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TMI Blog2014 (12) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... the amalgamating company and that the amalgamation did serve genuine business purpose and hence, sec. 72A of the Act will not apply to the case of the assessee, being the amalgamated company and not the amalgamating company. Disallowance of expenses debited on account of professional service charges for non-deduction of TDS u/s. 194J - addition u/s 40(a)(ia) - Held that:- The assessee stated that the assessee has deducted TDS on the above amounts of 2,62,492/- but could not produce the details before CIT(A) or before AO as the documents were not available or could not be traced at the relevant point of time. Accordingly, the assessee requested for setting aside the to the file of the AO. Ld. Sr. DR has not objected to the setting aside of this issue for verification of TDS deducted to the file of the AO. In term of the above, we remit this issue back to the file of the AO for verification of TDS deducted by the assessee. The AO will decide accordingly. This issue of assessee’s appeal is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.,18,86,074/- and unabsorbed depreciation of ₹ 1,09,22,427/- was only available for set off in the AY 2011-12 subject however to other findings. (d) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred on facts in not entertaining the revised working of the unabsorbed Business losses and Unabsorbed Depreciation of ₹ 6,07,11,696/- and ₹ 7,56,29,069/- respectively available for set off in the AY 2011-12. (e) That on the facts and circumstances of the case of the appellant, the Ld. CIT(A) failed to appreciate the provisions of law wherein, accepting that the Merger Order of the HC passed for the amalgamation was based on all consideration of full facts of the case of the Appellant and also accepting that the section 72A of the Act did not apply in the case of the Appellant Company being the amalgamated company and not the amalgamating Company, he still confirmed the action of the Ld. AO in rejecting the claim of the set off, alleging that the amalgamation was not carried out for the revival of the amalgamating company and that the amalgamation did not serve genuine business purpose. (f) That on the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O apart from disallowance of set off of unabsorbed depreciation and unabsorbed business loss also made addition (which are now in challenge before us apart from other additions made) of ₹ 9,71,006/- on ad-hoc basis on account of purchase of gifts etc. for travel agents in domestic and international trade fares for self promotions of tourism products and also disallowance of expenditure of ₹ 5,59,010/- for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. 4. Here it is to be mentioned that certain more facts relating to above issue are that assessee is a Private Limited Company established a chemical manufacturing unit at Dharwad in the year 1975 and continued its business of chemical manufacturing since then. Around 1998, this business of assessee was not doing well and due to incurring continuous loses, assessee decided to let out factory premises along with all the fixed assets to Deepak Nitrate Ltd. in the year 2005 but ownership of assets remained very much with the assessee and lease rentals had all along been offered as business income and was all through assessed as such. The assessee being the owner of fixed assets so leased, clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had established a manufacturing unit to manufacture various chemicals in the year 1975 at Dharwad in the state of Karnataka and continued its chemical manufacturing business since then. The manufacturing unit started incurring some losses and there was a carry forward business loss as well as unabsorbed depreciation on the basis of the assessment made since 1993-94. As per the data furnished by the appellant, in A.Y 2001-02 the amount of unabsorbed Depreciation and carried forward business losses as per the return filed on 30th October 2001 was ₹ 3,91,21,624/- and ₹ 3,61,08,682/- respectively. The losses and unabsorbed depreciation have duly been assessed by the A.O in the respective assessment years and there being no sufficient profit in those years were duly allowed to be carried forward. These facts are verifiable from the respective assessment orders determining the amount of carry forward loss and unabsorbed depreciation. It is also an undisputed fact that the appellant continued the operating lease with M/s Deepak Nitrate Ltd. The agreement was extended from time to time and finally terminated on 30.04.2008 and that all along the lease rent has been' accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at full facts were not placed before the Hon'ble Court for consideration. The finding of the Assessing Officer to this extent being farfetched is liable to be rejected. 5.1.3.3. Now, sub-clause (iii) of clause (b) of sub-section (2) of Section 72A of the Act lays down that the assessee fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. The Assessing Officer has made a point that the amalgamated company has violated the conditions; as laid down in the subclause on the ground that the amalgamated company has sold its assets and the amalgamation was made only with a view to set off of the losses on account of unabsorbed depreciation allowance and unabsorbed business loss. According to the Assessing Officer, the assessee being only name lender the benefit of carry forward of business loss and unabsorbed depreciation pertains to the machineries and the business which is wound up due to sale of plant and machineries with an intention to never come back to the business should not be allowed to adjust with the income generated from the business of amalg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions relating to carry forward and set off of accumulated business loss and unabsorbed depreciation in certain cases of amalgamation under New s. 72A is reproduced below for the sake of clarity: "18.1 Under the existing provisions of the IT Act, so much of the business loss of a year as cannot be set off against the other income of -the assessee for that year can be carried forward and set off by him against the profits of the following year from any business carried on by him. If the loss cannot be wholly so set off, the amount not so set off can be carried forward to the next following year and so on, upto a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. The benefit of carry forward and set off of business loss, is, however, not available unless the business in which the loss was originally sustained is continued to be carried on by the assessee. Further, only the assessee who incurred the loss has the right to carry forward the same, so that the successor in business cannot claim to carry forward the loss incurred by his predecessor. Similarly, if a business carried on by one assessee is taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit under this section is restricted to amalgamations which would facilitate rehabilitation or revival of the business of the amalgamating company. Even after a declaration has been made by the Central Government under sub-so (l) of new S. 72A, the accumulated loss shall not be set off and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the following further conditions are fulfilled: (i) during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company; without only modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently; (ii) the amalgamated company furnishes, along with its return of income for the assessment year for which such set off or allowance is claimed, a certificate from the specified authority to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve the genuine business purpose. Therefore, the action of the Assessing Officer in rejecting the claim of the appellant company for set off of the unabsorbed business loss and unabsorbed depreciation of the amalgamated company is confirmed. 5.1.3.4. Now, the last issue which is to be decided is whether claim of set off of the capital gains arising from the transfer of industrial plot of land during- the year as' per the revised computation was admissible when the deduction was not claimed in a voluntary return of income' or a revised return of income under sec. 139(5) of the Act in the light of the decision of the Apex Court cited supra: The facts are that the appellant had disclosed the capital gains on the sale of land on. the basis of the value as per the registered sale deed. During the course of assessment proceedings, it transpired that capital gains ought to have been worked out on the basis of value taken by the Registering Authority for the purpose of stamp duty under sec. 50C of the Act. The appellant, therefore, filed a revised computation working out the capital gains on the basis of the fair market value as per provisions of sec. 50C at ₹ 95,73,403/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught forward losses and unabsorbed depreciation allowed for adjustment upto AY 2006-07. The CIT(A) confirmed the finding of AO that the assessee claimed no loss in the returns pertaining to AYs 2007-08 upto AY 2010-11 and thus he concluded that since no business loss or unabsorbed depreciation was claimed, in AYs 2007-08 to 2010-11, unabsorbed business loss of ₹ 18,86,074/- and unabsorbed depreciation of ₹ 1,09,22,427/- was only available figure for set off in AY 2011-12 subject however to other findings. He also observed that Hon'ble Calcutta High Court passed merger order for the amalgamation of the assessee company without considering all the relevant facts. As regard to the applicability of section 72A of the Act, CIT(A) has not agreed with the findings of AO but accepted the contention of assessee that the said section did not apply to the case of assessee inasmuch as the fact are that assessee was the amalgamated company and not the amalgamating company. However, in total contradiction to the above, CIT(A) without any basis stated that the merger order of High Court passed for amalgamation was not based on consideration of full facts of the case and also accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,66,397 -16,66,397 1995-96 -64,67,922 -29,74,536 -34,93,386 1996-97 -7,84,376 -4,31,294 -3,53,082 1997-98 -75,01,528 -36,62,515 -38,39,013 1998-99 -55,94,674 -6,95,672 -48,99,002 1999-00 -65,96,466 -14,03,110 -51,93,356 2000-01 -1,57,23,599 -48,01,172 -1,09,22,427 2001-02 -3,08,85,061 -2,21,40,383 -87,44,678 TOTAL As noted in acknowledgement of return for A.Y 2001-02 (Pg 78-79 of ppbk) 3,61,08,682 3,91,21,624 2002-03 - As per return of income (computation ) (assessed as such as per I.T. clearance certificate -Pg 94 of Pbk) - 2,75,34,163 Pg 80 of Pbk -1,92,08,649 Pg 93 of Pbk -83,25,514 Pg 93 of Pbk 2003-04 As per return of income (computation) -2,38,86,305 Pg 96 of Pbk - 1,43,32,703 Pg 97 of Pbk -95,53,602 Pg 97 of Pbk - As assessed as per order u/s.143(3) (Pgs 98-100 of Pbk) - 1,98,13,460 - 1,02,59,858 - 95,53,602 - As finally assessed as per order u/s 154/143(3) (Pg 102 of Pbk) - 2,01,45,290 - 1,05,91,688 - 95,53,602 2004-05 - As per return of income (computation) - 4,93,18,012 Pg 104 of Pbk - 4,12,29,816 Pg 105 of Pbk - 80,88,196 Pg 105 of Pbk - As assessed as per order u/s 143(3) (Pgs 106-108 of Pbk) - 4,12,46,660 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance c/f in A.Y 2011-12 2000-01 488,01,172 29,15,098 Claimed in A.Y 2006-07 18,86,074 Balance e/f for A.Y 2000-01 12,32,477 Claimed in AY 2008-09 6,53,597 Lapsed in AY 2008-09 1,09,22,427 Balance c/f for AY 2000-01 1,09,22,427 Balance c/f in AY 2011-12 2001-02 total upto 2,21,40,383 2,21,40,383 Lapsed in 2009-10 87,44,678 87,44,678 Balance c/f in AY 2001-12 TOTAL C/F UPTO A.Y 2001-02 3,61,08,682 3,91,21,624 2002-03 1,92,08,649 1,92,08,649 Claimed in AY 2010-11 83,25,514 83,25,514 Balance c/f in AY 302-23 2003-04 1,05,91,688 1,05,91,688 Claimed in AY 2010-11 95,53,602 95,53,603 Balance c/f in AY 2011-12 2004-05 3,58,89,625 16,19,919 Claimed in AY 2010-11 3,42,69,706 Balance c/f in AY 2010-11 1,12,51,059 Claimed in AY 2011-12 2,3018,647 Balance e/f in AY 2011-12 80,88,196 80,88,196 Balance c/f in AY 2011-12 2005-06 51,08,353 51,08,353 Balance c/f in AY 2011-12 63,00,368 63,00,368 Balance c/f in AY 2011-12 2006-07 50,13,880 (profit) 6,95,672 Set off agst loss of AY 1998-99 14,03,110 Set off agst loss of AY 1999-00 29,15,09 2000-01 Set off agst loss of A.Y. 2000-01 2007-08 1,68,72,208 1,68,72,208 Balance c/f in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly lays out that it is a fact well documented, supported, and claimed before Income Tax Authorities since AY 2001-02 upto the AY 2006-07, and there has been continuous claim of unabsorbed business loss and of unabsorbed depreciation which has been duly accepted as such by the Income Tax Authorities. From the above chart it is clear that it is a simple matter of fact that the unabsorbed business losses and unabsorbed depreciation for the AYs 2001-02 to 2006-07 were clearly as under: Total loss Unabsorbed Business loss Unabsorbed depreciation 2001-02 As noted in acknowledgment of returns For AY 2001-02 (pg 78-79 of assessee's paper book) 2,21,40,383 87,44,678 2002-03 (computation) (assessed as such as per IT clearance 2,75,34,163 pg 80 of apb 1,92,08,649 pg 93 of apb 83,25,514 pg 93 apb 2003-04 - Assessed as per order u/s 154/143(3) (pg 102 of apb) 2,01,45,290 1,05,91,688 95,53,602 2004-05 As per appellate order u/s 250 (pgs 109-111 of apb) 4,39,77,821 3,58,89,625 80,88,196 2005-06 As per return of income - - - - - - (computation) 1,14,08,721 51,08,353 63,00,368 Pg 112 of apb pg 125 apb pg 125 apb The assessee claimed before us and filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamation. We find that the merger order of Hon'ble Calcutta High Court passed for the amalgamation was based on all consideration of full facts of the case and hence, section 72A of the Act will not apply in the case. The CIT(A) still confirmed the action of AO in rejecting the claim of the set off, alleging that the amalgamation was not carried out for the revival of the amalgamating company and that amalgamation did not serve genuine business purpose. CIT(A) also observed that since amalgamation was not carried out for revival of amalgamating company and since the amalgamated company had stopped its manufacturing activities and sold it plant and machinery and also the industrial plot, it all proved that the amalgamation was not for genuine purpose as per provisions of section 72A of the Act. This issue is even covered by various decisions of Hon'ble Courts and the Coordinate Bench of this Tribunal, Kolkata "B" Bench in the case of ITA No. 201/Kol/2010 in ITO Vs. Purbanchal Power Co. Ltd. for AY 2006-07 dated 17.07.2014 considered this issue and has held that once the scheme of merger is approved by Hon'ble High Court the revenue cannot reconsider the same because reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same." In our view, it is one of the functions of the court to ascertain whether the proposed scheme of merger or amalgamation is not violative of any provisions of law or is not contrary to public policy. The public policy or public interest has been discussed by Hon'ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. In re, supra Hon'ble Gujarat High Court has considered that the scheme of amalgamation is framed for achieving some object but companies do not amalgamate for fun. The court will sanction a scheme only where all the concerned stake holders have been heard and it is open to the revenue i.e. the Income tax department, as one of the class of creditors, to put forward any objection it may have against the amalgamation the court will refuse sanction of amalgamation scheme, where the scheme proposed is not bona fide or workable or where it is shown that there is something wrong with the scheme. In case the purpose discernable behind the amalgamation scheme is to defeat the liabilities of revenue the court can refuse sanctioning the scheme. Hon'ble Gujarat High Court in Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 394(1) was added by Amending Act of 1965, pursuant to the recommendations of Vivian Bose Commission of Dalmia and Jain concerns. The Vivian Bose Commission was appointed to inquire into and report on the administration of certain companies controlled by Shri Ramkrishna Dalmia and Shanti Prasad Jain and two others and especially about the irregularities, fraud or breaches of trust or action in disregard of honest commercial practices, contravention of any law (except contravention in respect of which criminal proceedings were pending in a court of law) in respect of the companies and firms covered by the terms of reference. Commission was also directed to suggest the action which in the opinion of the Commission should be taken to act as a preventive in future cases and also to suggest measures which in the opinion of the Commission are necessary in order to ensure in the future that due and proper administration of the funds and assets of the companies and firms in the interest of investing public. Interest of the investing public is interest of general public which expression would be covered by "public interest". Pursuant to this directive and as a consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest. That is the colour and content of the expression " public interest " as used in section 394(1), second proviso, and the facts of this case will have to be examined keeping in view the colour and content of the expression " public interest ". The scheme of amalgamation must have some purpose or object to achieve. It was repeatedly inquired what purpose or object was to be achieved by a scheme of amalgamation offered for court's sanction. It was said that the property belonging to the transferor-company will be available to the transferee-company. Now, the property belonging to the transferor company is situate in Calcutta. The transferor-company is having its factory at Billimora. The transferor-company appears to have not done any business except acquiring capital asset from its parent company of which it was a subsidiary company and got it revalued so that by the process of revaluation, the equity shareholders of the transferor-company can get large number of shares of the transferee-company by the exchange ratio prescribed in the scheme of amalgamation. No apparent understandable purpose or object behind the scheme is discernible. The purpose and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not at the expense of public interest and that it is quite fair, reasonable, workable and is such that a reasonable man would approve the same. The court must be satisfied that the charge of evasion of tax alleged by any of the parties is not true before sanctioning a scheme of amalgamation and it would not approve the scheme of amalgamation, which is intended to avoid a tax otherwise payable. Even the court has power to issue appropriate directions while approving the scheme where it cannot be positively inferred that the scheme is solely intended to avoid a tax. Hon'ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. Vs. Department of Income Tax (2013) 353 ITR 222 (Guj) has considered a scheme of arrangement proposed by assessee for transfer of passive infrastructure assets. The scheme was objected to by the Revenue and Hon'ble single judge of the very High Court considering this objection, inter alia, held that the transaction was void in view of the provisions of section 281of the Act and refused to sanction the scheme. Hon'ble High Court on appeal, Division Bench laid down certain principles as under (as reproduced from head notes): "Held, allowing the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e equated with expropriation or confiscation or extinguishment of rights of the Income-tax Department. (iv) That the equity shareholders, secured and unsecured creditors of the appellant and the Regional Director had approved the scheme of arrangement. The sanction was to be granted to the scheme of arrangement under sections 391 and 394 of the 1956 Act while the right of the Income-tax Department to recover the dues in accordance with law irrespective of the sanction of the scheme was to be protected. [The court observed that the right of the Income-tax Department to take out appropriate proceedings regarding recovery of any tax from the transferor or transferee company as the case may be was to be kept intact and pending cases before the Tribunal were not be affected in view of the sanction of the scheme.] Order of the single judge in Vodafone Essar Gujarat Ltd., In re [2012] 342 ITR 135 (Guj) reversed." From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon'ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e." We, from the above observation of the CIT, are clear that the section 72A and CBDT Circular explaining the above provision did not apply to the assessee company inasmuch as the fact that assessment company was the amalgamated company and not the amalgamating company. In such circumstances, according to us, the CIT(A) has not correctly interpreted this provision of section 72A of the Act. 11. Thus, we are of the view that assessee is entitled for the claim of unabsorbed business loses and depreciation of ₹ 6,07,11,696/- and ₹ 7,56,29,069/- respectively available for set off in the AY 2011-12. From the above, it is clear that the scheme of merger approved by Hon'ble High Court is in itself appreciation of facts that the merger and the amalgamation was carried out for the revival of the amalgamating company and that the amalgamation did serve genuine business purpose and hence, sec. 72A of the Act will not apply to the case of the assessee, being the amalgamated company and not the amalgamating company. 12. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in restricting the disallowance of ₹ 1 lac on ad ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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