Set off of accumulated unabsorbed losses under the Income Tax Act

IN THE INCOME TAX APPELLATE TRIBUNAL
 “B” BENCH, CHENNAI

BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND

SHRI S. JAYARAMAN, ACCOUNTANT MEMBER

I.T.A. No: 2767/Chny/2019
Assessment Year : 2014-15

Roca Bathroom Products Pvt. Ltd.,
“The Heritance”, 41, Haddows Road,
Nungambakkam, Chennai – 600 006.
[PAN: AAACE 9982E]
Appellant)

Vs. 

Deputy Commissioner of Income
Tax,
Large Taxpayer Unit -1,
Chennai.
Respondent)

Appellant by : Shri. N.V. Balaji, Advocate
Respondent by : Shri. G. Johnson, Addl. CIT

Date of Hearing : 24.03.2021
Date of Pronouncement : 21.06.2021

 O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The assessee filed this appeal against the consolidated orders of the Commissioner of Income Tax (Appeals)- 9, Chennai, particularly against the order in ITA Nos.170/17-18 dated 31.07.2019 for the assessment year 2014-15. 

2. While making the assessment for the assessment year 2014-15 in the case of the assessee, M/s Roca Bathroom Products Pvt. Ltd., the A O noticed from the Profit and Loss Account that the assessee has claimed set off of accumulated unabsorbed losses of M/s. Espiern Plastics Limited to the extent of Rs.7,04,94,282. From the Note 30 to the financial statement titled as ‘Amalgamation of Espiem Plastics Limited with the company” , the A O noted that the consideration for 74% of the equity share capital of the transferee company held by ex-promoters was discharged on 12.02.2014 only. Since the assessee company was holding only 26% percent of equity shares as on 01.04.2013 which is the appointed dated as per the scheme approved by the Hon’ble High Court of Madras on 28.4.2014, the A O held that it is evident that the precondition for amalgamation , i.e. shareholders holding of not less than three-fourths in value of the shares in the amalgamating company becoming shareholders of the amalgamated company was not satisfied. As the requirements laid down in Sec. 2(1B) were not fully satisfied on the court appointed date of 01.04.2013, the AO held that the assessee is not entitled to the claim of carry forward and set off’ of loss u/s Sec. 72A of the Income Tax Act, 1961 and hence disallowed the assessee’s claim and completed the assessment . Aggrieved, the assessee filed an appeal before the CIT (A). The Ld. CIT(A) relying the Supreme Court decision in the case of Smt. Tarulata Shyam and others v. CIT, West Bengal (1977) 108 ITR 345 (SC) held that the AO is right in strictly interpreting the provisions of the Act as the  appellant has not satisfied the prescribed condition u/s. 2(1B) r.w.s. 72A of the Act and dismissed the appeal. Aggrieved against the order of the ld. CIT(A), the assessee filed this appeal. The concise grounds of appeals filed by the assessee are extracted as under: 

“ 1. The order of the Commissioner of Income Tax (Appeals) [‘ CIT(A)’] is erroneous and contrary to the principles of natural justice and bad in law.

2. The CIT (A) erred in law and on facts in not considering set-off of accumulated losses and unabsorbed depreciation amounting to INR 70,494,282 under section 2(1B) read with section 72A of the Income-tax Act without appreciating the fact that

3. The CIT (A) in law and on facts in failing to appreciate that conditions stipulated under the provisions of section 2(1B) of the Act were satisfied upon amalgamation of Ws. Espiem Plastics Limited (‘amalgamating company’) with the Appellant.

4. The CIT (A) erred in considering the ‘appointed date’ instead of the date on which the scheme becoming effective (‘effective date’), for concluding the noncompliance of conditions specified in section 2(1B)(iii) of the Act.

5. The CIT (A) erred in disregarding the scheme of amalgamation which inter-alia sanctioned the vesting of and carry forward of loss by Appellant which is binding on the statutory authorities including income-tax authorities.

6. The CIT (A) Commissioner of Income-tax (Appeals) erred by upholding the denial of carry forward of loss and unabsorbed depreciation made by the Learned AO, stating that the taxing statute be interpreted strictly, without having regard to the legal position applicable to the facts in hand.

7. The Appellant craves leave to add, alter, amend, modify all or any grounds of appeal at or before the hearing of appeal.”

3. The case was heard through video conferencing. The Ld. AR submitted that as on 01.04.2013, only 26% of shares were held by the assessee company with Espiem Plastics Ltd . On 10.02.2014, the balance 74% of shares were bought and on the same day ie on 14.02.2014 itself Espiem  Plastics Ltd., the transferor company and the assessee transferee company, Roca Bathroom Products Pvt Ltd., applied for amalgamation. On 28.04.2014, the Hon’ble High Court of Judicature at Madras sanctioned the scheme of amalgamation with effect from 01.04.2013.

To know more in details find the attachment file