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TMI Blog2014 (12) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ies P. Ltd., cannot be set off in assessee’s case, as that company is in existence and has not amalgamated and it only can claim carry forward and set off depreciation available to it – Decided against assessee. Claim to increase WDV of assets acquired by unabsorbed depreciation – Held that:- Assessee has only acquired the manufacturing units and has not amalgamated the two companies, the question of enhancing the WDV does not arise - assessee has acquired assets and liabilities and has issued shares in lieu thereof - Therefore, the cost at which the assets were acquired, was the cost of Assets for the purpose of depreciation - The contention that WDV of assets should be increased by unabsorbed depreciation of M/s. GVK Novopan Industries P. Ltd., which has not amalgamated with the company cannot be accepted – Decided against assessee. Claim of loss of surrender of lease – Held that:- The unit which assessee has proposed to set up has inextricable linkage with the existing business of assessee - following the decision of Hon’ble Bombay High Court in the case of CIT vs. ESSAR Oil Ltd. [2008 (10) TMI 387 - Bombay High Court] such expenditure was allowed as revenue expenditure - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A), assessee was unsuccessful and hence, the present appeal. Assessee has raised six grounds, out of which, ground Nos. 1 and 6 are general in nature. 3. We have heard the Ld. Counsel and Ld. D.R. in detail and considered paper book placed on record and issues are dealt with ground wise. 4. Ground No.2 pertains to the issue of claim of set off of unabsorbed depreciation from another company. Assessee claimed set off of brought forward unabsorbed depreciation belonging to M/s. GVK Novopan Industries P. Ltd., against the income offered in this year. That claim was made under section 72A of the I.T. Act. As per the scheme of merger and demerger agreement as approved by Hon ble A.P. High Court vide orders dated 07.12.2006, assessee acquired manufacturing units of M/s. GVK Novopan Industries P. Ltd., and GVK Petro Chemicals P. Ltd., and amalgamated company M/s. Novopan Furniture P. Ltd. There is no dispute with reference to the scheme of merger of manufacturing units and amalgamation of a company. It was assessee s contention that M/s. GVK Novopan Industries P. Ltd., has only one manufacturing unit and entire manufacturing unit has been transferred to assessee company by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assets of M/s.GVK Novopan Industries P. Ltd., comprised of only the manufacturing division and the entire manufacturing division was acquired by Assessee company. Reference was invited to the copies of the balance sheet of M/s. GVK Novopan Industries P. Ltd., as at 31.03.2006 and also details of assets and liabilities of M/s.GVK Novopan Industries P. Ltd., approved by the Hon ble High Court for acquisition by Assessee company as contained in the order of the Hon ble High Court. Reference was also invited to the balance sheet M/s. Zinger Investments (P) Ltd., as at 31.3.2007 which shows that there were no fixed assets/liabilities consequent to the acquisition of the same by assessee company. These documents show that M/s. GVK Novopan Industries P. Ltd., had only one division, viz., the manufacturing division and all the assets and liabilities were acquired by Assessee company as per the order of the Hon ble High Court. 6.1. Assessee also submits that it demonstrated before the CIT(A) that the conditions to be fulfilled by Assessee company as well as M/s.GVK Novopan Industries Pvt. Ltd., as laid down in Sec.72A and Rule 9C of the I.T. Rules were satisfied. Attention was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other company after the winding up of the first, mentioned company; 8. As can be seen from the above provision, amalgamation is in relation to companies, means merger of one or more companies with any other company. In assessee s case, in the scheme of arrangement, there is only one company which got merged with assessee company by way of amalgamation i.e., Novopan Furniture Ltd., on which there is no dispute. However, as far as GVK Novopan Industries P. Ltd., or GVK Petro Chemicals P. Ltd., are concerned, those companies still exist with its own identity and has not amalgamated into assessee company. Even though part of the properties were acquired by assessee company, this can only be considered as acquisition by way of sale or as a scheme but not by way of amalgamation. In view of this, we are of the opinion that provisions of section 72A pertaining to carry forward depreciation of M/s. GVK Novopan Industries P. Ltd., cannot be set off in assessee s case, as that company is in existence and has not amalgamated and it only can claim carry forward and set off depreciation available to it. In view of this, ground No.2 is rejected. 