2024 (1) TMI 382 - AT - Income Tax

Amortisation of expenditure in case of amalgamation or demerger u/s 35DD - 2/5th of 3/5 claim of expenses in each year - DR submitted that there is no provision for the assessee under section 35DD to claim 2/5th of expenses since the provisions are very clear that the assessee should be allowed to claim only 1/5th of the merger expenses in each year - HELD THAT - Section 35DD is unambiguous wherein it is provided that the expenses incurred wholly and exclusively for the purpose of amalgamation is to be allowed as a deduction in 5 equal installments beginning from the year in which the amalgamation or demerger takes place. Therefore the claim of 2/5th of the merger expenses by the assessee during the year under consideration cannot be allowed for the reason that there is no provision under section 35DD to claim 2/5th of the expenditure incurred towards amalgamation / demerger. Accordingly we dismiss Ground no.3 raised by the assessee in this regard. First year of claim of merger expenses - Alternate prayer of the assessee through additional ground is to treat AY 2007-08 as the first year from which the merger expenses are claimed under section 35DD and allow the assessee to claim the expenses in next 4 assessment years subsequent to AY 2007-08 - Though the amalgamation is effective from 01.04,2005, the amalgamation became operative only post the approvals from the Hon'ble High Court which happened during the financial year relevant to AY 2007-08. Therefore we see merit in the contention that AY 2007-08 should be the first of claim u/s 35DD since the said year is when the amalgamation has taken place. A careful reading of language u/s 35DD would support this view for the reason that the section does not mention that claim should begin from the year in which the amalgamation is effective but uses the words from the previous year in which the amalgamation or demerger takes place. In present case, we are of the considered view that the amalgamation has taken place in AY 2007-08 since the amalgamation is operational only after the approval of Hon'ble High Court which is received during the previous year relevant to AY 2007-08. We therefore tend to agree with the alternate plea of the assessee that AY 2007-08 be treated as the first year of claim of merger expenses for the purpose of section 35DD of the Act. Accordingly the additional ground is allowed in favour of the assessee. Not allowing the MAT credit as per section 115JAA - HELD THAT - From clarifications of VSV Scheme it is clear that the if the assessee chooses to include the amount of tax related to such MAT credit in the amount of disputed tax then the assessee shall be allowed to carry forward the MAT credit. It is the submission of the assessee that the assessee has chosen the said option. It is important to verify based on evidences and supporting documents relating submitted under VSVS by the assessee before allowing the MAT credit to be adjusted in the tax for the year under consideration. We notice that the lower authorities have denied the claim of the assessee for the reason that the claim is not adequately substantiated. Therefore we remit the issue back to the assessing officer with a direction to verify the claim of the assessee based on the documentary evidences and allow the claim in accordance with law.

Summary

Issues Involved:

1. Disallowance of merger expenses under Section 35DD.
2. Admission of additional grounds regarding merger expenses.
3. Non-allowance of MAT credit under Section 115JAA.
4. Consequential relief and general grounds.

Summary:

Disallowance of Merger Expenses under Section 35DD:

The assessee claimed 2/5th of merger expenses for AY 2007-08, arguing the merger was effective from 01/04/2005 but approved in October and December 2006. The Assessing Officer disallowed the claim, stating only 1/5th is allowable annually under Section 35DD. The CIT(A) upheld this disallowance. The Tribunal confirmed that Section 35DD allows only 1/5th of expenses per year, dismissing Ground No. 3.

Admission of Additional Grounds Regarding Merger Expenses:

The assessee raised an additional ground to treat AY 2007-08 as the first year for claiming merger expenses if Ground No. 3 was dismissed. The Tribunal admitted this ground, citing it as a pure legal issue. It concluded that AY 2007-08 should be the first year for claiming expenses under Section 35DD, as the amalgamation became operative post High Court approvals received in the financial year relevant to AY 2007-08. Thus, the additional ground was allowed in favor of the assessee.

Non-Allowance of MAT Credit under Section 115JAA:

The assessee's claim for MAT credit for AY 2006-07 was denied by the lower authorities, who argued that the assessed income under normal provisions was higher than under Section 115JB. The assessee contended they had opted for the Vivad se Vishwas Scheme (VSVS) and chose to carry forward MAT credit. The Tribunal remitted the issue back to the Assessing Officer for verification based on documentary evidence, directing that the claim be allowed if substantiated.

Consequential Relief and General Grounds:

Grounds No. 1, 2, and 8 were deemed general and did not require separate adjudication. Grounds No. 5 to 7 were consequential and also did not need separate adjudication.

Conclusion:

The appeal was partly allowed, with the Tribunal dismissing the claim for 2/5th of merger expenses but allowing the additional ground to treat AY 2007-08 as the first year for claiming merger expenses. The issue of MAT credit was remitted back for verification.