2022 (10) TMI 904 - AT - Income Tax

Assessment post amalgamation - brought forward losses post amalgamation - scheme of merger/amalgamation was approved by the Hon ble High Court of Calcutta - accumulated losses of amalgamating companies comprising of unabsorbed short term capital loss, unabsorbed long term capital loss, unabsorbed business loss would belong to the amalgamated company - Whether the provision of Section 72 and 74 would come into play with respect to set off of such accumulated loss of amalgamating companies against respective incomes of the amalgamated company? - HELD THAT - The scheme once approved is binding on the Income-tax authorities and cannot be disturbed/reconsidered. We also take note of the findings given by the Co-ordinate Bench of ITAT, Kolkata in one of the assessee s group companies in the case of Electrocast Sales India Ltd. 2018 (3) TMI 473 - ITAT KOLKATA wherein also similar issue was dealt and held in favour of the assessee. We also concur with the reliance placed by case of Select Holiday Resorts Pvt. Ltd. 2013 (1) TMI 187 - DELHI HIGH COURT which deals with the similar issue present before us in the appeal. Considering the facts and circumstances of the present case which are similar to those dealt with by the Co-ordinate bench of ITAT, Kolkata and by the Hon ble Delhi High Court (supra) and the detailed findings given by the Ld. CIT(A), we do not find any reason to interfere with the order of the Ld. CIT(A) on this issue. Accordingly, we allow the adjustment of brought forward business loss against the current year s business income and also the set off of brought forward capital loss as claimed by the assessee. Thus, the grounds raised by the revenue are dismissed. Accordingly, the appeal of the revenue is dismissed.

Issues Involved:
1. Entitlement of the amalgamated company to the accumulated losses of the amalgamating companies.
2. Applicability of Section 72 and 74 versus Section 78(2) of the Income-tax Act, 1961.
3. Validity of the set-off of accumulated losses against the amalgamated company's income.
4. Relevance of previous case laws cited by the revenue.
5. Legitimacy of the CIT(A)'s order based on the materials on record.
6. Burden of proof regarding the genuineness of the loss claimed by the assessee.

Detailed Analysis:

1. Entitlement of the Amalgamated Company to Accumulated Losses:
The revenue challenged the CIT(A)'s decision that the accumulated losses of the amalgamating companies, including unabsorbed short-term and long-term capital losses and business losses, would belong to the amalgamated company. The CIT(A) based its decision on the merger scheme approved by the Hon'ble High Court of Calcutta, which stated that the accumulated loss incurred by the transferor (amalgamating company) shall be deemed to be that of the transferee (amalgamated company) for all purposes, including for the purpose of the Income-tax Act.

2. Applicability of Section 72 and 74 versus Section 78(2):
The revenue argued that the CIT(A) erred by applying Sections 72 and 74 for the set-off of accumulated losses, ignoring Section 78(2) of the Act. However, the CIT(A) and the ITAT both held that the provisions of Section 72 and 74 would come into play for the set-off of such accumulated losses, as the scheme of amalgamation approved by the High Court had a statutory effect and was binding on all parties, including the income-tax authorities.

3. Validity of the Set-off of Accumulated Losses:
The CIT(A) and the ITAT supported the set-off of accumulated losses against the amalgamated company's income, citing the binding nature of the High Court's order approving the amalgamation scheme. The ITAT referenced the case of Electrocast Sales India Ltd., where a similar issue was resolved in favor of the assessee, allowing the set-off of brought forward losses.

4. Relevance of Previous Case Laws:
The revenue cited cases such as Smt. Harjit Kaur and Eastern Dooars Tea Company Limited to argue against the set-off of losses. However, the CIT(A) and ITAT found these cases distinguishable and not applicable to the present case. Instead, they relied on the Delhi High Court's decision in CIT Vs. Select Holding Resorts Pvt. Ltd., which supported the assessee's position that carry forward losses cannot be denied if the management remains with the same set of people despite changes in shareholding due to merger.

5. Legitimacy of the CIT(A)'s Order:
The revenue contended that the CIT(A)'s order was arbitrary and did not consider the materials on record. However, the ITAT upheld the CIT(A)'s order, emphasizing that the scheme of amalgamation approved by the High Court was binding and that objections should have been raised during the court proceedings. The ITAT found no reason to interfere with the CIT(A)'s detailed findings.

6. Burden of Proof Regarding the Genuineness of the Loss:
The revenue argued that the CIT(A) erred in holding that the assessee had discharged its burden of proving the genuineness of the loss. The ITAT, however, agreed with the CIT(A)'s conclusion that the losses claimed by the assessee were genuine and belonged to the amalgamated company as per the High Court's approved scheme.

Conclusion:
The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision that the accumulated losses of the amalgamating companies would belong to the amalgamated company and could be set off against the respective incomes of the amalgamated company under Sections 72 and 74 of the Income-tax Act. The ITAT emphasized the binding nature of the High Court's order approving the amalgamation scheme and found no merit in the revenue's objections.

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