Vivada Chemicals Pvt. Ltd., Kolkata V. DCIT, Circle - 10, Kolkata, Kolkata

ITA 1764/KOL/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7864 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 09-09-2014
• Court: TRIBUNAL
• Department Lawyers: N B SOM
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Business income; Depreciation; Fair market value; Corroborative evidences; Avoidance of tax; Scheme of amalgamation; Benefit of exemption; Revised return; Unabsorbed depreciation
• Section: 143(3); 50C; 139(5); 32

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 1 764 /KOL/20 1 4 / ASSESSMENT YEAR : 20 1 1 - 1 2 VIVADA CHEMICALS PVT. LTD. VS. THE DCIT, CIRCLE - 10 (RENAMED AS VIVADA CORPORATION PVT. LTD.) KOLKATA CHATURDASHI APARTMENT, 14 SOUTHERN AVENUE, KOLKATA 700 026 (PAN:AA ACV 8688 C ) ( / RESPONDENT ) ( /APPELLANT ) DATE OF HEARING: 2 1 . 1 1 .201 4 DATE OF PRONOUNCEMENT: 18 . 1 2 .201 4 FOR THE APPELLANT : SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT : SHRI N.B. SOM , JCIT, / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - X I I, KOLKATA IN APPEAL NO. 423 / X I I/CIR - 1 0/ /1 3 - 1 4 DATED 14 . 0 8 .20 1 4 . ASSESSMENT W AS FRAMED BY D CIT, CIRCLE - 1 0 , KOLKATA U/S. 1 4 3(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 20 1 1 - 1 2 VIDE HIS ORDER DATED 30 - 01 - 2014 . 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN MAKING DISALLOWANCE OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATIO N AGAINST BUSINESS INCOME AND LONG TERM CAPITAL GAINS. FOR THIS ASSESSEE RAISED FOLLOWING GROUNDS: - 1. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XII, KOLKATA [CIT(A)], PARTLY CONFIRMING THE ASSESSMENT ORDER U/S. 143(3) OF THE INCOME TAX ACT 1961 (THE ACT) PASSED BY THE LD. ASSESSING OFFICER [AO], IS NOT BASED ON THE FACTS OF THE CASE OF THE APPELLANT COMPANY AND IS BAD IN LAW AND IS THUS TOTALLY ARBITRARY AND UNCALLED FOR. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE APP ELLANT, THE LD. CIT(A) ERRED IN CONFIRMING FOR THE AY 2011 - 12, THE ENTIRE DISALLOWANCE OF THE UNABSORBED BUSINESS LOSS U/S 72 OF THE ACT AND THE UNABSORBED DEPRECIATION U/S 32 OF THE ACT AMOUNTING TO RS.2,08,24,462/ - AGAINST THE BUSINESS INCOME OF RS.1,12, 51,059/ - AND LONG TERM CAPITAL GAIN OF RS.95,73,403/ - . 2 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LD. CIT(A) GROSSLY FAILED TO CORRECTLY APPRECIATE THE ORDER U/S. 154/143(3) OF THE ACT DATED 12/02/2009 PASSED IN THE CASE OF THE APPELLANT FOR THE AY 2006 - 07 WHEREIN THE FIGURES OF RS.18,86,074/ - AS BALANCE UNABSORBED BUSINESS LOSS AND RS.1,09,22,427/ - AS UNABSORBED DEPRECIATION AS UNABSORBED DEPRECIATION RELATED ONLY TO THE PARTICULAR ASSESSMENT YEAR 2000 - 01 AND NOT UPTO ASSESSMENT YEAR 2000 - 01 AS HELD BY THE LD. A.O. (B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LD. CIT(A) ERRED ON FACTS WHILE HOLDING THAT THE APPELLANT COMPANY CLAIMED NO LOSS IN THE RETURNS PERTAINING TO AYS 2007 - 08 UPTO AY 2010 - 11. (C) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LD. CIT(A) ERRED ON FACTS WHILE CONFIRMING THE VIEW OF THE LD. AO THAT SINCE NO ADDITION OF EITHER BUSINESS LOSS OR U NA BSORBED DEPRECIATION WAS CLAIMED BY THE APPELLANT COMPANY THROUGH THE AY S 2007 - 08 TO 2010 - 11, THE UNABSOR B ED BUSINESS OF RS.,18,86,074/ - AND UNABSORBED DEPRECIATION OF RS.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 APP ELLANT, THE LD. CIT(A) ERRED ON FACTS IN NOT ENTERTAINING THE REVISED WORKING OF THE UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF RS.6,07,11,696/ - AND RS.7,56,29,069/ - RESPECTIVELY AVAILABLE FOR SET OFF IN THE AY 2011 - 12. (E) THAT ON THE FACTS AN D 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, ALLEGI NG 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 THE CASE OF THE APPELLANT, THE LD. CIT(A) IGNORING THE CLEARL Y LAID OUT PROVISIONS OF LAW, ERRED IN HOLDING THAT SINCE AMALGAMATION WAS NOT CARRIED OUT FOR REVIVAL OF THE AMALGAMATING COMPANY AND SINCE THE AMALGAMATED COMPANY HAD STOPPED ITS MANUFACTURING ACTIVITIES AND SOLD ITS PLANT AND MACHINERY AND ALSO THE INDU STRIAL PLOT, IT ALL PROVED THAT THE AMALGAMATION WAS NOT FOR GENUINE PURPOSE AS PER PROVISIONS OF SECTION 72A OF THE ACT. 3. THE FACTS ARE THAT D URING PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. AY 2011 - 12 , ONE COMPANY BEING VI VADA INLAND WATERWAY LTD. (VIWL) AMALGAMATED W.E.F. 01/04/2010 WITH ASSESSEE C OMPANY WITH ALL ITS ASSETS AND LIABILITIES. THE SCHEME OF AMALGAMATION WAS APPROVED BY HON BLE CALCUTTA HIGH COURT VIDE ITS MERGER ORDER DATED 08/08/2012. PURSUANT TO SUCH AMALGA MATION W.E.F. 01/04/2010 A LL ASSETS AND LIABILITIES OF VIWL WERE MERGED AND VESTED WITH THE ASSESSEE AND THIS FACT WAS ACCEPTED IN ASSESSMENT PROCEEDINGS AND AO ASSESSED THE INCOME ACCORDINGLY. THE ASSESSEE FOR RELEVANT A.Y 2011 - 12 E - FILED ITS NIL RETURN O F INCOME ON 30.09.2011 AND THEN REVISED ITS RETURN OF INCOME ON 01.10.2012 AT NIL INCOME. THE ASSESSEE ON 24/06/2010 SOLD 3 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 AN IMMOVABLE PROPERTY FOR A CONSIDERATION OF RS.45,00,000/ - AND DISCLOSED SALE CONSIDERATION IN ORIGINAL AND REVISED RETURN OF INCOME. BUT FROM THE REGISTERED SALE DEED, IT WAS FOUND THAT ST AMP DUTY VALUATION FOR THE PROPERTY HAD BEEN CONSIDERED A T RS.1,06,49,000/ - . ACCORDINGLY, ASSESSEE REVISED ITS COMPUTATION OF INCOME SHOWING LONG TERM CAPITAL GAIN ON THE BASIS OF STAMP DUTY VALUATION IN TERMS OF SECTION 50C OF THE ACT AND SUBMITTED R EVISED COMPUTATION OF INCOME VIDE ITS LETTER DATED 12/12/2013 DURING ASSESSMENT PROCEEDINGS. A SSESSEE CLAIMED UNABSORBED DEPRECIATION AND BUSINESS LOSSES TO BE SET OFF AGAINST CURRENT YEAR S INCOME AND ENT IRE DETAILS OF THE UNABSORBED DEPRECIATION AND UNABSORBED BUSINESS LOSSES OF EARLIER YEARS WERE ALL FURNISHED BEFORE AO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. IT WAS EXPLAINED TO AO THAT THE SETTING OFF OF UNABSORBED DEPRECIATION HAD BEEN CLAIMED U/S 32(2) OF THE ACT AND UNABSORBED BUSINESS LOSSES HAD BEEN SET OFF U/S 72 OF THE ACT. BUT THE AO DISALLOWED THE SET OFF OF THE UNABSORBED DEPRECIATION AND UNABSORBED BUSINESS LOSS AND ALSO MADE FURTHER ADDITIONS AND COMPUTED TOTAL INCOME ASSESSEE AT RS. 2,24,40,720/ - . THE AO 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 RS.9,71,006/ - ON AD - HOC BASIS ON ACCOUNT OF PURCH ASE OF GIFTS ETC. FOR TRAVEL AGENTS IN DOMESTIC AND INTERNATIONAL TRADE FARES FOR SELF PROMOTIONS OF TOURISM PRODUCTS AND ALSO DISALLOWANCE OF EXPENDITURE OF RS.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 SIN CE THEN. A ROUND 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 RENTAL S 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, CLAIMED DEPRECIATION ON ITS FIXED ASSETS UNDER PROVISIONS OF THE ACT A ND SAME HAS BEEN ALLOWED AS PROVIDED IN THE LAW FROM YEAR TO YEAR. CERTAIN DEPRECIATION WHICH COULD NOT BE ABSORBED HAS BEEN ALLOWED TO BE CARRIED FORWARD AS AN UNABSORBED DEPRECIATION SINCE AYS 1993 - 94. T HE OPERATING LEASE WITH DEEPAK NITRATE LTD. WAS EXT ENDED FROM TIME TO TIME AND WAS FINALLY TERMINATED ON 30/04/2008. FURTHER, CONTINUED BUSINESS LOSSES , SINCE THE YEAR 1998 , RESULTED IN UNABSORBED BUSINESS LOSSES WHICH AGAIN AS PER LAW WERE DULY CARRIED FORWARD AS THE UNABSORBED BUSINESS LOSSES. ALL THE SA ID UNABSORBED DEPRECIATION AS WELL AS THE UNABSORBED BUSINESS LOSSES WERE ASSESSED AND ALLOWED AS SUCH IN THE RELEVANT AYS . 