DCIT, CHENNAI V. M/s. TTK Health Care Limited, CHENNAI

ITA 1389/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5135 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 31-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DUTTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional evidence; Scheme of amalgamation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NOS. 1388 & 1389/MDS/2009 ASSESSMENT YEARS : 2001-02 AND 2002-03 THE DY. CIT COMPANY CIRCLE III(4) CHENNAI VS M/S TTK HEALTH CARE LTD 6, CATHEDRAL ROAD CHENNAI 600 086 [PAN AABCIT3312J] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TAPAS KUMAR DUTTA RESPONDENT BY : SHRI R.VIJAYARAGHAVAN O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THESE ARE TWO APPEALS BY THE REVENUE, FOR ASSES SMENT YEARS 2001-02 AND 2002-03. FOR THE SAKE OF CONVENIENCE A ND BREVITY, WE PROCEED TO DECIDE THEM BY A COMMON ORDER. I.T.A.NO. 1388/MDS/2009 A.Y 2001-02 2. IN THIS APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF THE LD. CIT(A) DATED 8.6.2009, TWO ISSUES HAVE BEEN RAISED. THE FIRST ISSUE RELATES TO DELETION OF DISALLOWANCE OF ADVERTISEMEN T EXPENSES OF ` 1,13,79,438/-. ITA 1388&1389/09 :- 2 -: 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICE R HAS DISALLOWED ADVERTISEMENT EXPENDITURE OF ` 1,13,79,438/-. IN THE COMPUTATION STATEMENT OF RETURNED OF INCOME, THE AS SESSEE HAS ADDED ` 12,64,381/-, BEING THE ADVERTISEMENT EXPENDITURE C LAIMED FULLY IN THE PREVIOUS YEAR, BUT DEBITED IN THE BOOKS OF ACCOUNT IN THE CURRENT YEAR WHICH HAS NOW BEEN REVERSED. IT WAS VERIFIED FRO M ITMR 2000-01 THAT THE AMOUNT CLAIMED AS ADVERTISEMENT EXPENDITUR E WAS ` 1,26,43,819/- AND NOT ` 12,64,381/- AS STATED BY THE ASSESSEE. IN VIEW OF THE ABOVE POSITION, THE AMOUNT TO BE ADDED TO THE TOTAL INCOME ON ACCOUNT OF THIS REASON, WORKED TO ` 1,13,79,438/-. AGAINST THIS PROPOSED ADDITION, THE ASSESSEE HAS MADE THE F OLLOWING SUBMISSION: ( ` IN LAKHS) ACTUAL EXPENSES TREATMENT IN BOOKS OF A/CS ADVERTISEMENT EXPENSES TREATED AS EXPENDITURE (IN BOOKS A.Y 2000- 01) TREATED AS DEFERRED REVENUE (IN THE BOOKS OF ACCOUNT FOR A.Y 2000-01) 189.66 63.22 126.44 AMOUNT CLAIMED IN INCOME TAX MEMO(189.66 63.22 LAKHS) (PERTAINING TO A.Y 2000-01 EXPENSES) 126.44 ITA 1388&1389/09 :- 3 -: DEFERRED REVENUE EXPENSES CONSIDERED IN BOOKS (18.66/5X(75.86- 63.33) 12.64 AMOUNT REVERSED IN INCOME TAX MEMO 12.64 4.3 IN RESPONSE TO THE ASSESSEES REPLY THE ASSESS ING OFFICER HAS STATED THAT 'HOWEVER THE ISSUES HAS BEEN EXAMINED WITH THE DETA ILS FURNISHED BY THE ASSESSEE. THE ASSESSEE CLAIMED ADVERTISEMENT EXPENS ES IN DUAL MANNER. SOME EXPENDITURE HAVE BEEN CLAIMED FOR THE PURPOSE OF MAINTAINING BOOKS AND ENTIRELY DIFFERENT AMOUNT OF EXPENDITURE WAS CLAIMED FOR THE PURPOSE OF INCOME TAX. THERE IS NO BASIS FOR TREATING SOME OF THE ADVERTISEMENT EXPENDITURE AS DEFERRED REVENU E EXPENDITURE. THE ASSESSEE STATES THAT DEFERRED REVENUE EXPENSES CONS IDERED IN BOOKS (189.66/5 X 2 (75.86- 63.22) BEING ` 12. 