ACIT, CHENNAI V. M/s. Dadha Pharma (P) Ltd., CHENNAI

ITA 2142/CHNY/2013

• Counselvise Citation: 214221714 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: D ANAND
• Keywords: Depreciation; Scheme of amalgamation; Unabsorbed depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.2115 & 2116/MDS/13 ' (' / ASSESSMENT YEARS : 2003-04 & 2004-05 M/S DADHA PHARMA PRIVATE LIMITED, NO.268, LLOYDS ROAD, ROYAPETTAH, CHENNAI - 600 034. PAN : AAACD 1265 F V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(4), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) ./ ITA NOS.2142 & 2143/MDS/13 ' (' / ASSESSMENT YEARS : 2003-04 & 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(4), CHENNAI - 600 034. V. M/S DADHA PHARMA PRIVATE LTD., NO.268, LLOYDS ROAD, ROYAPETTAH, CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) ASSESSEE BY : SHRI D. ANAND, ADVOCATE REVENUE BY : SHRI P. RADHAKRISHNAN, JCIT . / 0$ / DATE OF HEARING : 23.04.2015 1!( / 0$ / DATE OF PRONOUNCEMENT : 29.05.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH ASSESSEE AND REVENUE HAVE FILED THE APPEALS AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCO ME TAX 2 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 (APPEALS)-I, CHENNAI, DATED 27.09.2013 AND PERTAINI NG TO ASSESSMENT YEARS 2003-04 AND 2004-05. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THE APPEALS, WE HEA RD ALL THE APPEALS TOGETHER AND DISPOSING OF BY THIS COMMON ORDER. 2. FIRST LETS TAKE THE REVENUES APPEALS IN I.T.A. NOS.2142 & 2143/MDS/13. 3. SHRI P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT AS PER CONDITION STI PULATED IN SECTION 47(XIII)(D) OF THE INCOME-TAX ACT, 1961 (IN SHORT ' THE ACT'), THE ERSTWHILE PARTNERS SHARE IN THE COMPANY SHOULD NOT BE LESS THAN 50%. IN THIS CASE, ACCORDING TO THE LD. D.R., THE SHAREHOLDING OF THE ERSTWHILE PARTNERS IS ONLY 33.32%. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE TO CAR RY FORWARD THE LOSSES OF THE FIRM. SINCE THE CONDITIONS ARE STIPU LATED IN SECTION 47(XIII)(D) OF THE ACT, THE CIT(APPEALS) IS NOT COR RECT IN ALLOWING THE CLAIM OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI D. ANAND, THE LD.COUNSEL F OR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY ENGAG ED ITSELF IN THE BUSINESS OF MANUFACTURE AND SALE OF PHARMACEUTI CALS. ACCORDING TO THE LD.COUNSEL, THE ASSESSEE-COMPANY H AS TAKEN OVER 3 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 THE ASSETS AND LIABILITIES OF A PARTNERSHIP FIRM BY NAME M/S DADHA & CO. WITH EFFECT FROM 1.4.2000. THE LD.COUNSEL FURT HER SUBMITTED THAT THE PARTNERSHIP FIRM M/S DADHA & CO. CONSISTED OF T HREE PARTNERS, NAMELY, SHRI MOHAN CHAND DADHA (HUF), SHRI PRADEEP DADHA (HUF) AND SMT. KANTA KAWAR DADHA. ACCORDING TO THE LD.COUNSEL, ALL THE THREE PARTNERS OF THE FIRM BECAME SHAREHOLD ERS OF THE ASSESSEE-COMPANY AND SHARES WERE ALLOTTED TO THEM I N THE SAME RATIO AS PER THEIR RESPECTIVE HOLDING IN THE ERSTWH ILE PARTNERSHIP FIRM. THE LD.COUNSEL FURTHER SUBMITTED THAT THE PARTNERSH IP FIRM M/S DADHA & CO. HAD CARRIED FORWARD LOSSES TO THE EXTEN T OF ` 34,16,234/- , WHICH WAS CLAIMED BY THE ASSESSEE-COM PANY UNDER SECTION 72A(6) OF THE ACT. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SHARES ALLOTTED TO THE ERSTWHILE PARTNERS ARE ONLY 33.32%. THEREFORE, THE CONDITIONS STIPULATED IN SECTION 47(XIII)(D) WAS NO T FULFILLED. ACCORDING TO THE LD.COUNSEL, A PERUSAL OF THE CHART FILED BY THE ASSESSEE WOULD CLEARLY REVEAL THAT ALL THE THREE PA RTNERS ARE ALLOTTED SHARES IN RESPECT OF THEIR SHARES HELD IN THE ERSTW HILE PARTNERSHIP FIRM. ACCORDING TO THE LD.COUNSEL, SHRI MOHAN CHAN D DADHA (HUF) WAS ALLOTTED 1250 SHARES, SHRI PRADEEP DADHA (HUF) WAS ALLOTTED 2500 SHARES AND SMT. KANTHA KAWAR DADHA WAS ALLOTTE D 1250 4 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 SHARES. THESE SHARES WERE IN THE SAME PROPORTION A S PER THEIR RESPECTIVE HOLDING IN THE PARTNERSHIP FIRM. 5. REFERRING TO PARA 2.4 OF THE ASSESSMENT ORDER, T HE LD.COUNSEL POINTED OUT THAT THE REFERENCE MADE BY T HE ASSESSING OFFICER WITH REGARD TO SHRI PRADEEP DADHA (HUF) AS IF 1631 SHARES ALLOTTED IS NOT CORRECT. ACCORDING TO THE LD.COUNS EL, THESE SHARES WERE HELD BY SHRI PRADEEP DADHA (HUF) BEFORE SUCCES SION, WHILE AFTER SUCCESSION SHRI PRADEEP DADHA (HUF) HELD 4131 SHARES WHICH INCLUDED 2500 SHARES WHICH WAS ALLOTTED DUE T O SUCCESSION OF THE COMPANY. LIKEWISE, ALL THE THREE PARTNERS WERE SHAREHOLDERS IN THE ASSESSEE-COMPANY AND BY TAKING INTO CONSIDERATI ON OF THE SHARES ALREADY HELD, THE SHAREHOLDING WOULD GO MORE THAN THE RESPECTIVE SHARES HELD BY THE PARTNERS IN THEIR CAP ACITY AS PARTNERS OF THE FIRM. THESE FACTS WERE NOT CONSIDERED BY TH E ASSESSING OFFICER. BECAUSE OF THIS MISTAKE, THE ASSESSING OF FICER CAME TO A CONCLUSION THAT THE SHARES ALLOTTED BY THE COMPANY TO THE ERSTWHILE PARTNERS ARE NOT IN THE EQUAL RATIO OF THEIR SHARES IN THE PARTNERSHIP FIRM. THEREFORE, ACCORDING TO THE LD.COUNSEL, IF T HE SHARES ALLOTTED TO THE RESPECTIVE PARTNERS ARE TAKEN INTO CONSIDERA TION, THE ERSTWHILE PARTNERS HOLD MORE THAN 15128 SHARES IN TOTAL WHICH WOULD COME AROUND 76.02%. HENCE IT IS NOT CORRECT TO SAY THAT WHAT WAS HELD BY 5 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 THE ERSTWHILE PARTNERS IS ONLY 33.32%. ACCORDING T O THE LD.COUNSEL, SINCE THE RESPECTIVE PARTNERS HOLD THE SHARES AROUN D 76.02%, THE LD.COUNSEL SUBMITTED THAT THE CIT(APPEALS) HAS RIGH TLY ALLOWED THE CLAIM OF THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. WHEN THE ASSESSEE- COMPANY TOOK OVER THE ASSETS AND LIABILITIES OF THE PARTNERSHIP FIRM M/S DADHA & CO., FROM THE MATERIAL AVAILABLE ON REC ORD, IT APPEARS THAT THERE WERE THREE PARTNERS IN THE PARTNERSHIP F IRM, NAMELY, SHRI MOHAN CHAND DADHA (HUF), SHRI PRADEEP DADHA (HUF) A ND SMT. KANTA KAWAR DADHA. SHRI MOHAN CHAND DADHA (HUF) WA S ALLOTTED 1250 SHARES OF THE ASSESSEE-COMPANY. LIKEWISE, SHR I PRADEEP DADHA (HUF) WAS ALLOTTED 2500 SHARES AND SMT. KANTH A KAWAR DADHA WAS ALLOTTED 1250 SHARES. THESE ALLOTMENTS W ERE AS IN THE SAME PROPORTION IN RESPECT OF THEIR RESPECTIVE SHAR ES IN THE ERSTWHILE PARTNERSHIP FIRM. THE ASSESSING OFFICER OBSERVED THAT SHRI PRADEEP DADHA WAS ALLOTTED 1631 SHARES BUT WHAT WAS ALLOTTED WERE 1250 