes of the assessee. The Tribunal allowed the grounds raised by the assessee on this issue.

2. Disallowance of Long Term Capital Loss without STT:

The second issue was the disallowance of Long Term Capital Loss of ?62,12,753/- on the sale of unquoted shares. The AO disallowed the loss, questioning the sale price of ?2 per share, as the same shares were sold earlier at ?13.50 per share. The CIT(A) upheld this disallowance.

The Tribunal noted that the assessee had provided sufficient documentation, including the invoice and extracts from the Register of Shareholders, to support the sale transaction. The Tribunal held that the AO had not conducted any further investigation or provided any material evidence to contradict the assessee's claim. The Tribunal cited the Supreme Court's decision in K.P. Varghese, emphasizing that the onus is on the revenue to prove any understatement of consideration.

The Tribunal found that the disallowance was made based on mere suspicion without any concrete evidence. Consequently, the Tribunal held that the assessee was entitled to claim the long-term capital loss and allowed the loss to be carried forward for set-off against future long-term capital gains under section 74 of the Act. The Tribunal allowed the ground raised by the assessee on this issue.

Conclusion:

The Tribunal allowed the appeal of the assessee partly, granting the set-off of brought forward losses from the amalgamating companies and the claim of long-term capital loss without STT. The decision emphasized the binding nature of the High Court's sanction of the amalgamation scheme and the requirement for the revenue to provide concrete evidence when disputing the assessee's claims.

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