4 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 5. AGGRIEVED AGAINST THE ACTION OF AO, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). HE CONFIRMED THE ACTION OF AO BY OBSERVING AS UND ER: I HAVE CAREFULLY CONSIDERED TH E F ACT S O F T H E CASE , TH E FINDIN GS OF T HE ASS E S SI N G OFF I C ER A S WELL AS THE ARGUMENTS AND SUBM I S SIONS P U T F O R T H O N B EHA LF O F T HE APP ELLAN T . AS A F ORESA I D, THE CLAIM OF TH E APP E L LAN T I N R ESPECT OF CARR Y F O R W A RD A N D SE T O FF O F UN ABS ORBED DEPRECIATION AND BU S INE SS LOSS O F T HE AMA L GAMATED COMPANY AGAINST TH E L O N G TERM CAPITAL GAINS T H RO UGH A RE V ISED COMPUTA TI ON F I LED D U RI NG T H E CO U R S E OF AS SE S S M E NT PROCEEDINGS. THE ASSES S IN G OFF I CE R , IN T HE F IR S T IN S T ANC E, RE J EC T E D THE CLA I M OF C AR R Y FORWARD OF UNABSORBED DE PRECIA TION AND U NAB SO RB E D BU SI N ES S LOSS O F EAR L I ER YEA R S , EV EN THOSE QUANTIFIED FOR A . Y R . 2 0 06 - 07 ON THE GR OU N D TH A T TH E APP ELLAN T COMPAN Y HAD CLOSED THE BUSINESS AND THE PLA NT A N D MACHINER Y W ERE N O T PUT T O U S E IN ITS BU S INE S S ; SECONDLY ON THE GROUND THAT TH E AMA L GAMAT IO N WAS N O T OBTAINED T H ROUG H THE HIGH COURT OF CALCUTTA BY STATING THE C O R RE CT F A C TS A ND T HA T AN D T H E S TATI STICA L DATA FURN I SHED THEREIN ESTAB L I S H THAT TH E AMA L G A MAT ION OPTED B Y T H E AS S ESSEE IS NO T FOR GENUINE PUR POSE AS PER SUB - CLAUSE (II I ) TO C L AUSE (B) O F S U B - SE C T I O N (2) T O T HE S E CTIO N 72 A OF I.T . ACT , 1961 AND THIR D LY , AND M OS T IMPO R T A N TL Y , ON T HE GR O U ND T HAT C LAIM PREF E R RE D WITHOUT FILING A REVI S ED RETURN OF IN COME C ANN OT BE EN T ERTAI N E D IN TH E L IGH T O F THE DEC I S ION OF THE HON'BLE APE X COUR T IN THE CA S E OF GOETZE (INDIA) LTD . REPOR T ED IN [ 2006] 284 ITR 323(SC). 5.1.3. 1 . T HE FIRST ISSUE FOR DETERMINATION IS W H E T HE R TH E PLA N T A N D MACH I N E R Y W A S PU T T O U S E IN THE BUSINESS OF THE APPELLANT C OMPA N Y . A S DI SCU SSE D EA R LIER , TH E AP PE LLAN T COM P AN Y HAD ESTABL I SHED A MANUFACT U R I N G UNIT TO MA N U FA C TU R E V AR IOUS C H EMICA L S I N THE YE A R 1975 AT DHARWAD IN THE STATE O F K A RN ATA KA A N D C O N TI N UED I T S C H E MIC AL MANUFACTURING BUSINESS SINCE THEN . TH E MAN UF A CT U R I N G U N IT S T AR T ED I NCURR I NG S OME LO SS ES AND THERE WAS A CARR Y FORWARD BU SINESS LOSS A S WE LL A S UNAB S ORBED DE P RECIA T ION ON THE BASIS OF THE ASSESSMEN T MADE S I NCE 199 3 - 9 4 . A S P E R TH E DATA F URNI S HED B Y T HE APP E LLANT , IN A . Y 200 1 - 0 2 THE AMOUNT OF U NABSORBED D EPRE C I A TION AND CARRIED F O RW A R D BU S I NE SS L OSSE S AS P E R TH E R E TURN FI L ED ON 30TH OC T O BER 200 1 W A S R S 3 , 91 , 21 , 624/ - A N D R S. 3 ,61 , 08 ,68 2 / - R ESPEC TIV E LY . T H E L O S SES AND UNAB S ORBED DEP R E C IA T I O N H AVE D U L Y B EEN A SS E SS E D BY TH E A . O I N THE R E S PECT I V E A SS E S SM E NT YEAR S AND T H ERE BE I N G N O S UFFIC I ENT P ROFIT I N THOS E Y E ARS W E R E DU L Y ALL OWED T O BE C A RRIED F OR W AR D. T HE SE F A CTS AR E V ER IFI A BL E FRO M TH E R E SP E CT I V E A S SESSMENT ORD E R S D ETE R MI NI NG THE AMOU NT O F CA RR Y F ORW ARD LO SS AND UNABSORBED DEPRECIATION. IT I S A LSO AN U ND ISPU T E D F ACT TH A T T H E AP P E L L AN T C ONTINUED TH E OPERATING L EA S E W IT H M/S D EE PA K N IT R AT E L T D . T HE AGREEMEN T WAS E X T ENDED FR O M TIME TO TIME AND FINALL Y T E R MINA T ED ON 30 . 04.2008 A N D T HA T AL L A L O NG T H E LEA SE R E NT HAS BEEN ' ACCEPTED AS BUSI N E SS I N C OME . H OWEVER , TH E FA CT R E M A IN S T HA T TH E AMALGAMA TED COMPANY HAS FILED IT S R E T U R NS OF INCO M E F O R TH E ASSE S SMEN T YE AR S 20 0 7 - 08 TO ASS E SSMENT YEAR 2010 - 11 SHOWIN G NIL R ET U RNED INCOME FOR A L L T HE AS S ESSME NT Y EAR S 20 0 7 - 0 8 T O 2010 - 11 AND THAT NO LO S S HA S BEE N CL AIMED IN T HE R E T URN S P E R TAINING T O A SSE SSM E NT Y E ARS 2007 - 08 , 2008 - 0 9, 2009 - 10 AND 20 1 0 - 1 1 . THE C O P I E S O F T HE I TD DE T AIL S P L AC ED ON RECORD FURTHER S HO WED THA T NO ADDITI ON OF EITHE R BUSI N ESS LOSS O R UNABSORBED DEPRECIATION I S CLAIME D, OTHER THAN BR O U G HT FOR W ARD B USINESS LO SS OF RS . 18 , 86 , 074/ - AND UNABSORB ED DEPR ECIAT I O N O F R S . 1 , 09 , 22 , 4 27/ - A S PER O R DE R OF A . Y .2 00 6 - 07. THE ASSESSMENT FO R A SSESSMENT Y EA R 2006 - 07 H A V ING B EE N FINALI Z E D A ND TH E R E B E ING NO CHANGE IN THE S TATU S O F A SS ES S MEN T S O F EA R L I ER Y EAR S , T H E F IN DI N G OF THE AS S ESSING OFFICER THAT THE UNAB S OR BED BUS INE SS L OSS I S AT R S . 1 8,86,07 4 / - AND U NABSORBED DEPRECIATION AVAILABLE FO R S E T OFF I N A . YR . 2011 - 1 2, S UB JECT T O O T HE R FINDING. I N MY VIEW , IS JUSTIFIED . IN VIEW OF THE S E FACTS AND THE F I ND I NG OF TH E A SS E SS ING O FFI CER BORNE OUT FROM RECORDS, I DO N O T C ON SIDER IT N ECES S AR Y T O D EAL WIT H T HE ISS U E WH E TH ER T HE PLANT AND MACHINERY OF T H E A MALGAMATED C OMP A N Y, WHICH WERE L ET O UT FO R S OME OF THE ASS E SS MENT YEARS UP TO 30 . 4.200 8 , W ER E PU T T O USE I N T H E APP E L L A NT 'S BUS I N ESS . 5. 1. 3.2 . THE NE X T ISSUE FOR CO N SI DE R A T I ON IS W HETHER THE A M A L G AMATI O N W AS N OT OBTAINED 5 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 THROUGH THE HIGH CO U RT OF C A LCUTTA B Y S T A T I N G T HE CORRE CT F A C T S AND THA T AND TH E STATI S TICAL . DATA FURNISHED THER EIN E S TABLI S H TH AT T HE AMA LG A MAT IO N OP T E D B Y T HE ASSESSEE IS NOT FOR GENUINE PURPOSE AS P ER S U B - C L AUSE ( II I ) T O C L A U SE (B ) O F S U B - SEC TI O N ( 2) TO THE SECTION 72A OF I. T. ACT, 1961 . IN REGARD TO THE OBSE RV A TI O N O F THE ASS E SS I NG OFF I CER ABOUT THE PETITION OF AMALGAMATION BE F O R E HON ' B L E KO LK A T A HIGH COURT , I A M I NC LI NED T O ACCEPT THE SUBM I SS I ON OF THE APPE L L A NT' S A I R TH A T FU LL F ACTS H AS BEEN NARRATED BEFORE THE COUR T I NC L UD I NG FI LI NG O F TH E BA L ANCE SHE E T OF BOTH TH E COMPAN I E S AS REQU IR ED UN DE R THE COMPA NI ES AC T 1 95 6 A ND TH E H ON ' B L E CO URT HAS C ON SI DERED A LL T HE ASPEC TS O F THE MA TT E R BE F O R E PA SS I NG O R DE R APPROVING THE A M A LGAM A T I ON . THE R E F O R E , T H E R E I S NO SCOPE FOR THE ASSES SIN G O FFI CE R TO DRAW I NFERENCE THA T TH E HON ' B L E H I G H C OU RT H AS PASSED THE MERGER ORDER W I T H O UT CONS I DER I NG A LL TH E R E L EV AN T F ACTS R E Q UIR ED FO R AMALGAMATION OF THE COMPAN IES OR T H AT F U L L F ACTS W E R E N O T P L AC E D BE FORE TH E H ON ' B L E COURT FOR CONS I DERATION. THE F I ND I NG O F T HE AS SES S ING OF F I C ER T O T H IS E X TENT B E ING FAR - F E T CHED I S LIABLE TO BE REJECTED. 5.1 . 