64 LAKHS. THIS HAS BEEN STATED AS TREATMENT IN BOOKS OF ACCOUNTS AND IT WAS REVERS ED IN INCOME TAX MEMO. THE ASSESSEE COULD NOT PROVIDE ANY RATIONALE FOR ADOPTING THE ABOVE RATIO. IN VIEW OF THE ABOVE POSITION THE CONT ENTION OF THE ASSESSEE DOES NOT DESERVE ACCEPTANCE. AS THE ASSSESSEE HAS N OT EXPLAINED ITS CLAIM FULLY AMOUNT TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF THE ABOVE IS ` 1,26,43,819/-. BUT THE ASSESSEE HAS ADDED BACK ONLY ` 12, 64, 381/-. HENCE THE DIFFERENCE AMOUNT OF ` 1,1 3, 79,438/- IS ADDED TO THE INCOME. ' 4. THE LD. CIT(A) HAS DELETED THIS ENTIRE AMOUNT. NOW, THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFU LLY PERUSED THE ENTIRE EVIDENCE AVAILABLE ON RECORD. IT WAS AR GUED BY THE LD.DR THAT FOR GIVING RELIEF OF ` 1,13,79,438/-, THE LD. CIT(A) HAS RELIED ON ADDITIONAL EVIDENCE SUBMITTED FOR THE FIRST TIME BE FORE HIM. THE LD. CIT(A) HAS NOT GIVEN OPPORTUNITY OF HEARING TO THE ASSESSING OFFICER AGAINST THIS ADDITIONAL EVIDENCE. A GROUND HAS BEE N TAKEN THAT THESE ITA 1388&1389/09 :- 4 -: EVIDENCES CANNOT BE RELIED UNLESS THE PROCEDURE PRO VIDED UNDER RULE 46A OF THE INCOME-TAX RULES IS FOLLOWED. IN OUR CO NSIDERED OPINION, WHEN ADDITIONAL EVIDENCE HAS TO BE RELIED TO WHILE GIVING RELIEF TO A PARTY, THE OTHER PARTY HAS A RIGHT TO CONFRONT THE ADDITIONAL EVIDENCE. THE LD. CIT(A) HAS NOT FOLLOWED THE PROCEDURE AS LA ID DOWN IN RULE 46A WHEREBY THE OTHER PARTY HAS TO BE GIVEN OPPORTU NITY OF HEARING. HENCE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASS ESSING OFFICER SO THAT HE MAY VERIFY THE SAME BEFORE COMING TO ANY CONCLUS ION. 6. THE SECOND ISSUE OF THIS APPEAL RELATES TO SETTING OFF OF CARRY FORWARD LOSS AND DEPRECIATION. THE LD. CIT(A) HAS RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE T HE CORRECT QUANTUM OF BROUGHT FORWARD LOSS AND ALLOW THE SAME AS PER LAW. WE DO NOT FIND THAT THIS ISSUE CAN GIVE GRIEVANCE TO THE DEPARTMEN T. THE FIRST APPELLATE AUTHORITY AS ONLY SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE CORRECT QUANTUM OF CARRY FORWARD LOSS AND HAS ALSO DIRECTED TO ALLOW THE SAME. IN T HAT WAY OF THE MATTER, THE REVENUE CANNOT BE SAID TO BE AGGRIEVED. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THIS FINDING OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE FOR AS SESSMENT YEAR 20001-02 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA 1388&1389/09 :- 5 -: I.T.A.NO. 1389/MDS/2009 A.Y 2002-03 8. THIS APPEAL IS DIRECTED AGAINST THE ORDER OF THE LD . CIT(A) DATED 9.6.2009. 