2015 (2) TMI 1024 - AT - Income Tax

Setting off of brought forward business loss and unabsorbed depreciation - CIT(A) allowed setoff in the assessee of the amalgamated company for assessment year 2006-07, even the amalgamation was effective with effect from 01.04.2004 as per the order of the Hon ble Calcutta High Court and the date of amalgamation thus falls within a period less than three years from the date of incorporation of the amalgamating company - Held that - There is no evidence on record to prove that amalgamating company was engaged in business in which the accumulated loss occurred or depreciation remains unabsorbed for three or more years as on the date of amalgamation. Hence the order of ld. CIT(A) on this account is not sustainable since the assessee has not complied with the provision of section 72A(2)(a)(i) of the Act. - Decided in favour of revenue. Disallowance regarding employees contribution to PF and ESI - CIT(A) deleted addition - Held that - The proposition law in this regard is settled in the case of CIT vs Vinay Cement Limited ( 2007 (3) TMI 346 - Supreme Court of India). If the contributions are made before the due date of filing the return no disallowance is to be made. In this case we note that the actual dates of payment are not available on record. Hence we remit this issue to the file of AO. AO shall examine the actual date of payments and allow the payments if the same are done before the due date of filing the return. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Setting off of brought forward business loss and unabsorbed depreciation.
2. Deletion of disallowance regarding employees' contribution to PF and ESI.

Detailed Analysis:

1. Setting off of brought forward business loss and unabsorbed depreciation:

The primary issue concerns the assessee's claim to set off brought forward business loss and unabsorbed depreciation amounting to Rs. 84,22,538/- for the assessment year 2006-07. The amalgamation of Surya Kiran Udyog Private Limited (amalgamating company) with the assessee company was effective from 01.04.2004, as per the order of the Hon'ble Calcutta High Court. The department contended that the amalgamating company did not meet the conditions stipulated under Section 72A(2)(a)(i) of the Income-tax Act, 1961, which requires the amalgamating company to be engaged in the business for three or more years and to have held at least three-fourths of the book value of fixed assets for two years prior to the date of amalgamation.

The AO disallowed the claim, stating that the amalgamating company was incorporated on 13.09.2001 and was not engaged in business from the date of incorporation up to 31.03.2002. Furthermore, the AO noted that the amalgamating company did not hold the required three-fourths of the book value of fixed assets continuously for two years prior to the amalgamation.

The CIT(A) reversed the AO's decision, interpreting the phrase "engaged in the business" more broadly, and concluded that the amalgamating company was engaged in manufacturing ball pen tips for more than three years. Additionally, the CIT(A) found that the company held more than three-fourths of its fixed assets continuously for two years before the amalgamation.

Upon appeal, the Tribunal examined the records and found no evidence supporting the CIT(A)'s conclusion that the amalgamating company was engaged in business for more than three years. The Tribunal noted that the effective date of amalgamation was 01.04.2004, and the amalgamating company was incorporated on 13.09.2001, which does not fulfill the three-year requirement. Consequently, the Tribunal held that the assessee did not comply with the provisions of Section 72A(2)(a)(i) and reversed the CIT(A)'s order.

2. Deletion of disallowance regarding employees' contribution to PF and ESI:

The second issue pertains to the AO's disallowance of Rs. 71,393/- and Rs. 6,436/- for employees' contributions to PF and ESI, respectively, on the grounds that the payments were made beyond the due date prescribed under the respective Acts.

The CIT(A) deleted the disallowance, citing the Supreme Court's decision in CIT vs Vinay Cement Limited, which allows deductions if contributions are made before the due date of filing the return.

The Tribunal agreed with the CIT(A) but noted that the actual dates of payment were not available on record. Therefore, the matter was remitted back to the AO to verify if the payments were made before the due date of filing the return and to allow the deductions accordingly.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal reversing the CIT(A)'s decision on the setting off of brought forward business loss and unabsorbed depreciation but remitting the issue of employees' contribution to PF and ESI back to the AO for verification.