Amalgamated Company can’t set off loss u/s 72A if rejected by the AO: ITAT

Case Details: ACIT v. Hotel Leela Venture Ltd. - [2023] 146 taxmann.com 350 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Om Prakash Kant, Accountant Member & Sandeep Singh Karhail, Judicial Member
  • Rakesh Ranjan, CIT-DR for the Appellant.
  • Prakash K. Jotwani, Adv. for the Respondent.

Facts of the Case

Assessee, being a company in which public was substantially interested, acquired majority (more than 51%) of the shareholding of another company (amalgamating company). Beforehand, amalgamating company’s shares were held by another company in which public was not substantially interested.

After amalgamation, assessee filed its return of income claiming unabsorbed business losses and unabsorbed depreciation of the amalgamating company. During the reassessment proceedings, the Assessing Officer (AO) indicated that in the case of amalgamating Co., section 79 was attracted as more than 51% of the shareholding had changed. Thus, he disallowed the claim for unabsorbed business loss and depreciation in hands of the amalgamated company also as the same was not allowable for amalgamating Co.

Aggrieved by the AO’s order, the assessee preferred an appeal to the CIT(A). The CIT(A) allowed the assessee’s claim on the ground that section 72A being a specific provision will prevail over section 79 and permitted the carry forward of business allowance and unabsorbed depreciation. The matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the shares of amalgamating company were first held by a closely held company, and then transferred such shares by amalgamating company to the assessee leading to the attraction of section 79. Afterward, section 72A gets attracted when the assessee’ amalgamation gets approved by the order of the High Court.

Section 79 provides that unabsorbed business losses or depreciation can be carried forward in case of a closely held company, only if the shareholding of more than 51% of the company were held by the same persons. Section 72A lays down the conditions for carrying forward unabsorbed business losses and depreciation in case of amalgamation of the companies.

In the instant case, assessee’s claim was rejected by the AO under section 79. The deduction for the same loss cannot be claimed by assessee under section 72A unless AO’s finding was reversed by higher authorities. The claim for such losses in the case of the amalgamating company was still in appeal before the appellate authority.

Since the allowability of losses in case of the amalgamating company under section 79 was still pending, AO was directed to give effect to the appeal after the disposal of such appeal.

List of Cases Referred to

• • Dy. CIT v. Credila Financial Services (P.) Ltd. [2018] 91 taxmann.com 112/64 ITR (Trib.) 324/192 TTJ 511 (Mum.) (para 6)
  • Dy. CIT v. Instant Traders (P.) Ltd. [2018] 96 taxmann.com 378 (Mum. – Trib.) (para 6)
  • Meredith Traders (P.) Ltd. v. ITO [2011] 12 taxmann.com 29/46 SOT 207/142 TTJ 182 (Mum.) (para 6).