2023 (9) TMI 1079 - AT - Income Tax

Disallowance of capital loss - Real ownership on amalgamation - Whether no real change in ownership has taken place because of amalgamation and the real ownership remained with the assessee company? - As per AO ultimate beneficial ownership rests with the shareholders of the company and even after affecting the Scheme of Arrangement, real ownership remained with the assessee as the company BESPL became subsidiary of the holding company, which is the assessee, and there is no change in ownership of net assets prior to taking effect of the Scheme of Arrangement and post effect of arrangements but the assessee claimed to have incurred loss to the extent of without any change in ownership HELD THAT - The entire quarrel revolves around the wrong interpretation done by the AO in respect of Section 2. AO has grossly erred in taking effective date as 01.04.2014 instead of 01.04.2015, which means that the entire findings of the Assessing Officer are the result of erroneous understanding of the order of the Hon'ble High Court of Allahabad. It was only EPC business of the assessee and MBPL transferred to BESPL by way of slump sale effective from 01.04.2014 and MBPL and EIL amalgamated with the assessee effective from 01.04.2015 which is F.Y. 2015-16 relevant to A.Y 2016-17, which is not the impugned A.Y. Since the Assessing Officer has proceeded on a wrong assumption of facts, his entire findings became erroneous and the ld. CIT(A) having correctly understood the implication of Scheme of Arrangement and effective date relevant for the transaction for the year under consideration, we do not find any reason to interfere with the findings of the ld. CIT(A). Decided against revenue.

Summary

Issues Involved:
The judgment involves the deletion of addition by way of disallowance of capital loss without appreciating the ownership change due to amalgamation.

Capital Loss Disallowance Issue:
The Revenue appealed against the deletion of the addition of capital loss of Rs. 7,50,24,307/- by the CIT(A) for the assessment year 2015-16. The Revenue argued that no real change in ownership occurred due to the amalgamation, and the ownership remained with the assessee company. The Assessing Officer disallowed the claim of loss as he believed that the real ownership still resided with the assessee company, even after the Scheme of Arrangement. The CIT(A) found in favor of the assessee, highlighting that the Assessing Officer's interpretation of the effective date of the amalgamation was incorrect. The High Court approved the Scheme of Arrangement, which involved the transfer of the EPC business and subsequent amalgamation of companies, with the effective date being 01.04.2015, not 01.04.2014 as wrongly assumed by the Assessing Officer. Therefore, the CIT(A)'s decision to delete the capital loss addition was upheld, and the Revenue's appeal was dismissed.

Scheme of Arrangement Issue:
The Scheme of Arrangement involved the transfer of the EPC business of the assessee company and another company to a third company, followed by the amalgamation of the two transferred companies with the assessee company. The High Court approved the scheme, with the effective date for the amalgamation being 01.04.2015. The Assessing Officer mistakenly considered the effective date as 01.04.2014, leading to an incorrect interpretation of the ownership change. The CIT(A) correctly understood the implications of the Scheme of Arrangement and the relevant effective date for the transaction, leading to the deletion of the capital loss addition. The entire dispute revolved around the Assessing Officer's erroneous understanding of the High Court's order, emphasizing the importance of correctly interpreting legal documents in tax assessments.