9. THE FIRST ISSUE TAKEN VIDE GROUND NO.2 OF THIS APPE AL IS REGARDING BAD DEBT WRITTEN OFF AMOUNTING TO ` 5,69,40,649/-. IN THE STATEMENT FILED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED THIS AMOUNT AS BAD DEBT. THE ASSESSING OFFICER WANTED T HE ASSESSEE TO SHOW THAT THE DEBT HAS REALLY BECOME BAD AND ANY AC TION TAKEN ON THE PART OF THE ASSESSEE TO MAKE RECOVERIES OF THESE DE BTS BUT IT IS A FACT THAT THE AMOUNT HAS BEEN WRITTEN OFF AS PER THE REQ UIREMENT OF LAW. THE LD. CIT(A) HAS AGREED WITH THE CLAIM OF THE ASS ESSEE BECAUSE THE ASSESSEE HAS WRITTEN OFF THE BAD DEBT IN ITS BOOKS OF ACCOUNT AS PER THE REQUIREMENT OF LAW AND THE ISSUE NOW STANDS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME CO URT RENDERED IN THE CASE OF CIT VS TRF LTD, 323 ITR 397. WE HAVE E XAMINED THE RECORDS AND HAVE GONE THROUGH THIS DECISION. THE H ON'BLE APEX COURT HAS HELD IN THIS CASE AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH T HAT THE DEBT IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOU GH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT ITA 1388&1389/09 :- 6 -: HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE A SSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBIT ED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSI NG THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STAT ED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETH ER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OF F IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BE EN UNDERTAKING BY THE ASSESSING OFFICER. HENCE, THE M ATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 10. THEREFORE, IN VIEW OF THE ABOVE DECISION OF HON'B LE SUPREME COURT, NO SUCH ADDITION CAN BE MADE BY THE ASSESSIN G OFFICER AND THE SAME HAS BEEN CORRECTLY DELETED BY THE LD. CIT(A). 11. THE NEXT ISSUE RAISED IN THIS ASSESSMENT YEAR VID E GROUND NO.3 IS REGARDING CARRY FORWARD OF LOSSES AND DEPRECIATI ON CONSEQUENT TO THE MERGER OF M/S TTK MEDICAL DEVICES LTD WITH THE ASSE SSEE. THE CASE OF THE ASSESSEE IN THIS REGARD IS AS UNDER: 'TT K MED I CA L DE VI CES GO T M E R GE D WIT H TT K H EALT H CA R E LT D WI T H E F FEC T F R OM 1. 1 0.200 1 BA S ED ON TH E APPROVA L BY T H E H O N ' BL E HI G H CO URT S O F M U M BA I & C H E N NAI . PUR S U AN T TO ME R GE R , TH E CARRY FO R WARD BENEFI T S AMO U NTING TO ` 2 2.2 5 C R O R ES PE RT A IN ING TO TTK ME D I CA L D E VI CES LTD H A VE BEEN TAKEN OVER BY TTK H EA LTH CA RE LI M IT E D ( APP E LL A N T CO MP A N Y). THE F O LL OW IN G CON DIT I ON S H A V E T O BE F U L FI LL ED BY T HE AMA L G AM ATED CO M PA N Y U/S. 72A R EA D W ITH RUL E 9C TO A V A IL TH E ABOVE CA R RY F ORWA RD L OSSES: - ITA 1388&1389/09 :- 7 -: CONDITIONS UNDER SECTION.72A(2): Y-1 Y-2 Y-3 Y-4 Y-5 I) HOLDS CONTINUOUSLY FOR A MINIMUM PERIOD OF FIVE YEARS FROM THE DATE OF AMALGAMATION AT LEAST THREE-FOURTHS IN THE VALUE OF ASSETS OF THE AMALGAMATING COMPANY ACQUIRED IN A SCHEME OF AMALGAMATION; FULFILLED FULFILLED FULFILLED FULFILLED FULFILLED II) CONTINUES THE BUSINESS OF THE AMALGAMATING COMPANY FOR A MINIMUM PERIOD OF FIVE YEARS FROM THE DATE OF AMALGAMATION. FULFILLED FULFILLED FULFILLED FULFILLED FULFILLED III) FULFILLS 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. REFER CONDITIONS UNDER RULE 9C CONDITIONS UNDER RULE 9C: Y1 Y2 Y3 Y4 Y5 A) THE AMALGAMATED COMPANY, OWNING AN INDUSTRIAL UNDERTAKING OF THE AMALGAMATING COMPANY BY WAY OF AMALGATION, SHALL ACHIEVE THE LEVEL OF PRODUCTION OF ATLEAST FIFTY PERCENT OF THE INSTALLED CAPACITY OF THE SAID UNDERTAKING BEFORE THE END OF FOUR YEARS FROM THE DATE OF AMALGAMATING AND CONTINUE TO MAINTAIN THE SAID MINIMUM LEVEL OF PRODUCTION TILL THE END OF FIVE YEARS FROM THE DATE 50% LEVEL OF PRODUCTION TO BE ACHIEVED BEFORE THE END OF 4 TH YEAR. NO MANDATORY REQUIREMENT FOR ACHIEVING THE LEVEL OF PRODUCTION IN THE FIRST THREE YEARS FULFILLED FOR SOME OF THE PRODUCTS PRODUCTION OF 50% OF THE INSTALLED CAPACITY COULD NOT BE MAINTAINED ITA 1388&1389/09 :- 8 -: OF AMALGAMATION; PROVIDED THAT THE CENTRAL GOVERNMENT, ON AN APPLICATION MADE BY THE AMALGAMATED COMPANY, MAY RELAX THE CONDITION OF ACHIEVING THE LEVEL OF PRODUCTION OR THE PERIOD DURING WHICH THE SAME IS TO BE ACHIEVED OR BOTH IN SUITABLE CASES HAVING REGARD TO THE GENUINE EFFORTS MADE BY THE AMALGAMATED COMPANY TO ATTAIN THE PRESCRIBED LEVEL OF PRODUCTION AND THE CIRCUMSTANCES PREVAILING SUCH EFFORTS FROM ACHIEVING THE SAME. APPLICATION MADE TO CBDT B) THE AMALGAMATED COMPANY SHALL FURNISH TO THE ASSESSING OFFICER A CERTIFICATE FORM NO.62, DULY VERIFIED BY AN ACCOUNTANT, WITH REFERENCE TO THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS SHOWING PARTICULARS OF PRODUCTION, ALONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR DURING WHICH THE PRESCRIBED LEVEL OF PRODUCTION IS ACHIEVED AND FOR SUBSEQUENT ASSESSMENT YEARS RELEVANT TO THE PREVIOUS YEARS FALLING WITHIN FIVE YEARS FROM THE DATE OF AMALGAMATION. FULFILLED. COPY OF FORM 62 FILED PRODUCTION DETAILS: PR O DUCTION PRODU C T INSTALLED 2001-02 2002-03 200 3 - 04 2004-05 2005-06 CAPA C ITY BLOOD - LANCETS 9 MILL I ON PIECES 22 . 32 MILLION PIECES 31 . 96 M I L LI ON PIECES 1601 M ILLION P I E CE S 5 . 07 MI LL ION PIE C ES FOLEY 9 00000 UN I TS 876649 UN ITS 1491613 UNITS 842 8 69 UNIT S 665505 UNIT S - ITA 1388&1389/09 :- 9 -: CATHETERS UR I NE BAGS - 600000 UNITS 87190 U NIT S 474970 UNITS 88 740 UN I T S 105211 UNITS B LO OD BAGS - - - - - 4800 0 0 UNITS S U TU RES - - - 165000 DOZENS 47931 DOZENS 2336 8 DOZENS A S P E R RUL E 9C CLAU S E ( A) THE AMA L GA M A TIN G C OMPANY B Y WAY OF A M A L GA MATION S HALL A C HIEVE ATL E A S T 50 % L EV E L O