3.3 . N OW , SUB - CLAUSE ( III ) OF C L AUSE ( B ) OF SUB - SECTION (2) OF S E CT I ON 7 2A O F T H E ACT L A Y S DOW N T HAT THE ASSESSEE FU L F IL S S U C H OTHER C O N D I T I ONS AS MAY BE P RES CR I BED TO ENS UR E T HE R EVIVA L OF THE BUS I NESS OF THE A M A L GA M A T I N G CO M PA N Y OR TO EN SUR E TH A T T H E A M A L GAMAT I ON IS FOR GENU I NE BUS I NESS PUR POS E . T H E AS SE S S IN G O FF I CER HAS M ADE A PO I NT THA T T HE AMA L GAMATED COMPANY H AS VI O L A TED T HE CO N D I TI O N S ; A S L A I D D OW N I N T H E SUB - C L AUSE ON THE GROUND THAT THE AMA L GA MA T ED C OMP A NY HA S SOLD I TS ASSETS AN D TH E AMALGAMATION WAS MADE ONLY W I TH A VIEW T O SE T O FF O F TH E LOSS E S O N ACC O U N T O F UNABSORBED DEPR ECIATION ALLOWANCE AND UNAB S ORBED BUSINESS L OSS . ACCORD I NG T O THE ASSESS I NG OFFICER, THE ASSESSEE BEING ONLY NAME L ENDER THE BENE FIT O F CA R R Y FOR WARD O F BUSINESS LOSS AND UNABSORBED DEPRECIAT I O N P ER TAINS TO T HE M ACH I NERIE S AN D THE BUS I NESS WHICH IS WOUND U P DUE TO SA L E O F PLANT AND MACH I NER I ES W ITH AN IN T EN T I O N TO NEVER COME BACK TO THE BUS I NESS SHOU L D N O T BE A LL OWED T O AD J U ST W I TH TH E I NC O M E GENERATED FROM THE BUSINESS OF AMA L GAMA T I N G COMPANY W I TH E FF EC T FR O M THE I N S T A NT YEA R I N WH I CH SUCH SALE AND DEMO L I SHED / DA M AGED OF THOSE M A NUF AC TUR I NG SET UP T OO K P L ACE I . E. ASSESS M ENT YEAR 20 11 - 12 AND O NW A RDS . TH E OB S E RV A T I O N S A ND F IND I NG S OF TH E ASSES SI NG OFF I CER DO NOT APPEAR TO BE I N AC C O R DA N CE WITH L A W . UNDE R THE P R OV I S I O N S R E L AT IN G T O CA R RY FORWA R D A N D SE T O F F OF A C C UMU L A T ED L OS S AND U N ABSOR BED DEPREC I AT I ON A L L OWANCE I N AMA L GAMA T I ON OR DE M E RG E R , E TC A S L AID D O W N U NDER SE C .72A OF THE ACT, SUB - SECTION (7) DEFINES THE MEANING OF ACCUMULATED LOSS UNDER THIS SECTION AS UNDER: '[(A) 'ACCUMULAT E D LO S S ' M E AN S SO MU C H O F THE LOSS OF THE P R EDECESSO R FIRM O R THE PROPRIETARY CONCERN OR TH E P R IVATE COMPANY OR UNLI S TED P UBL I C COMPANY BEFORE CONVERS I ON INTO L IMITED L IABILITY PARTNERSHIP OR TH E AM A L GAMATING COMPANY OR THE DEMERGED COMPANY . AS THE CASE MAY BE . UNDE R TH E HEAD ' PROFIT S AND GAIN S OF BUS IN ES S OR P R OFESSION ' (NOT BE I NG A LOSS SU S TAINE D IN A S PECULATION B U S I NESS) W H IC H S UCH P R E D ECESSOR FIRM OR THE PR O PRI E T A R Y C ONCERN OR THE COMPA N Y OR AMALGA MATING COMPANY OR DEMERGED C OM PA N Y , WOULD HAVE BEEN ENT I T L ED TO C A R R Y FORWARD AN D SET OFF UNDER THE PROV IS I ONS OF SECTION 72 I F T HE REORGAN IS A TI ON OF B USINESS OR CONV E RSION OR AMALGAMATI O N OR DEMERGER HA D N OT TA K EN P L A CE ; ]' , THE SUB - SE C TI O N DE FIN ES TH E M EA NI N G OF 'UNABSORB E D D EPRE CIATION' A S FO L LOW : '[( B ) ' UNABS OR B E D DEPR E C IATION ' MEANS S O MUCH O F THE A LL OW ANCE FOR DE PR E CIATION O F TH E P R E D ECESSO R FIRM OR THE PR O PRI E TARY CO N CE RN O R TH E PRIVA T E COMPANY OR UNLISTED PUBL I C COMPA N Y BEFORE CO N VER S I O N INT O LIMI T E D L I A BILIT Y PARTNERSHIP OR THE AMALGAMAT ING CO MP A N Y OR TH E DEM E R GED COMPA N Y , A S TH E C ASE MAY BE , WHICH RE M A I N S T O BE A LL OWED AND WHICH WOU LD HAV E B EEN AL L OWED TO THE PREDECESS O R F IRM O R THE P R OPRIE TA RY CONCERN OR TH E CO MPA N Y OR 6 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 AMALGAMATING COMPANY OR DEMERGED COMPANY, AS TH E CASE MAY BE, UNDER THE PROVISIONS OF THIS ACT , IF THE REO R GANISA T I O N OF BU S IN ESS O R CO NV E R SI ON OR AMALGAMATION OR DEMERG E R HA D NOT TA K E N PLA C E ; ]' THE CONDITIONS LAID DOWN I N SUB - CLA U SE ( III) ARE F OR THE REVIVAL O F T HE AM ALGAM ATING COMPANY AND NOT O F THE AM A L G AM AT E D COMPAN Y O F WHI C H CERTAIN A SSE T S WE RE SO L D DUR I NG THE YEAR UN DE R CONS I DER A TION. CB D T ' S C I R CU LAR NO . 229 DATED 9 TH A UGUST , 1 977 GIVING E X PLAN A TORY N O T ES O N THE PROV I SIONS OF T H E FI N A NC E (NO. 2) ACT , 1977 I N RESPECT OF LOSS UNDER SEC . 72A A ND REL A X AT ION OF TH E P ROVISIONS RELAT I NG TO CARR Y F ORWARD AND SET OFF OF ACCUMULATED BU SI NESS LOSS AND U NAB SOR BED DEPRECI AT I ON IN CERTAIN CASES OF AMALGAMATION UNDER N EW S . 7 2 A I S R EP R ODUCED B E L O W F O R THE SA K E O F CLARIT Y : '18.1 UNDER THE E X IST I NG PR OVISIO N S O F T HE I T AC T , SO MU C H O F T H E BUSINESS LO S S OF A YEAR AS CANNOT BE SET OF F AGAIN S T THE OT H E R IN COME OF - THE ASSESS E E FOR THAT YEAR CAN BE CARRIED FORWARD AND SET O FF BY HI M A GAIN S T THE PROFITS O F T HE FOLLOWING YEAR FROM ANY B US IN E S S CARR I ED ON BY HI M . IF THE LOSS CA NNOT BE WHOLLY SO SET OFF , THE AMOUN T NOT SO SET OFF CAN BE CARR IED FO R WARD T O T H E N E XT FOLLOWING YEAR AND SO O N, UPT O A MA XI MUM O F EIGHT ASSE SS M ENT YE AR S IMMEDIATELY SUC C EED ING THE ASSESSM E NT YE AR FOR WHICH T HE LOSS WAS FIRST COMPUTED. THE BENEF IT OF CAR R Y FORWARD AN D SET OFF OF B U S I NE SS LOSS , IS, HOWEVER , NO T AVA IL AB LE UNLESS THE BUSINESS I N WHICH T H E LO S S WAS ORIG I N A LLY SUSTA I NED IS CONT INU ED TO BE CARRIE D ON BY T HE AS S E SSE E. F U R T HE R , ON L Y T HE ASSESSEE WHO IN CURRED THE LOSS HAS THE RIGH T TO CA R RY F O R W ARD TH E S AME , SO THAT THE SUCCES S OR I N B U SINE S S CANNO T CL A IM TO CARRY FORWA R D TH E L OSS INCU R RED BY HIS PREDECESSOR . SIM I LAR LY , I F A BUS I N ESS C AR R I E D ON BY O NE A SS E S SEE IS TA KEN OVER BY ANOTHER , THE UNABSO RB E D DE P R ECIATI ON ALLOWANCE DUE TO THE PREDECESSOR IN B USI NE SS CANNO T BE C AR RIED F ORW ARD BY T H E S U C C E SSOR IN BUSINESS AND SET OF F AGA I N S T HI S P R OFI T S IN SUB SE QU E N T Y E AR S. IN V IEW OF T HESE PROVISIONS, THE ACCUMU L A TED BUS I NESS LOSS AND UNABSOR BE D DE PREC IATION ALLOWANCE OF A COMPA NY W H ICH MERGES WITH ANOTHER COMPANY UNDER A SC H EM E OF A M AL GAMATION CAN NOT BE CARRIED FOR WA RD A N D SE T O FF BY TH E LATTER COMPAN Y A G A INS T IT S PROFITS. 18.2. T HE FINANCE ACT HAS INSERT E D A N EW S . 72 A IN THE IT ACT R E LA X ING THE AFORESAID PROV I SIONS RELATING T O CARRY F ORWARD A ND SET OFF OF A ACCUMULATED BUSINESS LOSS AND UNABSO R B ED DEP R ECIAT IO N AL L OW ANCE IN CERTAIN C ASES OF AMALGAMATION . SUB - S. (1) OF N EW S. 72A P R OV I D ES T HAT WHERE THERE HAS BE EN A N AMALGA M A TI O N OF A C OMP A NY OWNING A N IN DU STRIAL UNDERTAKING O R A S HIP W I TH ANO T HE R CO M PA NY AND THE CENT R AL GOVERNMENT, ON THE RECOMMEN DATION OF THE S PECIFIED AUTHORI T Y , I S S A TIS F IED THA T CERTAIN CON D ITI O NS SPEC I F I ED I N TH IS BE H A LF A RE FULFILLED, THE CE N T R AL GO V ERNMENT MAY MAKE A DECLARATION TO T H AT E F FECT AND THEREUPON, NOTWITHSTANDING A NYT HING CO NT A I NED IN ANY OTHER P ROVISION OF THE IT A CT, THE ACCUMULATED L O SS A ND UNABSORBED D E P R EC I ATI O N OF T HE A MA L GAMATING COMPANY S HAL L BE DE EM ED TO BE THE LOSS O R, AS TH E C AS E M A Y BE , A LL OWANCE FOR DEPRECIATIO N OF T HE AMALGAMATED CO M PANY FO R T HE P R EVIOUS YEA R IN WHICH THE AMA L GAMATION WAS EFFECTED AND T HE O THER P R OV I SIONS OF T H E ACT RE L ATING TO CARRY FOR W ARD AND SET OFF OF L OSS AND A LLOWAN C E FOR DEPRECIAT I ON S HALL APPL Y A C CORDINGLY . IT IS TO BE NOTED THAT AS THE UNAB S O R B ED LO S S O F THE AMALGAMATING COMPA N Y IS DEEMED TO BE THE LOS S F O R THE P R EVIOUS YEA R I N WHICH THE AMALGAMATION WAS EFFECTED , THE AMALGA MATED COMPANY WILL HAVE THE RIGHT TO C ARRY FO R WARD THE LOSS FOR A PER I OD OF E IGHT ASSESSMENT YEARS IMMEDIATE L Y S UC CEE DING T HE ASSESSMENT YEAR RE L EVANT TO T HE P R EVIOUS YEA R IN WHICH THE AMALGAMATION WAS EFFEC TED . 18.3. THE DECLARATION REFERRED TO IN THE PREC ED ING PARA G R A PH WIL L BE MADE BY THE CEN T RA L GOVER N ME NT ONLY IF THE FOLLOWING CONDITION S AR E FULFILLED: (A) THE AMALGAMAT I NG C OMPA N Y WAS N O T , IMMEDIATELY BEFOR E SUC H AMALGAMATION, F I NANCIALLY V I AB L E B Y R EA SO N S OF I T S LIABILITY LOSSES A N D OT H ER RELEVANT FACTORS ; 7 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 (B) THE AMALGAMATION WAS I N T H E P U BLIC I NT E R EST; (C) SUCH OTHER COND I TIONS AS T HE C ENT R A L G OVE RN MENT MAY , BY NO T IFICA T ION I N THE OFFIC I AL GAZETTE, SPECIF Y T O EN SU R E THA T TH E BE N E FIT UNDER THIS SE C T ION I S RESTRICTED TO AMALGAMA T I O N S W HICH WO UL D FACI LI TATE REHABILITATION OR REVIVA L OF THE BUSINESS OF T HE AMA L G A MATI NG COMPAN Y . EVEN AFTER A DECLARAT I ON HAS BEEN MADE BY TH E CE N T RAL GOVE R N M ENT UN D ER SUB - S O (L) OF NEW S. 72A , THE A CCU MULAT E D L OSS SH AL L N OT BE SET OF F AN D T HE UNABSORBED DEPR E CIA TI O N SHAL L N OT BE ALL OWE D IN THE A SSESSME NT OF THE AMALGAMATED C O MPANY UNLESS TH E FO L LOWING F URT HE R CONDITI ONS A RE FU L FIL L E D: ( I ) DUR I NG THE PREV I OUS YEAR RELE V A N T TO T HE AS SE SS M ENT Y EAR FO R WHICH S UC H SET OFF OR A LLOWANCE I S C LAI M E D , TH E BUSIN ESS OF T H E A MA LG AMATING COM PANY IS CARRIED ON BY THE AMAL GAMATE D C O MP A N Y ; W I T HOU T ONLY MODIFICATIO N O R REORGANISAT I ON OR WIT H SUC H MOD I FICA TI ON OR REORGANIS A TION AS M A Y BE APPROVED BY THE CEN TRAL G O VERNMEN T TO ENABL E THE AMALG AMAT E D COMPANY TO CARRY ON S U C H B U S I NE S S MORE ECO NOMIC A LLY OR MORE EFFICIE N TLY; ( II ) THE AMA L GAMAT E D COMPA N Y FU R NISHES , ALONG WITH ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR FO R W HI C H S UCH SET OFF OR ALLOWANCE IS CLAIMED, A CERTIFICATE FROM T H E SPECI F IE D AUTHORITY TO THE EFFECT THAT ADEQUATE STEPS HAVE BEEN TAKEN BY T HA T CO M PANY FO R THE REHABILITATION OR REVIVAL OF THE BUSINESS OF THE AMA L GAMAT IN G COMPA NY. 18.4 FOR THE PU R POS E S O F THIS PR O VI SI O N, T HE T ERMS 'AMALGAMATION' , ' AMALGAMA TI NG COMPA NY' A N D A M A L G A MAT E D COMPANY' WILL HAVE THE M EA N INGS ASS I G N ED TO THEM IN CL . ( 1 A ) O F S . 2 OF THE I T AC T . T H E TERM . ' ACCUMULATED LOSS ' ' FOR THE PURPOSES O F TH IS PROVISION MEANS SO M UC H OF THE LOS S OF THE AMALGAMATING COMPANY UNDER T HE HEAD 'PROFITS AND GA INS OF BUSI N E SS OR PROFESSION ' , NOT BEING TOSS SUS T AIN E D IN A SPECU L ATION B US INESS , WHICH THE AMALGAMATING COMPANY WOULD HAVE BEEN ENTITLED TO CARRY FORWA R D A ND SET OFF UNDER THE PROVISIONS OF S . 72 IF THE AMALGAMATION HAD NOT BEE N A FF EC T ED . S IMIL A RLY, ' UNABSORBED DE P R ECIATION' MEANS SO MU C H O F TH E A LL OWANCE F O R DEP R EC IATION OF T HE A M ALG AM ATING COMPANY WHIC H RE M A I N S T O BE AL L OWED AND W HICH W O ULD H AV E BE EN AL LOWED T O THE AM A LG AMA TING COMPANY U NDER T H E PROVISIONS O F T H E I T ACT IF THE AMALGAMATION H AD NOT I BEEN E F FECTE D . TH E T E RM 'SPE C I FI E D AU TH O R I T Y ' MEANS SUCH AUTHOR I TY AS THE CENTRAL GOVERNMENT MA Y, BY NOT I F IC A TIO N I N THE O FFI CIA L GAZETTE, S P E CIF Y F O R THE PURPOSES OF THIS PRO VISION. 18.5. THE NEW S . 72A WI L L CO M E IN T O FO R CE W . E . F . 1ST APRIL, 1978 , AND WILL ACCORDING LY APPLY I N RE L AT I ON TO THE A SS T . Y R, 1978 - 79 AND SUBSEQUENT YEARS.' SOURCE: [REPORTED IN 1978 CTR (JO U R ) 2 6: (1 9 7 8) 111 ITR (S T) 9 ] FROM THE EXPRESS PROVISIONS O F SEC . 7 2 A AND T H E CBDT ' S C I R CULAR CITED ABO VE , I T IS CLEAR THAT THESE PROVISIONS RELA T E OF C AR RY F OR W A R D AN D SET OFF O F A CCUMULA TED L O SSE S AND UNABSORBED DEPRECIATION O F TH E A MA LG AMA TI NG C OMPAN Y A ND N OT T HA T OF TH E AMALGAMATED COMPANY . FROM THE FOREGOING D IS CU SS ION IN THE PR ECEDI N G P ARAGRA P H S, IT IS ABUNDANTLY CLEAR THAT THE ' ACCUMULATED/UNAB SORB ED BUSINESS LOSSES A ND UNABSORBED DEPRECIATION RE L ATED T O T HE ASSESSMENT YEAR S DURING W H ICH THE AMALGAMATED COMPANY HAD BEEN CARRY I N G ON I TS BUS I NE S S ACT IVITIES. TH ER EFO R E, I N MY OPIN I ON , IN VIEW OF THE EXPRESS PROVISIONS OF SEC . 72A OF T HE ACT I N AS M UCH AS AND THAT THE APPELLANT COMPANY WAS NOT ENTITLED FOR THE CARRY FORWARD A N D SET OFF O F TH E AFORESAID UNABSORBED ACCUMULATED L OSSES/BUSINESS LO S S AND UNABS ORBED DEPRECIATION I N RESPECT OF THE AMA LGA MATED COMPANY UND E R TH E P R OVISIONS OF S E C . 72 AND 32(2 ) OF THE ACT RESPECTIVE LY, PA R T I CULAR L Y W HEN THE AMA LGAMATIO N H A S NOT BEEN CARR I ED OUT FOR THE REVIVAL OF T HE AMA L GAMATING CO MPANY A N D TH A T T HE AMALGAMATION DID NOT SERVE THE GENUINE BUSINESS PURPOSE. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN REJE CTING THE CLAIM OF THE APPELLANT 8 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 COMPANY FOR SET OFF OF THE UNAB S ORBED BUS I NESS LOSS A ND UNABS OR BED D EPR ECIAT I ON OF T HE AMALGAMATED COMPANY IS CONFIRMED. 5.1.3.4 . NOW , T H E L AS T ISSUE WH I CH IS T O BE DE C I D E D IS W HET HER C L AIM OF SET O F F OF THE CAPITA L GA I NS AR ISIN G FROM T H E TR A NSFER OF INDUSTRI A L PLO T OF L AN D D U RING - THE YEAR A S ' PER THE REV I SED CO MPUT A TI O N W A S AD MISSIBLE WHE N THE DE D UC T I O N W A S NOT C L AI MED I N A VO LUNTARY R ETU R N OF I NCOM E ' O R A R E VI S E D RETU RN OF INCOME UN DER SEC. 139(5) OF THE AC T IN T H E L I GH T O F T HE DE C I S I O N O F TH E APE X CO URT CITE D S UPRA : T HE FAC TS ARE T HAT T HE AP P E L LA NT HAD D I SC L OSED TH E CAP IT A L GA I NS ON T H E S AL E O F L AND O N . T HE BA SIS O F THE VA L UE A S PER THE R EG I S T E R ED S A L E DEED . DURING T H E CO U R S E O F ASSESSMENT PR O CEEDINGS , I T T RAN S PI R E D T HA T CAP I TA L G A I NS OUGHT TO HAVE BEEN WO RKED OUT ON TH E B AS I S OF VALUE TA K E N BY THE R EG I S T E RI NG AUTHORITY FOR THE PURPOSE OF S T AMP D UTY UNDE R S EC . 5 0C OF T H E A CT . TH E A P PE LL ANT , THEREFORE, FILED A REV I SED COMP U TATION WO R KIN G OUT THE C APITAL GA IN S ON THE B ASIS OF THE FAIR MARKET VALUE A S PE R PR OV IS ION S O F SEC. 50C AT RS . 9 5 , 73 , 40 3 / - AN D A LS O CLAIME D SET . OFF OF THE SAME AGAI NST U N ABSO R B ED DEPREC I A TI ON A N D UNABSOR B ED B USINESS LOSS . SUCH C L AIM HAS BEEN R E JE C T ED BY T HE ASSESSING O F FICER FOR T H E R E ASO N S AS DISCUSSE D I N THE FOREGOING PARAGRAPHS . 5.1.3.5. IN THE LIGH T OF THE ABO V E F A C TS , MAT E RI A L PLACE D ON RECORD AND S UBMISSIONS ON BEHALF OF THE APPELLANT , IT COU L D B E SEEN TH A T T H E APP E LLANT H AS C L A IME D ALL THE BUSINESS LOSSES IN TIME AND HAS UNABSORBED DEPRECIATION , B OT H A SS E SSED I N RE SPECT IV E A SS ESSMENT YEARS, ON . THE GROUND THAT T H E A P PE L LA NT FU LFILS AL L T HE CONDITIONS T O SET OF F O F THE UNABSORBED BUSINESS LOSSES UNDER SECT I ON 72 AND THE UNAB SORBED DEPRE CIATION UNDER SECTION 32(2) FROM THE I NCOME OF A . Y 10 - 11 . ON THE O T HE R HA ND , THE FAC T S C L EAR LY SHOW THAT THE AMALGAMATION HAS BEEN BROUGHT ABOUT NOT F OR THE R EVIV AL OF THE AMALGAMATING COMPANY , AND FURTHE R THE AMALGAMATED CO M P ANY HAS A LR EAD Y STOPPED ITS MANUFACTURING ACT I V I TIES AND SOLD I TS PLANT AND MACHINE RY A S A L SO I NDUSTRIA L P L OT DURING T HE YEAR , WHICH , AS AFO RES AI D, ALL GO TO SHOW T H AT T HE AMAL GAM A T ION I S NOT FOR GENUINE PURPOSE, AS PER PROV I S I O NS OF SE C . 72 A OF THE ACT. THEREF O RE, I AM OF T HE CONSIDERED VIEW THAT THE ACT I ON OF THE A SSE S SI NG OFFICE R I N N OT ENT ER TAINING THE RE V IS E D WORK I NG OF UNABSORBED BUS I NESS LO S S E S AND UNAB SO RBED D EPRE C IATION O F - R S. 6 , 07 , 11 , 696/ - AND RS 7,56,29,069/ - R E S P ECTIVELY AND NOT A DJUSTING/SET T ING OFF OF T HE RESULTANT BROUGHT FORWARD UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATIO N AGAINST INCOME FOR AY 2011 - 12 (BUSINESS INCOME AND LONG TERM CAPITAL GAIN) IS JUSTIFIED. HENCE, THESE GROUNDS OF APPEAL ARE ACCORDINGLY DISMISSED. AGGRIEVED, ASSESSEE CAME BEFORE TRIBUNAL IN SECOND APPEAL. 6. WE HAVE HEAR D RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES. FIRST OF ALL WE WILL ASSIMILATE THE ISSUES DISCUSSED BY CIT(A) AND THE SAME WITH REGARD TO THE DISALLOWANCE OF SET OFF OF UNABSORBED BUSINESS LOSS OF RS.1,12,51,058 AND UNABSORBED DEPRECIATION AT RS.1,00,73,403/ - AGAINST B USINESS INCOME AND INCOME FROM CAPITAL GAINS OF THE A SSESSEE RESPECTIVELY HAS FIRSTLY BEEN DEALT WITH IN PARA 5.1.3.1 AT PAGES 20 - 21 OF HIS ORDER ACCEPT ING IN FULL THE CONTENTION OF AO THAT A SSESSMENT FRAMED IN TH IS CASE FOR AY 2006 - 07 U/S 154/143(3) OF TH E ACT DATED 12/02/2009 LAY OUT UNABSORBED BUSINESS LOSS OF RS.18,86,074/ - AND U NABSORBED DEPRECIATION OF RS.109,22,427/ - WAS THE TOTAL OF THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION ALLOWED FOR ADJUSTMENT UPTO AY 2006 - 07. THE CIT(A) CONFIRMED TH E 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 9 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 UNABSORBED DEPRECIATION WAS CLAIMED , IN AYS 2007 - 08 TO 2010 - 11, UNABSORBED BUSINESS LOSS OF RS.1 8,86,074/ - AND UNABSORBED DEPRECIATION OF RS.