SHARES ONLY AND NOT 1631 SHARES. EVEN BE FORE SUCCESSION OF THE PARTNERSHIP FIRM BY THE ASSESSEE- COMPANY, THE PARTNERS HELD THE SHARES OF THE ASSESSEE-COMPANY. IN FACT, SHRI PRADEEP DADHA HELD 1631 SHARES OF THE COMPANY EVEN BEFORE 6 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 TAKING OVER THE PARTNERSHIP FIRM. AFTER TAKING OVE R THE PARTNERSHIP FIRM BY THE ASSESSEE-COMPANY, 2500 SHARES WERE ALLO TTED. THUS TOTALLY SHRI PRADEEP DADHA HELD 4131 SHARES OF THE ASSESSEE- COMPANY. SIMILARLY, SHRI MOHAN CHAND DADHA HELD 12 50 SHARES OF THE ASSESSEE-COMPANY EVEN BEFORE TAKING OVER OF THE PARTNERSHIP FIRM. AFTER TAKING OVER THE PARTNERSHIP FIRM, SHRI MOHAN CHAND DADHA WAS ALLOTTED ANOTHER 1250 SHARES. THEREFORE, THE TOTAL SHARES WERE 2500 SHARES OF THE ASSESSEE-COMPANY AFT ER TAKING OVER. SIMILARLY , SMT. KANTHA KAWAR DADHA ALSO HAD 1200 SHARES OF THE ASSESSEE-COMPANY BEFORE TAKING OVER THE PARTNER SHIP FIRM AND ANOTHER 1250 SHARES WERE ALLOTTED AFTER TAKING OVER THE FIRM. THEREFORE, THE TOTAL SHARES ALLOTTED TO SMT. KANTHA KAWAR DADHA WAS 2500 SHARES. THESE FACTS WERE NOT CONSIDERED B Y THE ASSESSING OFFICER. THE CIT(APPEALS), AFTER CONSIDE RING THE SHAREHOLDING PATTERN, FOUND THAT THE SHAREHOLDING O F THE ERSTWHILE PARTNERS OF THE PARTNERSHIP FIRM IN THE ASSESSEE-CO MPANY EXCEEDED 50%. IN FACT, THE SHAREHOLDING PATTERN OF THE PART NERS OF THE ERSTWHILE FIRM IN THE COMPANY WAS 76.02%. THEREFOR E, IT IS NOT CORRECT TO SAY THAT THE ERSTWHILE PARTNERS HAD ONLY 33.32% OF THE SHARES OF THE ASSESSEE-COMPANY AFTER TAKING OVER. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CONDITIONS STIPU LATED IN SECTION 7 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 47(XIII)(D) OF THE ACT ARE COMPLETELY SATISFIED. T HEREFORE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE A SSESSEE. 7. IN VIEW OF THE ABOVE, THIS TRIBUNAL FINDS NO INF IRMITY IN THE ORDER OF THE CIT(APPEALS) AND ACCORDINGLY THE SAME IS CONFIRMED. 8. NOW COMING TO THE ASSESSEES APPEALS IN I.T.A. N OS.2115 & 2116/MDS/13, THE ONLY ISSUE ARISES FOR CONSIDERATIO N IS WITH REGARD TO DISALLOWANCE OF BROUGHT FORWARD AND UNABSORBED B USINESS LOSS OF THE COMPANY M/S SARANG HAVELIS PVT. LTD. 9. SHRI D. ANAND, THE LD.COUNSEL SUBMITTED THAT HOT EL SARANG HAVELIS PVT. LTD. IS A COMPANY ENGAGED ITSELF IN TH E BUSINESS OF HOTEL, WAS AMALGAMATED WITH ASSESSEE-COMPANY AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE MADRAS HIGH COURT BY JUDGMENT DATED 15.6.2004. THE HIGH COURT, HOWEVER, MENTIONED THE EFFECTIVE DATE OF AMALGAMATION AS 1.4.2002. TH E BENEFIT OF CARRY FORWARD LOSSES UNDER SECTION 72A OF THE ACT W AS EXTENDED TO HOTEL INDUSTRY WITH EFFECT FROM 1.4.2004. HOWEVER, THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT THE BUSINESS OF HOTEL INDUSTRY WAS NOT ELIGIBLE FOR CAR RY FORWARD OF THE LOSSES BEFORE 1.4.2004. THE ASSESSING OFFICER FOUN D THAT THE AMALGAMATION WAS EFFECTIVE FROM 1.4.2002, THEREFORE , THE INCLUSION 8 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 OF HOTEL INDUSTRY UNDER SECTION 72A WITH EFFECT FRO M 1.4.2004 IS NOT APPLICABLE TO THE ASSESSEE. ACCORDING TO THE LD.CO UNSEL, THE AMALGAMATION TOOK EFFECT ONLY AS PER THE JUDGMENT O F THE MADRAS HIGH COURT WHICH WAS DATED 15.6.2004. REFERRING TO SECTION 394(2) OF THE COMPANIES ACT, THE LD.COUNSEL SUBMITTED THAT THE AMALGAMATION TOOK PLACE ONLY BY VIRTUE OF THE JUDGM ENT OF THE MADRAS HIGH COURT. THEREFORE, FOR ALL PRACTICAL PU RPOSES, THE ORDER OF AMALGAMATION WOULD COME INTO OPERATION ON 15.6.2 004, I.E. AFTER AMENDMENT OF SECTION 72A INCLUDING THE HOTEL INDUST RY. THEREFORE, ACCORDING TO THE LD.COUNSEL, THE ASSESSEE IS ELIGIB LE TO CARRY FORWARD THE LOSS. 10. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, THE LD. D.R. SUBMITTED THAT ADMITTEDLY, THE BUSINESS OF HOTEL WA S INCLUDED IN SECTION 72A WITH EFFECT FROM 1.4.2004. THE EFFECTI VE DATE OF AMALGAMATION AS PER THE JUDGMENT OF MADRAS HIGH COU RT IS 1.4.2002. THE CARRY FORWARD HAS TO BE MADE ONLY IN THE YEAR IN WHICH THE AMALGAMATION WAS EFFECTED. SINCE THE AMA LGAMATION WAS EFFECTED ON 1.4.2002, ACCORDING TO THE LD.COUNS EL, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 9 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. ADMITTEDL Y, THE SCHEME OF AMALGAMATION WAS APPROVED BY THE MADRAS HIGH COURT BY JUDGMENT DATED 15.6.2004. HOWEVER, THE AMALGAMATION WAS WITH EFFECT FROM 1.4.2002. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE AMALGAMATION WAS EFFECTIVE FROM 1.4.2002 BY JUDGMEN T DATED 15.6.2004, CAN THE ASSESSEE CLAIM TO CARRY FORWARD ALL ACCUMULATED LOSSES AND UNABSORBED DEPRECIATION OF THE EARLIER A SSESSMENT YEARS? THE CONTENTION OF THE ASSESSEE IS THAT FOR THE PURPOSE OF AMALGAMATION, THE ORDER OF THE HIGH COURT IS VERY E SSENTIAL AND THE DATE OF THE ORDER OF THE HIGH COURT IS ONLY 15.6.20 04. THEREFORE, THE EFFECTIVE DATE OF AMALGAMATION IS 15.06.2004 AND NO T 01.04.2002. 12. THE QUESTION ARISES FOR CONSIDERATION IS WHAT I S THE EFFECTIVE DATE OF AMALGAMATION? THE PROCEEDING UNDER THE COM PANIES ACT FOR AMALGAMATION OF COMPANY IS A LONG ONE. AFTER C OMPLETION OF ALL FORMALITIES, THE COMPANY HAS TO MOVE THE HIGH COURT FOR APPROVAL. THEREFORE, THE ORDER OF THE HIGH COURT IS ONLY TO A PPROVE WHAT WAS DECIDED EARLIER BY THE RESPECTIVE COMPANIES. HENCE , THE TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EFFECTIVE DATE O F APPROVAL IS 1.4.2002 AND NOT THE DATE OF JUDGMENT OF THE HIGH C OURT. ADMITTEDLY, THE PROVISION OF SECTION 72A WAS AMENDE D WITH EFFECT 10 I.T.A. NOS.2115 & 2116/MDS13 I.T.A. NOS.2142 & 2143/MDS/13 FROM 1.4.2004 TO INCLUDE HOTEL INDUSTRY. THEREFORE , THIS TRIBUNAL IS OF THE CONSIDERED OPINION\N THAT THE CIT(APPEALS) H AS RIGHTLY FOUND THAT THE ASSESSEE IS NOT ENTITLED TO CARRY FORWARD THE LOSS DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ORDER O F THE CIT(APPEALS) ON THIS ISSUE IS CONFIRMED. 13. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED AND APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 29 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 3 /DATED, THE 29 TH MAY, 2015. KRI. / ,045 65(0 /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. . 70 () /CIT(A)-I, CHENNAI 4. . 70 /CIT, CHENNAI-I, CHENNAI 5. 58 ,0 /DR 6. 9' : /GF.