Deputy Commissioner of Income-tax, V. Fresenius Kabi India Pvt. Ltd., Pune

ITA 2096/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6740 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-01-2019
• Assessment Year: 2006-2007
• Appeal Filed On: 09-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRITA MISHRA
• Keywords: Depreciation; Wholly owned subsidiary; Scheme of amalgamation; Unabsorbed depreciation; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2096/PUN/2016 / ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE- 1(2), PUNE. ....... / APPELLANT / V/S. FRESENIUS KABI INDIA PVT. LTD., HERITAGE HOUSE, 6 E, RAMABAI AMBEDKAR ROAD, PUNE. PAN : AAACF2614E / RESPONDENT REVENUE BY : SMT. AMRITA MISHRA, CIT ASSESSEE BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 01.01.2019 / DATE OF PRONOUNCEMENT : 21.01.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-1, PUNE DATED 02.06.2016 FOR THE ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER :- 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ALLOWING SET OFF OF UNABSORBED DEPRECIATION TO THE TUNE OF RS.30 CRS. 3. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ALLOWING THE GROUND IN FAVOUR OF ASSESSEE IGNORING THE PROVISIONS OF SECTION 72A OF THE ACT. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2 ITA NO.2096/PUN/2016 5. THE APPELLANT CRAVES TO ADD, AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE HONBLE TRIBUNAL. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF INTRAVENOUS FLUIDS AND FILED THE RETURN OF INCOME DECLARING LOSS OF RS.17,93,84,788/-. THE ASSESSEE HAS A SUBSIDIARY COMPANY NAMELY IVEON LABORATORIES LTD. AND THE SAME STANDS AMALGAMATED WITH THE ASSESSEE COMPANY. AS A RESULT OF SCHEME OF AMALGAMATION AS APPROVED BY THE HONBLE HIGH COURT ASSETS, THE LIABILITIES WERE TAKEN OVER BY THE ASSESSEE AT BOOK VALUES OF RS.3,92,86,762/-, THE DIFFERENTIAL AMOUNT BETWEEN THE ASSETS AND LIABILITIES OF THE SAID IVEON LABORATORIES LTD. (SUBSIDIARY COMPANY OF THE ASSESSEE). THE SAME WAS ADJUSTED AGAINST THE SHARE PREMIUM OF THE ASSESSEE. FURTHER, THE SHARE CAPITAL OF THE ASSESSEE COMPANY STANDS REDUCED BY RS.30.00 CRORES EQUIVALENT TO 3 CRORES EQUITY SHARES HELD BY THE FOREIGN COMPANY OF THE ASSESSEE I.E. FRESENIUS KABI AG. THE SAID RS.30 CRORES IS TRANSLATED TO RS.18 CRORES TOWARDS UNABSORBED DEPRECIATION AND RS.12 CRORES TOWARDS ACCUMULATED BUSINESS LOSS OF THE COMPANY. OTHERWISE, THE TOTAL BOOK LOSS OF THE COMPANY IS RS.52,53,91,416/-. THE DIFFERENCE SUM OF RS.22,53,91,416/- (I.E. RS.52,53,91,416/- MINUS RS.30 CRORES) WAS SHOWN AS BOOK LOSS IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSMENT WAS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT. HOWEVER, ADJUSTMENT IN CONNECTION WITH THE SAID RS.30 CRORES AGAINST THE CLAIM OF LOSSES, THE REASSESSMENT PROCEEDINGS WAS INITIATED U/S 148 OF THE ACT. 4. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE ENTRY OF ADJUSTMENT OF RS.30 CRORES TOWARDS CLAIM OF 3 ITA NO.2096/PUN/2016 BUSINESS LOSSES/UNABSORBED DEPRECIATION IS IN ACCORDANCE WITH THE LAW. THE ASSESSEE IS ENTITLED TO CLAIM OF FULL AMOUNT OF BUSINESS LOSSES/UNABSORBED DEPRECIATION AND THE SAME IS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE AO HOLDS THAT THE CLAIM OF LOSSES NEEDS TO BE ADJUSTED BY RS. 30 CRORES TOO. THE WRITTEN SUBMISSIONS OF THE ASSESSEE IN THIS REGARD ARE EXTRACTED IN PARA 2 OF THE ASSESSMENT ORDER. HOWEVER, AFTER CONSIDERING THE SAID WRITTEN SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER PROCEEDED TO HOLD THAT THE ASSESSEE IS REQUIRED TO REDUCE THE CARRY FORWARD UNABSORBED LOSSES WHEN THE ASSESSEE REDUCED THE BOOK LOSSES TO THE EXTENT OF RS.30 CRORES. 5. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE REDUCTION OF THE LOSSES IN THE BOOKS OF ACCOUNT FOR MAT PURPOSES IS DIFFERENT FROM THAT OF THE ALLOWABILITY OF CLAIM OF BUSINESS LOSSES UNDER THE NORMAL PROVISIONS OF THE ACT. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER FAILED TO UNDERSTAND THE DIFFERENCE BETWEEN THE CLAIM OF BOOK LOSSES AND UNABSORBED DEPRECIATION UNDER THE MAT PROVISIONS AND THE NORMAL PROVISIONS. AS PER THE ASSESSEE, NO LOSS IS EVER REPRESENTED BY ANY TANGIBLE OR ELIGIBLE ASSETS. BY REDUCTION OF SHARE CAPITAL BY RS.30 CRORES IN THE BOOKS, NOTHING NEW HAPPENED FOR DISTURBING THE CARRY FORWARD CLAIM OF UNABSORBED LOSSES UNDER THE PROVISIONS OF THE INCOME TAX ACT. AS PER THE ASSESSEE, THE ONLY EFFECT OF THIS SHARE CAPITAL IS UPON THE SHAREHOLDERS WHO SUFFER LOSSES ON ACCOUNT OF REDUCTION AND, THEREFORE, THE SAID REDUCTION WILL NOT AFFECT THE BUSINESS LOSSES OF THE COMPANY IN ANY WAY. THE CIT(A) AFTER CONSIDERING THE SAME DELETED THE ADJUSTMENT MADE BY THE ASSESSING OFFICER TO THE CLAIM OF BROUGHT FORWARD/UNABSORBED DEPRECIATION TO THE EXTENT OF RS.30 CRORES. 4 ITA NO.2096/PUN/2016 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE OF REQUIREMENT OF REDUCING THE BROUGHT FORWARD BUSINESS LOSSES/UNABSORBED DEPRECIATION UP TO THE EXTENT OF RS.30 CRORES WHEN SHARE EQUITY OF THE ASSESSEE IS REDUCED BY THE SAME AMOUNT. WE ALSO PERUSED THE FINDINGS OF THE CIT(A) IN THIS REGARD AND EXTRACT THE CONTENTS OF PARA 5 OF THE CIT(A)S ORDER AS FOLLOWS :- 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, IT IS SEEN THAT M/S IVEON LABORATORIES LTD. (100% SUBSIDIARY OF THE APPELLANT COMPANY) HAD AMALGAMATED WITH THE APPELLANT CO. LOSSES OF AMALGAMATED COMPANY ARE ALLOWED TO BE CARRIED FORWARD IN THE AMALGAMATING COMPANY AS PER SECTION 72A OF THE I.T. ACT, 1961. THEREFORE, REDUCTION OF SHARE CAPITAL OF RS.30 CRS. AND REDUCTION OF CORRESPONDING AMOUNT IN THE BOOKS OF ACCOUNT IS NOTHING BUT CLEANING THE BOOKS OF ACCOUNT AS PER AMALGAMATION SCHEME APPROVED BY THE HIGH COURT AND IT HAS NOTHING TO DO WITH ALLOWABILITY OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AS PER INCOME-TAX ACT, 1961. FURTHER, THE LOSS OF RS.30 CRS. HAS NOT BEEN CLAIMED BY THE APPELLANT IN THE COMPUTATION OF TOTAL INCOME AND THE LOSS HAS TO BE ULTIMATELY BORN BY SHARE HOLDERS OF THE APPELLANT COMPANY. THEREFORE, CONSIDERING THE TOTALITY OF FACTS, AS WELL AS LAW, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN REDUCING THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION AMOUNTING TO RS.30 CRS. AS PER I.T. ACT, 1961. ACCORDINGLY, HE IS DIRECTED TO NOTIFY BROUGHT FORWARD BUSINESS LOSS/UNABSORBED DEPRECIATION WITHOUT REDUCING RS.30 CRS. THUS, GROUND NO.2 TO 8 ARE ALLOWED. 7. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) DID NOT APPROVE THE FINDING OF THE ASSESSING OFFICER IN THE REASSESSMENT ORDER QUA THE REQUIREMENT OF REDUCTION OF BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION TREATING THE REDUCTION OF SHARE EQUITY IN SHARE CAPITAL OF THE COMPANY CONSEQUENT TO THE DIRECTION OF THE HONBLE HIGH COURT IN THE SCHEME OF AMALGAMATION. IN OUR VIEW, THE SAID DIRECTION OF THE REDUCTION OF SHARE CAPITAL SHOULD NOT BE CONFUSED TO THAT OF THE CLAIM OF UNABSORBED DEPRECIATION AND BUSINESS LOSSES. THE SAID CLAIM OF THE ASSESSEE CAN ONLY BE DISTURBED IF THERE IS A DIRECTION OF HONBLE HIGH COURT IN FAVOUR OF TREATING THE MANNER OF SCHEME OF AMALGAMATION WHICH IS NOT THE CASE HERE. OTHERWISE, THE PROVISIONS OF THE INCOME TAX ACT IS 5 ITA NO.2096/PUN/2016 VERY CLEAR THAT THE ASSESSEE IS ENTITLED TO CARRY FORWARD THE SAID CLAIM OF LOSSES/UNABSORBED DEPRECIATION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72A OF THE ACT. IT IS ALSO BORNE OUT OF THE ACT THAT THE LOSSES OF THE AMALGAMATING COMPANY ARE REQUIRED TO BE CARRIED FORWARD AS THE LOSSES OF THE ASSESSEE AFTER THE PROCESS OF AMALGAMATION APPROVED BY THE HIGHER JUDICIARY. THEREFORE, IN OUR VIEW, THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE ON THIS ISSUE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 21 ST DAY OF JANUARY, 2019. S SD/- D/- SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 21 ST JANUARY, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-1, PUNE. 4. THE PR. CCIT, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.