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 A SSESSEE COM PANY 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 INA SMUCH 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 CON SIDERATION OF FULL FACTS OF THE CASE AND ALSO ACCEPTING THAT SECTION 72A OF THE ACT DID NOT APPLY IN THE CASE OF ASSESSEE, STILL CONFIRMED THE ACTION OF AO IN REJECTING THE CLAIM OF SET OFF, ALLEGING THAT THE AMALGAMATION WAS NOT CARRIED OUT FOR REVIVAL OF THE AMALGAMATING COMPANY AND THAT THE AMALGAMATION DID NOT SERVE GENUINE BUSINESS PURPOSE. HE OBSERVED THAT AMALGAMATED COMPANY HAD STOPPED ITS MANUFACTURING ACTIVITIES AND SOLD ITS PLANT AND MACHINERY AND ALSO INDUSTRIAL PLOT, IT ALL PROVED THAT THE AMAL GAMATION WAS NOT FOR GENUINE PURPOSE AS PER PROVISIONS OF SECTION 72A OF THE ACT. HE ALSO ACKNOWLEDGE THAT THE DISALLOWANCE OF REVISED COMPUTATION OF LONG TERM CAPITAL GAIN FILED IN THE LIGHT THAT THE SAME CAN BE CLAIMED BY FILING OF REVISED RETURN IN THE LIGHT OF THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF GOETEZ (INDIA) LTD. 284 ITR 323. IN VIEW OF THE ABOVE , CIT(A) CONCLUDING THAT THIS ACTION OF AO IN NOT ENTERTAINING THE REVISED WORKING OF THE UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIA TION OF RS.6,07,11,696/ - AND RS.7,56,29,069/ - RESPECTIVELY AVAILABLE FOR SET OFF IN THE AY 2011 - 12 AND NOT ADJUSTING/SETTING OFF OF THE RESULTANT BROUGHT FORWARD UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIATION AGAINST THE INCOME (BUSINESS INCOME AND LONG TERM CAPITAL GAIN) FOR THE AY 2011 - 12 AS PER THE PROVISIONS OF THE ACT . 7 . FROM THE ABOVE FINDINGS OF CIT(A), NOW WE HAVE TO EXAMINE THE FACTS OF THE CASE. WE FIND FROM THE FACTS OF THE CASE THAT THE MANUFACTURING UNIT OF THE ASSESSEE STARTED INCUR RING LOSSES AND THUS THERE WAS CARRY FORWARD OF BUSINESS LOSS AS WELL AS UNABSORBED DEPRECIATION ON THE BASIS OF THE ASSESSMENTS MADE SINCE 1993 - 94. A DETAILED CHART STATEMENT SHOWING DETAILS OF RETURNED AND ASSESSED UNABSORBED BUSINESS LOSSES AND UNABSOR BED DEPRECIATION MARKED AS ANNEXURE 1 TO THE SUBMISSION S MADE BY ASSESSEE IS ENCLOSED. THIS CHART DRAWN UP BY ASSESSEE, WHEREIN DETAILS OF THE RETURNED AND ASSESSED INCOME AND LOSSES HAS BEEN LAID OUT AND SUPPORTING DOCUMENTS IN THE FORM OF THE RETURNS FILED AND VARIOUS ORDERS OF THE INCOME TAX AUTHORITIES HAVE BEEN ENCLOSED IN A PAPER BOOK FILED BEFORE TRIBUNAL BY ASSESSEE . THE RELEVANT CHART ENCLOSED READS AS UNDER; - ANNEXURE - 1 10 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 STATEMENT SHOWING DETAILS OF RETURNED AND ASSESSED UNABSORBED BUSINESS LOS SES AND UNABSORBED DEPRECIATION A.Y TOTAL LOSS UNABSORBED BUSINESS LOSS UNABSORBED DEPRECIATION 1993 - 94 - 10,283 - 10,283 1994 - 95 - 16,66,397 - 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 - 1,09,2 2,427 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. CLEARAN CE 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 P BK - 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 O F 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 - 3,31,58,464 - 80,88,196 2005 - 06 - AS PER RETURN OF INCOME (COMPUTATION) - 1,14,08,721 PG 112 OF PBK - 51,08,353 PG 125 OF PBK - 63,00,368 PG 125 OF PBK 2006 - 07 - AS PER RETURN OF INCOME (COMPUTATION) - 10,21,442 PG 126 OF PBK - - - 10,21,442 PG 154 OF PBK - - AS ASSESSED S PER ORDER U /S 143(3) 50,13,880 - 50,13,880 - (PGS 155 - 158 OF PBK) - 2007 - 08 - A PER RETURN OF INCOME (COMPUTATION) - 1,93,15,108 PG 175 OF PBK - 1,68,72,208 PG 191 OF PBK - 24,42,900 PG 191 OF PBK 2008 - 09 - AS PER RETURN OF INCOME (COMPUT ATION) 12,32,477 PG 227 OF PBK 12,32,477 PG 227 OF PBK 2009 - 10 - AS PER RETURN OF INCOME (COMPUTATION) - 62,58,294 PG260 OF PBK) - 44,61,429 (PG 260 OF PBK) - 17,96,865 (PG 260 OF PBK) 2010 - 11 - AS PER RETURN OF INCOME (COM PUTATION) 3,14,20,256 PG 292 OF PBK) 3,14,20,256 PG 292 OF PBK) 11 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 FURTHER ABOVE LOS S ES AND UNABSORBED DEPRECIATION ALL HAVING BEEN ASSESSED BY AO IN THE RESPECTIVE ASSESSMENT YEARS, THERE BEING NO SUFFICIENT PROFIT IN THOSE YEARS, THE SAME WERE ALLOW ED TO BE CARRIED FORWARD BUT A S AND WHEN, THERE WAS PROFIT SET OFF OF THE UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIATION WAS ALLOWED. A DETAILED CHART STATEMENT SHOWING C/F AND SET OFF OF UNABSORBED BUSINESS LOSES AND THE UNABSORBED DEPRECIATION MARKED AS ANNEXURE 2 ENCLOSED TO SUBMIS S I O N S OF ASSESSEE . THE RESPECTIVE ASSESSMENT ORDERS DETERMINING THE AMOUNT OF CARRY FORWARD LOS S AND UNABSORBED DEPRECIATION WERE ALSO ENCLOSED. C OPIES OF THE RETURNS FILED FOR ALL THE YEARS FOR WHICH LOSSES/UNABSORBE D DEPRECIATION CLAIMED WERE ALSO ENCLOSED. RELEVANT CHART IS ENCLOSED AS UNDER: - ANNEXURE - 2 S TATEMENT OF C/F AND SET OFF OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION A.Y UNABSO RBED BUSINESS LOSS UNABSORBED DEPRECIATION 1993 - 94 10,283 10,283 CLAIMED IN AY 2011 - 12 1994 - 95 16,66,397 16,66,397 CLAIMED IN A.Y 2011 - 12 1995 - 96 29,74,536 29,74,536 LAPSED IN A.Y 2003 - 04 34,93,38 6 34,93,386 CLAIMED IN A.Y 2011 - 12 1996 - 97 4,31,294 4,31,294 LAPSED IN A.Y. 2004 - 05 3,53,082 3,53,082 CLAIMED IN A.Y 2011 - 12 1997 - 98 36,62,515 36,62,515 LAPSED IN A.Y 2005 - 06 38,39,013 38,39,01 3 CLAIMED IN A.Y 2011 - 12 1998 - 99 6,95,672 6,95,672 CLAIMED IN A.Y 2006 - 07 48,99,002 7,11,242 CLAIMED IN A.Y 2011 - 12 41,87,760 BALANCE E/F IN A.Y. 2011 - 12 1999 - 2000 14,03,110 14,03,110 CLAIMED IN A.Y 2006 - 0 7 51,93,356 51,93,356 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 80,88,196 80,88,19 6 BALANCE C/F IN AY 2011 - 12 12 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. 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AY 201 - 12 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 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 14,03,11 0 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 AY 2011 - 12 24,42,900 24,42,900 BALANCE C/F IN AY 2011 - 12 2008 - 09 12,32,477 (PROFIT) 12,32,477 SET OFF AGST LOS OF AY 2000 - 01 2009 - 10 44,61,429 44,61,429 BALANCE C/F IN AY 2011 - 12 17,96,865 17,96,865 BALANCE C/F IN AY 2011 - 12 2010 - 11 3,14,20,256 (PROFIT) 1,92,08,649 SET OFF AGST LOSS OF AY 2002 - 03 1,05,91,688 SET OFF AGST LOS OF AY 2003 - 04 16,19,919 SET OFF AGST LOSS OF AY 2004 - 05 BALANCE AVAILABLE 6,07,11,696 FOR SET OFF IN A.Y 2011 - 12 7,56,29,069 2011 - 12 1,12,51,059 (PR OFIT) 1,12,51,059 SET OFF AGST LOSS OF AY 3004 - 05 1,00,73,403 10,283 SET OFF AGST DEP OF AY 1993 - 94 16,66,397 SET OFF AGST DEP OF AY 1994 - 95 34,93,386 SET OFF AGST DEP OF AY 1995 - 96 3,53,082 SET OFF AGST DEP OF AY 1996 - 97 38,39,013 SET OFF AGST DEP OF AY 1997 - 98 7,11,242 SET OFF AGST DEP OF AY 1998 - 99 BALANCE TO BE 4,94,60,637 C/F A.Y 2011 - 12 6,55,55,666 13 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 FROM THE ABOVE C HART IT IS CLEAR THAT UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIATION AT THE END OF A Y 2010 - 11 COMES TO RS.6,07,11,696/ - AND RS.7,56,29,069/ - RESPECTIVELY, WHICH IS AVAILABLE FOR SET OFF IN THE AY 2011 - 12 BEING THE YEAR UNDER APPEAL. 