9. Ground No.3 is with reference to alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Ltd., 324 ITR 29 (Mad.) Hon ble Madras High Court was considering the case of unabsorbed depreciation of amalgamating company. Like wise, the case of CIT vs. Hindustan Petroleum Corporation Ltd., 187 ITR 1 (Bom.) is also with reference to written down value of assets of amalgamation of companies and scope of Explanation 2A and section 43(6). However, those two cases are not applicable to the facts of assessee as there is no amalgamation of impugned company. As assessee has only acquired the manufacturing units and has not amalgamated the said two companies, the question of enhancing the WDV does not arise. Moreover, as seen from the orders of A.O. assessee has acquired assets and liabilities and has issued shares in lieu thereof. Therefore, the cost at which the assets were acquired, was the cost of Assets for the purpose of depreciation. The contention that WDV of assets should be increased by unabsorbed depreciation of M/s. GVK Novopan Industries P. Ltd., which has not amalgamated with the company can not be accepted. The facts of the cases relied upon by assessee are being entirely different, the principles cannot be applied to assessee s case. Accordingly, ground No. 3 is rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Indo Rama Synthetics (I) Ltd., vs CIT 333 ITR 18 DEL (185 Taxmann 277 DEL), CIT vs Vardhaman Spinning General Mills Ltd., 176 Taxmanan 157 P H and ONGC Videsh Ltd., vs DCIT 37 SOT 97 DEL (127 TTJ 497 DEL). In the case of Indo Rama Synthetics Ltd., 333 ITR 18 DEL (supra) the project proposed by Assessee could not take off basically because Assessee could not procure the allotment of requisite land from the Government of Karnataka and expenditure incurred on miscellaneous items was directed by the High Court to be allowed as revenue expenditure. In the case of Vardhaman Spinning General Mills Ltd., 176 Taxmann 157 P H (supra) the said company had incurred certain expenses for exploring possibility of setting-up a paper project which did not materialize. It was found that no asset of a permanent nature with an enduring benefit had been acquired. It was therefore held that assessee's claim in respect of said expenditure was to be allowed treating it as revenue expenditure. In the case of ONGC Videsh Ltd 37 SOT 97 DEL, (supra) expenses of ₹ 43.85 lakhs were incurred for purchase and evaluation of the seismic data of foreign blocks. The Hon'ble ITAT found that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure. However, as seen from the facts of this case, there is no dispute with reference to other expenditure incurred by assessee for establishing the unit in Uttarakhand. The expenditure on project report, initial expenditure for travelling, salary etc., incurred on the said project could have been claimed as revenue expenditure by assessee as there is no dispute on such expenditure. The dispute is only with reference to surrender of the land acquired on lease basis. As can be clearly seen, assessee company paid an amount of ₹ 1.72 crores as an advance towards land. When the site was being shifted to another place, assessee found that land was unsuitable for construction of factory and cancelled the agreement. Thereupon, Industrial Development Corporation refunded the advance retaining part amount. Since the advance was paid for acquiring land for establishing factory, the said expenditure would have resulted in getting an asset. Therefore, the nature of expenditure allowed in the above said cases relied on by assessee, was entirely different from the nature of expenditure incurred by assessee. In this case, the principles laid down by the above decisions relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missing this ground of appeal. Assessee has been denied the benefit of subsidy by Government of Andhra Pradesh. Accordingly, the relevant amounts have not accrued as income to Assessee. The learned CIT(A) ought to have considered the uncontroverted facts of the case and the ratio of the cases cited before the A.O and allowed Assessee's claim. Before the CIT(A), Assessee pleaded that the incentive are only a book entries but have not resulted in any income at all and that it was hypothetical income which did not materialise. Since no income has resulted at all, even though an entry is made to that effect in books, it cannot be considered as income for tax purposes. In this connection Assessee relied on the decision in the case of CIT vs. Shoorji Vallabhdas Co., 46 ITR 144 SC and Calcutta High Court decision in the case of CIT vs./ Method Trading Investment Ltd., 246 ITR 588 (Cal.). 13.3. On a query by the Bench to explain the necessary entries, Ld. Counsel placed the following a note explaining the details. 1.1 As directed by the Hon'ble IT AT, during the course of hearing of the above numbered appeal, Assessee submits the following papers for kind perusal. 1.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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