F PRODU C TI O N OF IN S TALLED C AP AC IT Y B E F O RE TH E END OF 4 TH YEAR AN D M A INT AI N TH E SAME TILL THE END OF 5 TH YEA R. A S P ER THIS C L A U S E, THE AMAL G AMAT E D CO MPAN Y I S R E QUIRED TO A C HI E V E 5 0 % L E VEL OF PRODUCTION ON L Y B Y THE END OF 4 TH YE AR AN D I S REQUIRED TO MAINTAIN THI S L E V E L O F P RO D U C TI O N TILL THE E ND OF 5 TH YE AR . FURTH E R, A S PER THI S CLAU S E , TH E R E I S N O R E QUIR E M E NT FOR ACHIEVIN G 50 % L E V E L O F PR OD UCTION DURIN G TH E FIR S T THR EE YE AR S. AS PER SECTION 72A(3) I N A CASE W HER E AN Y OF TH E C ONDITI O N S L A ID D O W N IN S UB - SEC TI O N( 2) A R E N O T C OMPLI E D W ITH, THE SET OFF OF L OSS O R A LL OWA N CE O F D E PRECIATION MADE I N A N Y PR E VI O U S YE A R I N THE HAND S O F THE AM A L GA M A T ED C OMPANY S HALL B E D EE M E D T O BE TH E IN C OM E O F THE AMALGAMATED C OMP A N Y CHA R GE ABLE TO TA X FOR TH E YEAR IN W HI C H S U C H CO NDITI O NS AR E N O T CO MPL IE D WI TH. FRO M TH E A B O VE, IT I S C L E AR THAT T HE R E IS N O M A NDAT O R Y REQ U IRE M E NT F O R AC HI EV IN G TH E LEVEL OF PRODU C TION IN THE FIR S T Y E AR ITSELF AND THE TEST S T A R TS ONLY IN THE FOURTH YEAR . AS TH E A S SE S SE E CO U LD NOT FULFILL ONE OF THE C ONDITION UNDER RULE 9 C I . E . MAINTAINING 50 % LE V EL OF PRODU C TION DURIN G THE 5 T H YE A R, TH E A S SESSEE H AS M ADE A N A P P L ICATIO N TO C BD T . S UB S E QU E N T L Y A R EVI EW P E TITI O N HA S B EE N FIL ED WITH C BDT . THE MAT T ER I S PENDING AT TH E I R E ND . THUS FOR TH E ASS E SSMENT Y E AR IN APPE A L (2 002 - 2 00 3) THE A PPELLANT H A S S ATISFIED AL L THE REQUIREMENT S OF S EC . 72 A A ND R UL E 9 C AND TH E REFOR E THE C ARR Y FOR WA RD LO SS / U N ABSORB E D DEPR EC I A TI O N OF THE AMAL G AM A T IN G C OMPAN Y S H O ULD BE ALLOWED T O BE TAK E N O VER B Y TH E A M A L G A M A T E D C OMPAN Y . A S P E R SEC . 72 A (3) T HE C OMPLIAN CE/ N O N CO MP LIA N C E OF THE CO N D IT IO N S HAV E TO I BE S EE N EV E RY YEAR AND ONLY IN THE YEA R IN W HICH THE CO NDITI O N S A R E N OT I C OMPLI E D WITH THE C ARR Y FO RW ARD LOS S / UNAB SO RBED D E PRE C IATION ALREAD Y SET OFF E ARLI E R W ILL B E TREAT E D A S IN CO M E . ITA 1388&1389/09 :- 10 - : FURTH E R IN A SI M I L AR C A S E IN THE PR E VI O U S YEAR C IT ( A ) VI D E HI S O RD E R D A T ED 25 .11 . 2 00 8 HAS AL L OWED S U C H C ARR Y F O R WARD LO SS E S P E RT A INING TO TH E AMALG A MA T ING C O MPA N Y TTK BIOM E D LTD IN THE HANDS OF T HE AMA L G A M AT E D C OMPANY TT K HCL . 