8. FROM THE AB OVE DETAILS, IT IS CLEAR THAT T HAT OUT OF THE TOTAL UNABSORBED BUSINESS LOSS OF RS.48,01,172/ - AND THE UNABSORBED DEPRECIATION OF RS.1,09,22,427/ - FOR THE AY 2000 - 01 AVAILABLE FOR C/F AND SET OFF, AFTER THE SET OFF OF RS.18,86,074/ - BEING THE UNA BSORBED BU SINESS LOSS AND RS.1,09,22,427/ - BEING THE UNABSORBED DEPRECIATION. THE SAID ORDER IS WORDED AS FOLLOWS: BALANCE BUSINESS LOSS OF RS.18,86,074/ - AND UNABSORBED DEPRECIATION OF RS.1,09,22,427/ - FOR THE AY 2000 - 01 ARE ALLOWED TO BE CARRIED FORWARD FOR FUTUR E SET OFF WE FIND THAT A O , OUT OF NOWHERE, TOTALLY ON HIS ASSUMPTIONS AND PRESUMPTIONS LAID OUT THAT UNABSORBED BUSINESS LOSS OF RS.18,86,074/ - AND UNABSORBED DEPRECIATION OF RS.1,09,22,427/ - FOR THE AY 2000 - 01 WAS THE TOTAL OF THE BROUGHT FORWARD LOSSE S AND UNABSORBED DEPRECIATION ALLOWED FOR ADJUSTMENT UP AY 2006 - 07. THIS FACT IS TOTALLY CONTRADICTORY TO WHAT HAS NOW BEEN P LA CED BY ASSESSEE BEFORE US AS IS CLEAR FROM THE ABOVE CHART AND SUPPORTING EVIDENCES. T HE FACTS OF THE CASE ARE THAT THE CLAIM OF THE BUSINESS LOSSES AND THE UNABSORBED DEPRECIATION AND ITS CLAIM OF CARRY FORWARD AND SET OFF, WHICH HAVE ALL BEEN DETAILED IN ANNEXURE - 1 AS STATED ABOVE, CLEARLY LAYS OUT THAT IT IS A FACT WELL DOCUMENTED, SUPPORTED, AND CLAIMED BEFORE INCOME TAX AUTHO RITIES 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 SI MPLE 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 UNABSORBED BUSINESS LOSS DEPRECIATION 2001 - 02 AS NOTED IN ACKNOWLEDGMENT OF RETURNS 2,21,40,383 87,44,678 FOR AY 2001 - 02 (PG 78 - 79 OF ASSESSEE S PAPER BOOK ) 2002 - 03 (COMPUTATION) 2,75,34,163 1,92,08,649 83,25,514 (ASSESSED AS SUCH AS PER IT CLEARANCE PG 80 OF APB PG 93 OF APB PG 93 APB 2003 - 04 ASSESSED AS PER ORDER U/S 154/143(3) 2,01,45,290 1,05,91,688 95,53,602 (PG 102 OF APB ) 2004 - 05 AS PER APPELLATE ORDER U/S 250 4,39,77,821 3,58,89,625 80,88,196 (PGS 109 - 111 OF A PB) 2005 - 06 AS PER RE TURN OF INCOME - - - - - - 14 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 (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 EVIDENCES QUA THAT, THAT ABOVE LOSSES AND DEPRECIATION WERE ALL DULY ASSESSED AND ALL THE SUPP ORT I NG DOCUMENTS ARE ALL ENCLOSED IN ASSESSEE S PAPER BOOK. THE FINDING OF THE AO THAT THE ASSESSEE COMPANY HAS NOT CLAIMED LOSSES IN THE RETURNS PERTAINING TO AYS 2007 - 08 UPTO AY 2010 - 11 , FROM THE DOCUMENTS FILED BE FORE US, IT IS CLEAR THAT ALL RETURNS WERE FILED WITH THE INCOME TAX AUTHORITIES AND THEY WERE ALL ASSESSED. ( COPIES OF ALL THE RETURNS AND THE ASSESSMENT ORDERS ARE ALL DULY FILED IN THE ASSESSEE S PAPER BOOK FILED ) . T HE FOLLOWING ARE THE FIGURES FOR THE AYS 2007 - 08 UPTO THE AY 2010 - 11: - AS PER RETURN OF INCOME - - - - - - 2007 - 08 (COMPUTATION) 1,93,15,108 1,68,72,208 24,42,900 PG 175 OF PBK PG 191 OF PBK PG 191 OF PBK - AS PER RETURN OF INCOME - - - - - - 2009 - 10 (COMPUTATION) 62,58,294 44,61,429 17,96,865 (PG 260 OF PBK) (PG 260 OF PBK) (PG 260 OF PBK) EVEN THESE DETAILS WERE SENT TO THE AO VIDE INTERIM ORDER DATED 20.10.2014 FOR VERIFICATION OF THE ABOVE STATED FACTS REGARDING UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION AND AO VIDE REMAND REPORT NO. DCIT/CIRCLE - 10/KOLKATA/REPORT/2014 - 15/7564 DATED 12.11.2014 HAS ADMITTED THE ABOVE FACTS BUT ALSO STATED THAT THE RECORDS OF ASSESSMENT YEAR 2001 - 02 COULD NOT BE LOCATED. WHEN THIS RE PORT WAS CONFRONTED, LD. COUNSEL FOR ASSESSEE EXPLAINED EACH AND EVERY ITEM OF THE CLAIM OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION, TO WHICH LD. SR. DR COULD NOT COUNTER OR EXPLAINED. WHEN LD. SR. DR WAS AGAIN PUT TO THIS REPORT, HE COULD NO T SUPPORT THE SAME QUA THE FACTS AND FIGURES BECAUSE ASSESSEE HAS FILED COMPLETE DOCUMENTS IN THE SHAPE OF RETURNS OF INCOME FILED BY ASSESSEE, ASSESSMENTS FRAMED BY AO OR PROCESSING DONE BY DEPARTMENT U/S 143(1) OF THE ACT. F ROM THE ABOVE, IT IS CLEAR TH AT THE UNABSORBED BUSINESS LOSS OF RS.18,86,074/ - AND UNABSORBED DEPRECIATION OF RS.1,09,22,427/ - WAS THE ONLY AVAILABLE FIGURE FOR SET OFF IN THE AY 20011 - 12 WAS COMPLETELY WRONG ON FACTS AND IT IS A FACT THAT UNABSORBED BUSINESS LOSES OF RS.6,07,11,696/ - AND THE UNABSORBED DEPRECIATION OF RS.7,56,29,069/ - WAS AVAILABLE FOR SET OFF IN THE AY 2011 - 12. 9. ANOTHER ASPECT ON WHICH THE LOWER AUTHORITIES HAS DENIED THE CLAIM OF UNABSORBED BUSINESS LOSSES AND UNABSORBED DEPRECIATION WAS THAT HON'BLE CALCUTTA HIG H COURT HAS NOT GONE INTO THE FACTS WHILE PASSING THE ORDER ON AMALGAMATION. 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 AC T WILL NOT APPLY IN THE CASE . THE CIT(A) STILL CONFIRMED THE ACTION OF 15 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 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 BUSI NESS 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 A LL 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 REVENUE IS ALSO PARTY BEFOR E HON'BLE HIGH COURT, WHERE IN IT HELD AS UNDER: 10. IN VIEW OF THE ABOVE FACTUAL POSITION NOW WE HAVE TO DISCUSS THE PROVISIONS OF SECTION 394A OF THE COMPANIES ACT, WHEREIN NOTICE HAS TO BE GIVEN TO THE CENTRAL GOVERNMENT FOR APPLICATIONS MADE U/S. 391 AND 394 OF THE ACT. THE PROVISION OF SECTION 394A OF THE COMPANIES ACT, 1956 READS AS UNDER: S. 394 - A NOTICE TO BE GIVEN TO CENTRAL GOVERNMENT FOR APPLICATIONS UNDER SECTIONS 391 AND 394 THE COURT SHALL GIVE NOTICE OF EVERY APPLICATION MADE TO IT UNDER SECTION 391 OR 394 TO THE CENTRAL GOVERNMENT, AND SHALL TAKE INTO CONSIDERATION THE REPRESENTATIONS, IF ANY, MADE TO IT BY THAT GOVERNMENT BEFORE PASSING ANY ORDER UNDER ANY OF THESE SECTIONS. THE CASE LAW CITED BY REVENUE OF HON BLE SUPREME COURT IN TH E CASE OF MARSHALL SONS & COMPANY INDIA LTD., SUPRA WHEREIN THEIR LORDSHIPS OF THE SUPREME COURT HAD MADE IT CLEAR THAT THEY HAVE NOT EXPRESSED ANY OPINION ON THE PLEA THAT THE AMALGAMATION ITSELF IS A DEVICE DESIGNED TO EVADE THE TAXES LEGITIMATELY PAYABL E BY THE SUBSIDIARY COMPANY. IF THE REVENUE THINKS THAT THEY ARE ENTITLED TO RAISE SUCH A PLEA IN A PROCEEDING UNDER THE ACT, IT IS OPEN TO THEM TO DO SO BY WAY OF SEPARATE PROCEEDINGS ACCORDING TO LAW. THE SPIRIT OF SECTION 394 OF THE COMPANIES ACT, 1956 PROVIDES THAT ON EVERY APPLICATION UNDER SECTION 391 OR SECTION 394, THE COURT SHALL GIVE NOTICE OF SUCH APPLICATION TO THE CENTRAL GOVERNMENT AND SHALL TAKE INTO CONSIDERATION THE REPRESENTATIONS, IF ANY, MADE TO IT BY THAT GOVERNMENT BEFORE PASSING ANY ORDER UNDER ANY OF THE SAID SECTIONS. IN THE PRESENT CASE BEFORE US, IN THIS VIEW OF THE MATTER, WE FEEL THAT THE COMPANY LAW HAS RECOGNISED THE FACT THAT THERE ARE SEVERAL AREAS IN THIS FIELD WHERE EVEN THE JOINT WILL OF MANAGEMENT AND THE STAKE HOLDERS MUST GIVE WAY TO THE PUBLIC POLICY. THE FUNCTIONS, POWERS AND DISCRETIONS OF THE COURT HAVE BEEN NOTED BY A. RAMAIYA IN THE COMPANIES ACT, PART 2 AT PAGES 2499 AND 2500 IN POINT NO. 6 INCORPORATED HEREUNDER: THAT THE PROPOSED SCHEME OF COMPROMISE AND A RRANGEMENT IS NOT FOUND TO BE VIOLATIVE OF ANY PROVISION OF LAW AND IS NOT CONTRARY TO PUBLIC POLICY. FOR ASCERTAINING THE REAL PURPOSE UNDERLYING THE SCHEME WITH A VIEW TO BE SATISFIED ON THIS ASPECT, THE COURT, IF NECESSARY, CAN PIERCE THE VEIL OF APPAR ENT CORPORATE PURPOSE UNDERLYING THE SCHEME AND CAN JUDICIOUSLY X - RAY 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 CO NTRARY 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 16 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 GUJARAT HIGH COURT HAS CONSIDERED THAT THE SCHEME OF AM ALGAMATION 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 SUPRA HA S LAID DOWN CERTAIN PRINCIPLES REGARDING THE EXPRESSION PUBLIC INTEREST AND THE SCHEME OF AMALGAMATION AND THE RELEVANT PARAS OF THE JUDGMENT READ AS UNDER: SIMILAR IS THE POSITION IN RODWELL SECURITIES V. INLAND REVENUE COMMISSIONERS [1968] 1 ALL E R 257. THE BENEFIT OF EXEMPTION FROM THE STAMP DUTY WAS DENIED ON THE CONSTRUCTION OF STATUTE GRANTING EXEMPTION BUT THE FOLLOWING OBSERVATION WAS RELIED UPON IN SUPPORT OF THE SUBMISSION THAT A MERE SETTING UP OF A CHAIN OF COMPANIES IS NOT OPEN TO LURKIN G SUSPICION, THAT IT HAS BEEN DONE WITH AN AVOWED OBJECT OF DEFEATING TAXING STATUTE. THE OBSERVATION RELIED UPON READS AS UNDER: 'IT IS WORTHWHILE OBSERVING THAT WHERE YOU HAVE A CHAIN OF COMPANIES IT IS ALWAYS POSSIBLE BY ARRANGING THE TRANSFER IN A CER TAIN WAY, TO OBTAIN THE BENEFIT OF EXEMPTION UNDER THE SECTION. ' IT CANNOT BE SAID THAT THIS OBSERVATION HAD LAID DOWN A BROAD PROPOSITION OF LAW. THE OBSERVATION CANNOT BE TORN OUT OF CONTEXT AND WHEN READ IN THE CONTEXT, IT ONLY MEANS THAT AN ARRANGEMEN T CAN BE MADE BY THE ASSESSEE SO AS TO INCUR THE LEAST LIABILITY FOR THE TAX AND TO SUCH A PROPOSITION, I DO NOT TAKE ANY EXCEPTION. THE EXPRESSION 'PUBLIC INTEREST' STANDING BY ITSELF IS LIKELY TO APPEAR TO BE VAGUE WITHOUT ANY SPECIFIC CONNOTATION. IT IS CAPABLE OF MORE THAN ONE MEANING. THEREFORE, IN ORDER TO ASCERTAIN THE TRUE MEANING OF ' PUBLIC INTEREST ' USED IN A GIVEN STATUTE, IT IS TO BE CONSTRUED IN THE CONTEXT OF THE LEGISLATION IN WHICH IT IS USED, PROVISION IN WHICH IT IS USED, AND THE PURPO SE SOUGHT TO BE ACHIEVED BY THE USE OF THE EXPRESSION. WHERE ALTERNATIVE CONSTRUCTIONS ARE EQUALLY OPEN THAT ALTERNATIVE IS TO BE CHOSEN WHICH WILL BE CONSISTENT WITH THE SMOOTH WORKING OF THE SYSTEM WHICH STATUTE PURPORTS TO BE REGULATING AND THAT ALTERNA TIVE IS TO BE REJECTED, WHICH WILL INTRODUCE UNCERTAINTY, FRICTION, OR CONFUSION INTO THE WORKING OF THE SYSTEM : VIDE SHANNON REALTIES V. ST. MICHEL [1924] AC 185 (PC). AT ANY RATE, SUCH AN EXPRESSION CAPABLE OF MORE THAN ONE MEANING MUST DRAW ITS COLOUR AND CONTENT FROM THE CONTEXT IN WHICH IT IS USED. IF SUCH SHOULD BE THE CONSTRUCTION OF THE EXPRESSION 'PUBLIC INTEREST', IT WOULD BE NECESSARY TO SEE THE SETTING IN WHICH IT IS PLACED. TO RECALL EARLIER CONTROVERSY 'PUBLIC INTEREST' IN COMPANY LAW IS A NE W AND RECENT ENTRANT. THE SECOND PROVISO 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 L AW (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 COMMIS SION 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 F IRMS 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 CONSEQUENCE OF ITS FINDING, THE COMMISSION RECOMMENDED INTR ODUCTION OF A PROVISION BY WHICH THE COURT WHILE EXAMINING THE SCHEME OF AMALGAMATION, WOULD HAVE AN OPPORTUNITY TO ASCERTAIN WHETHER THE AFFAIRS OF THE TRANSFEROR - COMPANY WHICH WILL 17 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 BE DISSOLVED WITHOUT WINDING UP WERE CARRIED ON IN A MANNER PREJUDICIAL T O ITS MEMBERS OR PUBLIC INTEREST. THIS RECOMMENDATION FOUND ITS ECHO IN THE SECOND PROVISO TO SECTION 394(1). APART FROM THE RECOMMENDATION, THE VOLUMINOUS REPORT OF THE COMMISSION THROWS A LURID LIGHT ON HOW THE MACHINERY OF COMPANY FORMATION AND COMPANY MANAGEMENT WERE USED TO SUBSERVE THE INTEREST OF THOSE CONTROLLING THE AFFAIRS OF THE COMPANY WITH SCANT REGARD FOR THE INTEREST OF THE SOCIETY OR EVENT OF THE INVESTING PUBLIC. THE EXPRESSION 'PUBLIC INTEREST' IS TO BE FOUND IN THE SECOND PROVISO AND IN THE CONTEXT OF A COMPANY WHICH, IF, SCHEME OF AMALGAMATION IS SANCTIONED, IS LIKELY TO LOSE ITS IDENTITY BY GETTING MERGED WITH THE TRANSFEREE - COMPANY. IT IS TO BE DISSOLVED WITHOUT WINDING UP. IN WINDING UP THE MANNER IN WHICH AFFAIRS OF A COMPANY ARE CO NDUCTED CAN BE PROBED IN DEPTH; BUT A SCHEME OF AMALGAMATION WHICH PROVIDES FOR MERGER OF THE TRANSFEROR COMPANY WITH THE TRANSFEREE - COMPANY, WOULD DESTROY ANY OPPORTUNITY FOR EXAMINATION OF THE AFFAIRS OF THE TRANSFEROR - COMPANY. THE SECOND PROVISO WOULD P ROVIDE THE LAST OPPORTUNITY TO PEEP INTO THE AFFAIRS OF THE TRANSFEROR COMPANY BEFORE IT GETS VIRTUALLY EXTINCT. THE COURT IS, THEREFORE, CHARGED WITH A DUTY BEFORE IT FINALLY CONFIRMS BURIAL - CUM - CREMATION OF THE TRANSFEROR - COMPANY, TO PEEP INTO ITS AFFAIR S TO ASCERTAIN WHETHER THEY HAVE BEEN CARRIED ON NOT ONLY IN A MANNER NOT PREJUDICIAL TO ITS MEMBERS BUT IN EVEN PUBLIC INTEREST. THE EXPRESSION 'PUBLIC INTEREST' MUST TAKE ITS COLOUR AND CONTENT FROM THE CONTEXT IN WHICH IT IS USED. THE CONTEXT IN WHICH T HE EXPRESSION ' PUBLIC INTEREST ' IS USED SHOULD PERMIT THE COURT TO FIND OUT WHY THE TRANSFEROR - COMPANY CAME INTO EXISTENCE, FOR WHAT PURPOSE IT WAS SET UP WHO WERE ITS PROMOTERS, WHO WERE CONTROLLING IT, WHAT OBJECT WAS SOUGHT TO BE ACHIEVED THROUGH CREA TION OF THE TRANSFEROR - COMPANY AND WHY IT IS NOW BEING DISSOLVED BY MERGING IT WITH ANOTHER COMPANY. ALL THESE ASPECTS WILL HAVE TO BE EXAMINED IN THE CONTEXT OF THE SATISFACTION OF THE COURT WHETHER ITS AFFAIRS HAVE NOT BEEN CARRIED ON IN A MANNER PREJUDI CIAL TO PUBLIC INTEREST. 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 TRANSFE REE - 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 THE ONLY PURPOSE APPEARS TO BE TO ACQUIRE CAPITAL ASSET OF THE DOC PVT. LTD. THROUGH THE INTERMEDIARY OF THE TRANSFEROR - COMPANY WHICH WAS CREATED FOR THAT VERY PURPOSE TO MEET THE REQUIREMENT OF LAW, AND IN THE PROCESS TO DEFEAT TAX LIABILITY THAT WOULD OTHERWISE ARISE. IF SUCH BE THE SCHEME OF AMALGAMATION AND IF SUCH IS THE USE MADE OF T HE TRANSFEROR - COMPANY BY THOSE CONTROLLING IT, IT CAN NEVER BE SAID THAT THE AFFAIRS OF THE TRANSFEROR COMPANY SOUGHT TO BE AMALGAMATED, CREATED FOR THE SOLE PURPOSE OF FACILITATING TRANSFER OF CAPITAL ASSET, THROUGH ITS MEDIUM, HAVE NOT BEEN CARRIED ON IN A MANNER PREJUDICIAL TO PUBLIC INTEREST. PUBLIC INTEREST LOOMS LARGE IN THIS BACKGROUND, AND THE MACHINERY OF JUDICIAL PROCESS IS SOUGHT TO BE UTILISED FOR DEFEATING PUBLIC INTEREST AND THE COURT WOULD NOT LEND ITS ASSISTANCE TO DEFEAT PUBLIC INTEREST, NA MELY, TAX PROVISION. IT MUST BE CONFESSED THAT IT IS OPEN TO A PARTY TO SO ARRANGE ITS AFFAIRS SO AS TO REDUCE ITS TAX LIABILITY. THE ASSESSEE OR PARTY CAN ARRANGE ITS AFFAIRS SO THAT HE OR IT MAY NOT INCUR ANY TAX LIABILITY. BUT IT MUST BE WITHIN THE PO WER OF THE PARTY TO ARRANGE ITS AFFAIRS. IF THE PARTY SEEKS ASSISTANCE OF THE COURT ONLY TO REDUCE TAX LIABILITY, THE COURT SHOULD BE THE LAST INSTRUMENT TO GRANT SUCH ASSISTANCE OR JUDICIAL PROCESS TO DEFEAT A TAX LIABILITY, OR EVEN TO AVOID TAX LIABILITY . IF 18 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 THE PARTY HAS SO ARRANGED ITS AFFAIRS, AS TO REDUCE OR EVEN AVOID TAX LIABILITY AND THE TAXING AUTHORITY DISPUTES IT, AND THE MATTER IS BROUGHT BEFORE THE COURT, THE COURT WOULD ADJUDICATE UPON THE DISPUTE BETWEEN THE REVENUE AND THE ASSESSEE ON THE R IVAL CONTENTIONS. THAT IS NOT THE SITUATION HERE. IN SUCH A SITUATION, THE COURT WOULD NOT BE CONCERNED AS TO THE MODALITY OF AVOIDANCE OF TAX BUT HERE THE TAX CANNOT BE AVOIDED UNLESS THE COURT LENDS ITS ASSISTANCE, NAMELY, BY SANCTIONING THE SCHEME OF AM ALGAMATION. IN OTHER WORDS, THE JUDICIAL PROCESS IS USED OR POLLUTED TO DEFEAT THE TAX BY FORMING AN APPROPRIATE DEVICE OR SUBTERFUGE. SUCH A SITUATION CAN NEVER BE SAID TO BE IN PUBLIC INTEREST. IT IS CLEARLY OPPOSED TO PUBLIC INTEREST AND ON THIS GROUND THE COURT WOULD NOT SANCTION THE SCHEME OF AMALGAMATION. 11. IN VIEW OF THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF WOOD POLYMER LTD., IN RE AND BENGAL HOTELS PVT. LTD. IN RE SUPRA, WE ARE OF THE VIEW THAT COURT HAS POWER TO ENSURE THAT AMA LGAMATION 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 ASSESS EE 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 281 OF 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 APPEAL, (I) THAT IF ANY AMOUNT WAS REQUIRED TO BE PAID TO THE INCOME - T AX DEPARTMENT BY THE TRANSFEROR COMPANY, THE INCOME - TAX DEPARTMENT COULD BE SAID TO BE A CREDITOR SO FAR AS ITS CLAIM AGAINST THE TRANSFEROR COMPANY WAS CONCERNED. CONSIDERING THE FACT, IT COULD NOT BE SAID THAT THE INCOME - TAX DEPARTMENT HAD NO LOCUS STAND I TO PUT FORWARD ITS OBJECTIONS IN THIS BEHALF. EVEN IF NO OBJECTIONS WERE RECEIVED AGAINST THE SCHEME PURSUANT TO THE PUBLIC ADVERTISEMENT, YET THE COURT WAS REQUIRED TO EXAMINE THE SCHEME WHILE GIVING ITS APPROVAL. THE SINGLE JUDGE HAD RIGHTLY ALLOWED TH E INCOME - TAX DEPARTMENT TO HAVE ITS SAY BY RAISING OBJECTIONS IN CONNECTION WITH THE SCHEME IN QUESTION. A SIMILAR OBJECTION HAD BEEN RAISED BY THE INCOME - TAX DEPARTMENT BEFORE THE DELHI HIGH COURT WHICH HAD CONSIDERED THE OBJECTIONS RAISED BY THE INCOME - T AX DEPARTMENT ON ITS OWN MERITS. THE INCOME - TAX DEPARTMENT HAD THE RIGHT TO PLACE ITS OBJECTIONS AGAINST SANCTIONING OF THE SCHEME IN QUESTION. THE INCOME - TAX DEPARTMENT WOULD BE FREE TO EXAMINE THE ASPECT OF ANY TAX PAYABLE AS A RESULT OF THE SCHEME. (I I) THAT THERE WAS NOTHING WRONG IF THE COMPANY WANTED TO RECONSTRUCT ITS BUSINESS IN AN ALTERNATIVE FORM BY DIVIDING TELECOMMUNICATION BUSINESS AND TELECOMMUNICATION INFRASTRUCTURE BUSINESS IN THE MANNER CARRIED ON BY THE APPELLANT, IN A MANNER THAT THE TE LECOMMUNICATIONS INFRASTRUCTURE BUSINESS WOULD BE CARRIED ON BY THE TRANSFEREE COMPANY. THE BUSINESS WOULD BE CONTINUED AND CARRIED ON BY SUBSTANTIALLY THE SAME PERSONS WHO WERE PRESENTLY CARRYING ON THE CONSOLIDATED BUSINESS SINCE BOTH THE TRANSFEROR AND THE TRANSFEREE COMPANIES WERE WHOLLY OWNED SUBSIDIARIES OF ONE COMPANY WHICH WOULD CONTINUE TO CARRY ON THE BUSINESSES. IT NECESSARILY IMPLIED THAT ONCE A SCHEME WAS A RECONSTRUCTION IT WAS BOUND TO BE RECOGNISED AS AN ARRANGEMENT AND/OR COMPROMISE UNDER S ECTION 391. THE INCOME - TAX DEPARTMENT, BY RAISING SUCH A CONTENTION WAS UNNECESSARILY PUTTING RESTRICTIONS ON THE LANGUAGE OF SECTION 394(1) AND (1)(A) WHICH THE LEGISLATURE HAD NOT DEEMED FIT TO IMPOSE. 19 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 (III) THAT THE RIGHTS OF THE INCOME - TAX DEPARTMENT OF ASSESSING, LEVYING AND COLLECTING TAX FROM THE APPELLANT WERE NOT CONFISCATED OR EXPROPRIATED SO AS TO EXTINGUISH SUCH RIGHTS. A CONTENTION THAT THE RECOVERY OF THE OUTSTANDING TAX MAY BE AFFECTED BY TRANSFER OF PASSIVE INFRASTRUCTURE ASSETS, APART FRO M BEING INCORRECT, COULD NOT BE 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 APPROVE D 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 CAS ES 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 MAKES THE PURPOSE CLEAR THAT IF THE REVENUE WANTS TO OBJECT TO THE PROPOSED SCHEME OF AMALGAMATION, IT HAS TO DO SO IN THE COURSE OF PROCEEDINGS BEFORE THE HIGH COURT BUT BEFORE THE FINAL ORDER IS PASSED. WHENEVER SUCH OBJECTIONS HAVE BEEN RAISED, THESE HAVE BEEN CONSIDERED ON MERITS BY THE CONCERNED HIGH C OURT AND ALSO INCORPORATED THE CONDITION FOR SAFEGUARDING THE INTEREST OF REVENUE IN THE VERY SCHEME. AS A MATTER OF PUBLIC POLICY, ONCE A SCHEME OF AMALGAMATION IS APPROVED BY HON BLE HIGH COURT NO AUTHORITY SHOULD BE ALLOWED TO TINKER WITH THE SCHEME. IN THE PRESENT CASE OF THE ASSESSEE, NEITHER THE OFFICIAL LIQUIDATOR NOR THE REGIONAL DIRECTOR NOR CENTRAL GOVERNMENT RAISED ANY OBJECTION TO THE SCHEME OF AMALGAMATION. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE REVENUE HAS NOTHING TO SAY AT THE TI ME OF APPROVAL OF SCHEME BY HON BLE HIGH COURT IN THE PRESENT CASE. 12. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION DISCUSSED ABOVE, IT IS NOT OPEN TO THE REVENUE TO GO INTO THE AMALGAMATION RESERVE AS PER AMALGAMATION SCHEME APPROVED BY HON BLE CALCU TTA HIGH COURT. WE ANSWER THE FIRST ISSUE FRAMED BY US IN NEGATIVE I.E. AGAINST REVENUE AND IN FAVOUR OF ASSESSEE FOR THE REASONS STATED ABOVE. 10. FURTHER, AS REGARD S TO THE APPLICABILITY OF SECTION 72A OF THE ACT , WE ARE OF THE VIEW THAT IN VIEW OF P ROVISIONS O F SEC . 7 2 A OF THE ACT AND CBDT ' S C I R CULAR CITED ABO VE CLARIFYING THE PROVISION , I T IS CLEAR THAT THESE PROVISIONS RELA T E OF C AR RY F OR W A R D AN D SET OFF O F A CCUMULA TED L O SSE S AND UNABSORBED DEPRECIATION O F TH E A MA LG AMA TI NG C OMPAN Y A ND N OT T HA T OF T H E AMALGAMATED COMPANY . FROM THE ABOVE, IT IS CLEAR THAT THE ' ACCUMULATED/UNABSORB ED BUSINESS LOSSES A ND UNABSORBED DEPRECIATION RE L ATED T O ASSESSMENT YEAR S DURING W H ICH THE AMALGAMATED COMPANY HAD BEEN CARRY I N G ON I TS BUS I NE S S ACT IVITIES. BUT, HERE THE C IT(A) OBSERVED THAT, I N MY OPIN I ON , IN VIEW OF THE EXPRESS PROVISIONS OF SEC . 72A OF T HE ACT I N AS MUCH AS AND THAT THE APPELLANT COMPANY WAS NOT ENTITLED FOR THE CARRY FORWARD A N D SET OFF O F TH E AFORESAID UNABSORBED ACCUMULATED L OSSES/BUSINESS LO S S AND U NABS ORBED DEPRECIATION I N RESPECT OF THE AMA LGA MATED COMPANY UND E R TH E P R OVISIONS OF S E C . 72 AND 32(2) OF THE ACT RESPECTIVE LY, PA R T I CULAR L Y W HEN THE AMA LGAMATIO N H A S NOT BEEN CARR I ED OUT FOR 20 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 THE REVIVAL OF T HE AMA L GAMATING CO MPANY A N D TH A T T HE AMALGAMATIO N DID NOT SERVE THE GENUINE BUSINESS PURPOSE. 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 W AS 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 RS.6,07,11,696/ - AND RS.7,56,29,069/ - RESPECTIVELY A V AILAB L E 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 APPRECIATI ON 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 AMALGAM ATED 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 RS.1 LAC ON AD HOC BASIS OUT OF THE TOTAL ADDITION MADE BY AO AT RS .9,71,006/ - ON ACCOUNT OF PURCHASE OF GIFTS ETC. FOR TRAVEL AGENTS IN DOMESTIC AND INTERNATIONAL TRADE FARE FOR SALE PROMOTION OF TOURISM PRODUCTS. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO. 3: 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LD. CIT(A) ERRED IN CONFIRMING ON AN AD HOC BASIS, A SUM OF RS.1,00,000/ - OUT OF THE DISALLOWED SUM OF RS.9,71,006/ - INCURRED FOR PURCHASE OF GIFTS ETC FOR TRAVEL AGENTS IN DOMESTIC AND INTERNATIONAL TRADE FAIR FOR SALES PROMOTION OF TOU RISM PRODUCTS, WHICH WAS ENTIRELY GENUINELY INCURRED FOR BUSINESS PURPOSES OF THE APPELLANT COMPANY. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT INTEREST IN PROSECUTING THIS GROUND AND THE SAME MAY BE TREATED AS WITHDRAWN DUE TO SMAL LNESS OF AMOUNT. THE CIT, DR HAS NOT OBJECTED TO THE WITHDRAWAL. HENCE, WITHDRAWAL IS PERMITTED. THIS ISSUE OF ASSESSEE S APPEAL IS DISMISSED. 13. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENSES DEBITED ON ACCOUNT OF PROFESSIONAL SERVICE CHARGES FOR NON - DEDUCTION OF TDS U/S. 194J OF THE ACT BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO.4: 21 ITA NO.1764/K/2014 VIVADA CHEMICALS PVT. LTD. AY 201 - 12 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,62,492/ - ON ACCOUNT OF NON DEDUCTION OF TDS U/S 40(A)(IA) OF THE ACT. 14. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE HAS DEDUCTED TDS ON THE ABOVE AMOUNTS OF RS.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 RELEV A NT POINT OF TIME . ACCORDINGLY, LD. COUNSEL FOR THE ASSESSEE REQUESTED FOR SETTING ASI DE 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. 15. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 1 6 . ORDER PRONOUNCED IN OPEN COURT ON 1 8 . 1 2 . 2 0 1 4 S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 8 T H DEC EMBER , 2014 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT VIVADA CHEMICALS PVT. LTD. (RENAMED AS VIVADA CORPN. PVT. LTD.) CHATURDASHI APARTMENT, 14 SOUTHERN AVENUE, KOL - 26 2 / RESPONDENT D CIT, CIRCLE - 1 0 , KOLKATA 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .