Which business restructuring can be termed as demerger under the Income Tax Act?

IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR.
BEFORE SH. LALIET KUMAR, JUDICIAL MEMBER
AND DR. M. L. MEENA, ACCOUNTANT MEMBER
I.T.A. No. 408/Asr/2016
Assessment Year: 2007-08

Income Tax Officer,
Ward- 5(1), Amritsar.
(Appellant)

vs

M/s Bhagat Industrial
Corporation Ltd., V.P.O.
Khasa, Amritsar
[PAN: AAACB 7368P]
(Respendent)

C.O. No. 21/Asr/2016
(In I.T.A. No. 408/Asr/2016)
Assessment Year: 2007-08
M/s Bhagat Industrial
Corporation Ltd., V.P.O.
Khasa, Amritsar
[PAN: AAACB 7368P]
(Appellant)

vs

Income Tax Officer,
Ward- 5(1), Amritsar.
(Respendent)

Appellant by Sh. Sanjay Dhariwal, CIT-DR
Respondent by Sh. V. Wadhwa, C.A.
Date of Hearing 20.09.2021
Date of Pronouncement 20.09.2021

ORDER

Grounds of Appeal by Revenue are enclosed as Annexure-1 herewith. It is to be noted that addition of Rs. 11, 90,00,000 was made by the A.O. on account of money received from two companies, i.e., Bagga Millennium Pvt Ltd ( Rs. 8,36,00,000) and Gursimran Millennium Liquor (India) Pvt Ltd. The assessee submitted two MoUs during the course of assessment regarding sale of its distillery unit Khasa Distilleries to BMPL and did not provide the full and correct information regarding sale/demerger of its distillery unit to BMPL or any of its subsidiaries. The assessee provided information in a piecemeal manner to avoid any inquiry by the A.O. which is clear from para 4.6, 4.7 and 4.8 of the assessment order. As the assessee could not explain the reasons of receipt of money from the above entities and nexus of money with business restructuring, therefore, the A.O. had added the money received by the assessee in the year
under consideration.

2. Reverting to the scheme approved by the High Court, it is submitted that copy of the scheme furnished to the Hon’ble High Court as submitted by the ld AR of the assessee through e-mail is enclosed as Annexure-2 of the submissions. It is clear from the above scheme that ‘appointed date’ of the demerger was 01.04.2006 as per the scheme and therefore, this year and not the subsequent year (as claimed by the ld. AR of the assessee during hearing on 16.09.2021), is the relevant year for demerger. It is to be further noticed that original MoU dated 18.05.2006 and supplementary MoU dated 23.09.2006 do not find any mention in the approved scheme. Further, the name of company GDPL is nowhere mentioned in the said scheme, neither the land transaction of 32 acres at Khasa is mentioned in the scheme.

3. In the light we deem it appropriate to remand back both the appeals and the CO to the file of the CIT(A) for de-navo decision of all the issues raised in the appeal in accordance with law . The CIT(A) is directed to consider all the document filed by the assessee including the memorandum of understanding ,scheme of demerger and the order passed by the Hon’ble High Court of proving the demerger.

4. Nothing stated therein shall be construed as adjudication of any of the grounds raised by both the parties as, the bench has merely stated the facts which are necessary for remanding the matter.

5.In the light of the above, the appeal of the Revenue is allowed for statistical purposes and CO is also allowed for statistical purposes. Order pronounced in the open court on 20.09.2021.

Please find attached the enclosed file for the full judgement