THE ITO 5(2), MUMBAI V. M/S. MACCOY INDUSTIRES P (I) PVT. LTD, MUMBAI

ITA 6398/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1585 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 18-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: ARATI VISANJI
• Keywords: Depreciation; Scheme of amalgamation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO 6398/MUM/2007 (ASSESSMENT YEAR: 2004-05) INCOME TAX OFFICER -5(2)(3) , ROOM NO 566, AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 VS MCCOY INDUSTRIES PVT LTD , M-209, OM CHAMBERS, A K MARG, KEMPS CORNER, UMBAI -400 036 PAN: AACCM 7960 N APPELLANT RESPONDENT APPELLANT BY: SHRI PITAMBAR DAS RESPONDENT BY: SMT ARATI VISANJI ORDER PER PRAMOD KUMAR 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF CIT (A)S ORDER DATED 18TH JANUARY 2007 FOR THE ASSESSM ENT YEAR 2004-05, ON THE FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS TOTALLY OVERLOOKED ALL THE FINDINGS AS GIVEN IN THE ASSESSMENT ORDER. HE HAS IGNORED ARGUMENTS PUT FORTH BY THE AO IN HIS ORDER. THE RELIEF HAS BEEN ALLOWED BY SIMPLY RELYING ON ASSESSEES ARGUMENTS. THE LEARNED CIT (A) HAS IN HIS ORDER STATED THAT UNABSORBED LOSS OF ONLY AM ALGAMATING COMPANY IS TO BE REGULATED THROUGH SECTION 72A OF THE INCOME TAX ACT. THE LEARNED CIT (A) NOT GIVEN ANY FINDING ON THE ISSUE AS TO WHETHER PR OFIT OF AMALGAMATING COMPANY CAN BE SET OFF AGAINST UNABSORBED DEPRECIAT ION / LOSS OF AMALGAMATING COMPANY. 2. THE MATERIAL FACTS GIVING RISE TO THIS DISPUTE B EFORE US ARE AS FOLLOWS. THE ASSESSEE BEFORE US WAS PART OF AN AMALGAMATION SCH EME, DULY APPROVED BY HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 11TH MARCH 2004, WHEREBY ANOTHER COMPANY BY THE NAME OF SHORELINE INFRASTRUCTURE DEVELOPERS LTD (AMALGAMATING COMPANY, IN SHORT) WAS AMALGAMATED IN THE ASSESSEE COMPANY. TH E ASSESSEE COMPANY HAD SOME UNABSORBED DEPRECIATION WHICH WAS CARRIED FORW ARD FROM EARLIER YEARS, AND WHICH WAS CLAIMED FOR SET OFF AGAINST PROFITS OF TH E CURRENT YEAR. ON THESE FACTS, MCCOY INDUSTRIES PVT LTD 2 ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAU SE AS TO WHY SET OFF OF CARRIED FORWARD DEPRECIATION NOT BE DISALLOWED AS IT IS VIO LATIVE OF LETTER AND SPIRIT OF SECTION 72A. WHEN IT WAS POINTED OUT BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 72A THE PROVISIONS OF SECTION 72A APPLIED TO LOSSES CARRIED FORWARD AND UNABSORBED DEPRECIATION OF THE AMALGAMATING COMPANY AND NOT TO THAT OF AMALGAMATED COMPANY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS RESORTED TO AMALGAMATION OF A HEALTHY COMPANY INTO A LOSS MAKIN G COMPANY, AS A NOVEL, METHOD TO AVOID TAXES, AND THIS KIND OF MANOEUVRIN G IS A COLOURFUL DEVICE WITH MALAFIDE MOTIVES. RELIANCE WAS ALSO PLACED ON HONBLE SUPRE ME COURTS JUDGMENT IN THE CASE OF MCDOWELL & CO LTD VS ITO (154 ITR 148) IN SUPPORT OF THE PROPOSITION THAT ANY PLANNING OF TAX WHICH THOUGH DONE STRICTL Y ACCORDING TO LEGAL R4EQUIREMENT BUT DEFEATS THE BASIC INTENTION OF LEGISLATURE COUL D BE TERMED AS INSTANCE OF TAX AVOIDANCE (WHICH) IS ILLEGITIMATE. LEARNED ASSES SING OFFICER ALSO DISCUSSED THE PROVISIONS TO SECTION 72A TO DEMONSTRATE UNAMBIGUOU S SCHEME OF THE ACT, AS ALSO METICULOUSLY SET OUT THAT THE AMALGAMATING SCHEME W AS NOTHING MORE THAN A NOVEL DEVICE OF TAX AVOIDANCE, THAT TRUE EFFECT OF MERGER WAS MERGER OF MCCOY INTO SHORLIVE, AND THAT THE PROFITS EARNED BY THE ASSESS EE COMPANY, WHICH ARE PROFITS OF SHORELINE, COULD NOT BE SET OFF AGAINST THE UNABS ORBED DEPRECIATION OF MCCOY I.E. THE COMPANY WHICH HAD ACTUALLY MERGED INTO SHORELI NE. ACCORDINGLY, SET OFF OF UNABSORBED DEPRECIATION AGAINST PROFITS OF THE ASSE SSEE COMPANY WAS DECLINED U/S 72A. 3. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). LEARNED CIT ( A) UPHELD THE CONTENTIONS OF THE ASSESSEE. HE DID AGREE THAT FACTS OF THE CASE WHIC H SHOWED THAT THE IDEA BEHIND THE AMALGAMATION SCHEME WAS TO KEEP ALIVE THE HEALTHY C OMPANY I.E. AMALGAMATING COMPANY, AND IT WAS IDENTIFY OF AMALGAMATED COMPANY WHICH WAS EVENTUALLY KILLED. ONE IMPORTANT FACTOR, TO SUPPORT THIS THEORY, WAS T HAT THE AMALGAMATED COMPANY LATER CHANGED THE NAME AND ADOPTED THE NAME OF THE AMALGAMATING COMPANY. IT WAS THUS HIGHLIGHTED THAT WHILE SHORELINE (AMALGAMA TING COMPANY) AMALGAMATED INTO MCCOY (AMALGAMATED COMPANY, I.E. THE ASSESSEE) , THE NAME OF THE AMALGAMATED COMPANY WAS, VIDE REGISTRAR OF COMPANIE S CERTIFICATE EFFECTIVE FROM MCCOY INDUSTRIES PVT LTD 3 11.11.2004, CHANGED TO SHORELINE (I.E. COMPANY WHIC H HAD AMALGAMATED INTO THE ASSESSEE COMPANY). IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION ONLY THE UNABSORBED DEPRECIATION CAN BE GOVERNED BY SECTION 72A, WHEREAS, IN THE INSTANT CASE, THE UNABSORBED DEPREC IATION ACTUALLY BELONGED TO THE AMALGAMATED COMPANY WHICH WAS TO BE GOVERNED BY SEC TION 32(2) OF THE ACT. LEARNED CIT (A) THUS CONCLUDED THAT THE PROVISIONS OF SECTION 72A DO NOT COME INTO PLAY AT ALL, AND, AS SUCH, THE ASSESSING OFFICER WA S NOT JUSTIFIED IN DECLINING THE SET OFF OF UNABSORBED DEPRECIATION AGAINST PROFITS OF T HE ASSESSEE FOR THE CURRENT YEAR. THIS STAND OF THE CIT (A) HAS NOT SATISFIED THE ASS ESSING OFFICER, WHO IS IN APPEAL BEFORE US AGAINST THE SAME. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE APPLICABLE LEGAL P OSITION. 5. IT IS EVIDENT ON A PLAIN READING OF THE IMPUGNED CIT (A)S ORDER THAT THE ISSUES RAISED BY THE ASSESSING OFFICER HAVE INDEED NOT BEE N ADDRESSED BY THE CIT (A). THE REAL ISSUE RAISED BY THE ASSESSING OFFICER WAS BONA FIDES OF AN AMALGAMATION SCHEME WHEREBY A HEALTHY COMPANY HAS BEEN MERGED INTO A SI CK COMPANY, AND PARTICULARLY WHEN NAME OF THE HEALTHY COMPANY HAS BEEN ADOPTED B Y THE AMALGAMATED COMPANY. ACCORDING TO THE ASSESSING OFFICER, THE O NLY BENEFIT OF THIS DEVIATION FROM THE PRACTICE OF MERGING A SICK COMPANY INTO A HEALT HY COMPANY WAS THAT THE UNABSORBED DEPRECIATION AND CARRIED FORWARD LOSSES OF THE SICK COMPANY WILL BE AVAILABLE FOR SET OFF, AGAINST PROFITS OF THE HEALT HY COMPANY, WITHOUT ANY RESTRICTIONS U/S 72A(2) OF THE ACT. LEARNED CIT (A) PROCEEDED T O DEAL WITH THE APPLICABILITY OF LEGAL POSITION WITHOUT DEALING WITH THE ABOVE FACTO RS. 6. BE THAT AS IT MAY, IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE AMALGAMATION SCHEME IS DULY APPROVED BY HONBLE BOM BAY HIGH COURT AND ONCE THAT THEIR LORDSHIPS ARE PLEASED A SCHEME OF AMALGAMATIO N, IT IS NOT FOR THE SUBORDINATE AUTHORITIES TO DECLINE TO GIVE EFFECT TO CONSEQUENC ES OF SUCH A SCHEME OF AMALGAMATION. WE FIND THAT THE ASSESSEE BEFORE US IS THE AMALGAMATED COMPANY AND THE UNABSORBED DEPRECIATION IS ALSO OF THE AMAL GAMATED COMPANY. UNDER THESE MCCOY INDUSTRIES PVT LTD 4 CIRCUMSTANCES, AS LEARNED CIT (A) RIGHTLY OBSERVED, UNABSORBED DEPRECIATION OF THE AMALGAMATED COMPANY CAN BE INDEED BE SET OFF AGAINS T PROFITS OF THE ASSESSEE COMPANY UNDER SECTION 32(2), AND THE PROVISIONS OF SECTION 72A DO NOT COME INTO PLAY AT ALL. IN THIS VIEW OF THE MATTER, RESPECTFU LLY GIVING EFFECT TO THE SCHEME OF AMALGAMATION APPROVED BY HONBLE BOMBAY HIGH COURT, WE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE CIT (A) AND DECLINE TO INTERFERE IN THE MATTER. 7. THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 27TH OCT OBER 2009. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 27TH OCTOBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-V, MUMBAI. 4) THE CIT, MC-V, MUMBAI. 5) THE D.R. B BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI MCCOY INDUSTRIES PVT LTD 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 26.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 26.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER