ITAT ruled against assessee regarding demerger treatment, ...

Transfer of Assets Without Corresponding Liabilities in Demerger Violates Section 2(19AA)(ii), Making Transaction Taxable as Capital Asset

March 6, 2025

Case Laws     Income Tax     AT

ITAT ruled against assessee regarding demerger treatment, finding non-compliance with Section 2(19AA)(ii) requirements. The tribunal determined that while assets worth Rs. 39.23 crores were transferred, related liabilities of Rs. 37.15 crores remained with the transferor, violating statutory provisions for qualifying demerger. The arrangement was consequently treated as transfer of capital assets subject to taxation. However, ITAT provided relief on multiple other grounds: allowed deletion of Section 14A disallowance for interest expenses, permitted product registration expenses as revenue expenditure, upheld Section 80IC deductions for Baddi unit's integrated operations, approved scrap sale income eligibility for deduction, and validated provision for expired goods based on scientific calculation methodology.

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