2019 (7) TMI 1277 - HC - 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 - Issue is no longer res integra in view of the decision of this Court in the case of IRM Limited v. Dy. CIT 2016 (7) TMI 972 - GUJARAT HIGH COURT wherein this Court took the view that, once the scheme is sanctioned, the same would relate back to the appointed date of amalgamation. it was held that once a scheme has been sanctioned by the High Court, which would relate back to the appointed date and such order is passed before the order of assessment is passed, it cannot be stated that the assessee should be denied the benefit of such development merely on the ground that during the accounting period and when the return was filed, the High Court order sanctioning the scheme was not yet passed. The very effect of the order of High Court sanctioned the scheme relating back to the appointed date would be that for all purposes including for recognising the benefit of unabsorbed depreciation and losses of a merging Company with those of principal company would be available from such date. In view of the aforesaid, this Appeal fails and is accordingly dismissed.

Summary

Issues:
1. Whether the Appellate Tribunal erred in upholding the decision of CIT(A) deleting the addition of business loss of Dolphin Laboratories?
2. Whether the Appellate Tribunal erred in upholding the decision of CIT(A) deleting the addition of unabsorbed depreciation of Dolphin Laboratories?

Analysis:
1. The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order passed by the ITAT, Ahmedabad, concerning the Assessment Year 2006-07. The dispute revolved around the disallowance of business loss and unabsorbed depreciation of Dolphin Laboratories. The search operation under Section 132 revealed the amalgamation of Dolphin Laboratories, and the subsequent assessment led to disallowances. The Commissioner of Income Tax found the assessment erroneous, leading to a fresh assessment under Section 263. The CIT(A) partly allowed the appeal, which was further challenged by the Revenue before the Appellate Tribunal.

2. The Appellate Tribunal upheld the decision of the CIT(A) to delete the additions made on account of business loss and unabsorbed depreciation of Dolphin Laboratories. The Revenue contended that the Tribunal should have considered the "cut off date" instead of the "appointed date" or the "date of amalgamation." However, the opposing counsel argued that the decision in the case of IRM Limited v. Deputy Commissioner of Income Tax, Circle-4, established that once a scheme of amalgamation is sanctioned, it relates back to the appointed date. The Court agreed with this interpretation, emphasizing that the High Court's order sanctioning the scheme would allow for the recognition of benefits like unabsorbed depreciation and losses from the appointed date.

3. The Court dismissed the Revenue's appeal, citing the precedent and holding that the Tribunal's decision was not erroneous. The judgment highlighted the importance of the High Court's sanctioning of an amalgamation scheme and its retroactive effect to the appointed date. Consequently, the appeal was rejected, affirming the Tribunal's decision to delete the additions related to Dolphin Laboratories' business loss and unabsorbed depreciation.