12. ADMITTEDLY, THIS ISSUE HAS BEEN DECIDED BY THE TRIB UNAL IN THE ASSESSEES OWN CASE VIDE ITS ORDER DATED 16.7.2010 PASSED IN I.T.A.NO. 369/MDS/09 FOR ASSESSMENT YEAR 2000-01 ON THE BASIS OF WHICH THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE. IN THIS REGARD, PARA 22 AND 23 OF THE TRIBUNALS ORDER ARE BEING EXTRACTED HERE IN BELOW FOR READY REFERENCE: 22. COMING TO THE FOURTH ISSUE BEING AGAINST THE S ET OFF OF THE UNABSORBED BUSINESS LOSS AND CARRY FORWARD OF DEPRE CIATION RELATING TO THE BUSINESS OF TTK BIOMED LTD. IT IS N OTICED THAT THE ASSESSEE HAS CHALLENGED THAT SECTION 72 HAS BEEN C ONSIDERED AND SECTION72A HAS NOT BEEN INVOKED BY THE AO. A PE RUSAL OF THE ISSUES RAISED BY THE AO DOES NOT SHOW THAT THE AO HAS CONSIDERED ONLY SECTION 72 AND NOT 72A. HOWEVER, WH EN DECIDING THE ISSUE IN PAGE 6 THE AO HAS CONSIDERED ONLY SECTION 72. FURTHER THE CIT(A) HAS CONSIDERED SECTION72A. UNDISPUTABLY, THE AMALGAMATION OF TTK BIOMED LTD. W ITH THE ASSESSEE COMPANY HAS TAKEN PLACE ON 1.7.1999. IN 20 00 THE ASSESSEE ALONG WITH M/S. TTK BIOMED AND LONDON INTE RNATIONAL GROUP (LIG) HAS ENTERED INTO NON-COMPETE AGREEMENT WHEREBY BOTH TTK BIOMED LTD. AND THE ASSESSEE HAS AGREED TO DISCONTINUE THE BUSINESS OF MANUFACTURE AND MARKETI NG OF RUBBER CONTRACEPTIVES. THIS INFORMATION HAS NOT BEE N BROUGHT TO THE ATTENTION OF THE AO WHILE FILING ITS RETURNS. I N THESE CIRCUMSTANCES CAN IT BE SAID THAT THE ASSESSEE HAS TRULY AND FULLY DISCLOSED ALL MATERIAL FACTS NECESSARY FOR IT S ASSESSMENT? THE ANSWER WOULD AN EMPHATIC NO. ENTERING INTO AN AGREEMENT FOR NON-COMPETE BUSINESS IS IN THE REALM OF KNOWLEDGE OF THE ASSESSEE. THE ASSESSEE VERY WELL K NEW THAT AFTER AMALGAMATION THE ASSESSEE WOULD NOT BE CONTIN UING THE BUSINESS OF TTK BIOMED LTD. THAT IS BEING TAKEN OVE R. THE INTENTION OF THE ASSESSEE TO DISCONTINUE THE BUSINE SS OF MANUFACTURE OF RUBBER CONTRACEPTIVES WHICH WAS BEIN G DONE BY TTK BIOMED IS VERY CLEAR FROM THE AGREEMENT ITSELF. THUS AT THE TIME OF AMALGAMATION ITSELF THE ASSESSEE KNEW THAT IT WOULD BE ITA 1388&1389/09 :- 11 - : VIOLATING THE PROVISIONS OF RULE 9C OF THE INCOME-T AX RULES, 1962 WHICH WOULD DISENTITLE THE ASSESSEE FOR THE CA RRIED FORWARD AND SET OFF OF THE BUSINESS LOSS IN RESPECT OF TTKL BIOMED LTD. DUE TO THE APPLICABILITY OF SECTION 72A. THE ASSES SEE ALSO VERY WELL KNEW THAT IT HAS VIOLATED THE PROVISIONS OF RU LE 9C OF THE I.T. RULES INSOFAR AS ON 29-03-2005 THE ASSESSEE HA S APPROACHED THE CBDT WITH THE REQUEST FOR WAIVER OF THE CONDITIONS UNDER RULE 9C OF THE I.T.RULES/72A OF TH E I.T.ACT AND THIS WAS ALSO REJECTED BY THE CBDT. AFTER THE ISSUE OF NOTICE U/S.148 ON 29.3.2007 THE ASSESSEE HAD REQUESTED THA T THE RETURN ORIGINALLY FILED MAY BE CONSIDERED AS THE RE TURN IN RESPONSE TO THE 148 NOTICE AFTER KNOWING FULLY WELL THAT IT HAD MADE THE REQUEST TO THE CBDT FOR THE WAIVER OF THE CONDITION IMPOSED UNDER RULE 9C OF THE I.T. RULES READ WITH S ECTION 72A OF THE I.T.ACT. THE FACT THAT THE ASSESSEE HAS MADE THE APPLICATION TO THE CBDT FOR THE WAIVER CLEARLY SHOW S THAT ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT WERE NO T TRULY AND FULLY PLACED BEFORE THE AO IN THE COURSE OF ORIGINA L ASSESSMENT OR IN THE RETURN ORIGINALLY FILED. IN THE CIRCUMSTA NCES, THE REOPENING ON THIS COUNT WOULD BE VALID EVEN THOUGH 4 YEAR PERIOD HAS EXPIRED ON ACCOUNT OF THE APPLICABILITY OF THE PROVISO TO SECTION147. A PERUSAL OF THE CHART AS EXTRACTED IN THE ORDER OF THE LEARNED CIT(A) IN PAGE 18 SHOWS AS UNDER : ___________________________________________________ _ PRODUCTION DETAILS SURGEONS GLOVES: PERIOD INSTALLED CAPACITY ACTUAL PRODN. CAPACITY IN MILLION PCS IN MILLION PCS JULY-99 TO JUNE-00 30.00 10.14 JULY-00 TO JUNE-01 30.00 14.87 JULY-01 TO JUNE-02 30.00 17.85 JULY-02 TO JUNE-03 30.00 19.96 JULY-03 TO JUNE-04 30.00 2.54 ___________________________________________________ _ A PERUSAL OF THE PROVISIONS OF SECTION 72A READ WIT H RULE 9C CLEARLY SHOWS THAT THE 5 YEARS FROM THE DATE OF AMA LGAMATION AS MENTIONED IN SECTION 72A(2)(III) IS THE ASSESSMENT YEARS. THIS IS BECAUSE RULE 9C(B) SPECIFIES THAT THE AMALGAMATED C OMPANY SHALL FURNISH TO THE AO A CERTIFICATE IN FORM NO. 6 2 DULY VERIFIED BY AN ACCOUNTANT WITH REFERENCE TO THE BOOKS OF ACC OUNTS AND OTHER DOCUMENTS SHOWING PARTICULARS OF PRODUCTION A LONG WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEARS RELEV ANT TO THE PREVIOUS YEARS DURING WHICH THE PRESCRIBED LEVEL OF PRODUCTION IS ACHIEVED AND FOR SUBSEQUENT ASSESSMENT YEARS RELEVA NT TO THE PREVIOUS YEARS FALLING WITHIN 5 YEARS FROM THE DATE OF AMALGAMATION. THUS THE CHART AS PRODUCED BEFORE THE CIT(A) ITSELF IS NOT CORRECT. EVEN ACCORDING TO THE CHART AS PRODUCED BEFORE THE LEARNED CIT(A) IN THE YEARS 1,2 AND 5 TH E ASSESSEE HAS FAILED TO ATTAIN THE NECESSARY 50% LEVEL OF PRO DUCTION AND ITA 1388&1389/09 :- 12 - : ONLY FOR THE YEARS 3 AND 4 THE ASSESSEE HAS ATTAINE D SUCH LEVEL OF PRODUCTION. HOWEVER, IF THE CHART IS PREPARED CO NSIDERING EACH OF THE ASSESSMENT YEARS AS PROVIDED IN RULE 9C THERE WOULD BE A FAILURE IN ALL 5 YEARS. COMING TO THE AR GUMENT THAT THE SET OFF SHOULD BE ALLOWED IN THE FIRST YEAR AND ONLY IF THERE IS A FAILURE AT THE END OF THE 5 YEARS, THE SET OFF SH OULD BE REVERSED, WE FEEL THAT SUCH A VIEW IS NOT POSSIBLE INSOFAR AS THE ACT HAS NOT PROVIDED THAT THE 50% PRODUCTION IS TO BE ATTAINED WITHIN 5 YEARS. IT PROVIDES THAT IT SHOULD HAVE ATT AINED THE 50% MINIMUM PRODUCTION FOR EVERY YEAR FOR 5 YEARS. IN A NY CASE, THIS NEED NOT BE LOOKED AT HERE IN THIS CASE INSOFAR AS, AS MENTIONED EARLIER, THE ASSESSEE HAS EXPRESSED ITS INTENTION T O DISCONTINUE THE BUSINESS CONDUCTED BY TTK BIOMED LTD. IN THE IN ITIAL YEARS ITSELF BY ENTERING INTO THE AGREEMENT WITH LIG. FUR THER IT IS IN ANY CASE NOTICED THAT IN THE FIRST YEAR THE ASSESSEE HA S FAILED TO ATTAIN THE REQUISITE 50% PRODUCTION AND THE ASSESSE E HAS FAILED TO COMPLY WITH THE PROVISIONS OF SECTION 72A OF THE I.T.ACT READ WITH RULE 9C OF THE I.T. RULES AND CONSEQUENTLY THE ASSESSEE WOULD NOT BE ENTITLED TO THE CARRIED FORWARD AND SE T OFF OF THE DEPRECIATION AND BUSINESS LOSSES. IN THE CIRCUMSTAN CES, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS REVERSED AND THAT OF THE AO RESTORED. THUS GROUND NOS. 2.1, 2.2 AND 3.3 OF THE REVENUES APPEAL STAND ALLOWED. 23. IN REGARD TO THE SUBMISSION THAT THE UNABSORBED DEPRECIATION WAS LIABLE TO BE ADDED TO THE WRITTEN DOWN VALUE AND DEPRECIATION GRANTED THEREON BY FOLLOWING THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T V. SILICAL METALLURGIC LTD., REFERRED TO SUPRA, IT IS NOTICED FROM THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH LO NDON INTERNATIONAL GROUP (LIG) THAT THE ASSESSEE HAS AGR EED IN PARA 6 OF THE SAID AGREEMENT THAT THE EQUIPMENT REL ATING TO THE MANUFACTURE OF THE RUBBER CONTRACEPTIVES LYING WITH TTK BIOMED LTD. SHALL BE DISMANTLED AND RENDERED UNSUABLE FOR MANUFACTURE OF RUBBER CONTRACEPTIVES A ND AT THE OPTION OF LIG THE EQUIPMENT MAY BE SOLD/TRANSFE RRED TO LIG OR ANY OF THEIR ASSOCIATES AT THE VALUATION WHI CH WILL NOT EXCEED INTER COMPANY DEBT BETWEEN TTK-LIG AND BIOMED AT THE DATE OF THE AGREEMENT AND WHICH DEBT SHALL BE EXTINGUISHED TO THAT EXTENT. THUS THE ASSESSEE H AS NOT USED ANY OF THE EQUIPMENT IN RESPECT OF THE RUBBER CONTRACEPTIVES MANUFACTURING PROCESS OF TTK BIOMED LTD. THE ASSESSEE HAS ALSO NOT PLACED BEFORE US ANY EVID ENCE TO SHOW THAT SUCH MACHINERY HAD CONTINUED TO BE USE D IN RESPECT OF THE MANUFACTURE OF RUBBER CONTRACEPTIVES . HERE IT MAY ALSO BE MENTIONED THAT THE CHART, WHICH HAS BEEN REFERRED TO EARLIER AND WHICH HAS BEEN EXTRACTED FR OM THE ITA 1388&1389/09 :- 13 - : ORDER OF THE LEARNED CIT(A) FROM PAGE 18 OF HIS ORD ER, IS IN RESPECT OF THE PRODUCTION DETAILS OF SURGEONS GLOVE S AND NOT IN RESPECT OF RUBBER CONTRACEPTIVES. THUS THE ASSESSEE HAS PRACTICALLY STOPPED THE PRODUCTION OF RUBBER CO NTRACEPTIVES AND HAS FAILED TO ATTAIN THE REQUISITE MINIMUM PROD UCTION OF SURGEONS GLOVES ALSO. IN THESE CIRCUMSTANCES IT IS FOUND THAT THE SAID DECISION WOULD NOT BE APPLICABLE. 13. BY RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE T RIBUNAL, WE CANNOT ALLOW THIS GROUND OF THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2002-03 IS PARTLY ALLOWED. 15. TO SUMMARIZE THE RESULT, THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2001-02 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES AND THAT OF ASSESSMENT YEAR 2002-03 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5.5. 2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 5 TH MAY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR