THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 vs. INTAS PHARMACEUTICALS LTD.

Facts

The Revenue has filed this Tax Appeal against an order of the ITAT, Ahmedabad, for Assessment Year 2006-07. The assessee, Intas Pharmaceuticals Ltd., is in the business of manufacturing and trading pharmaceutical products. A search under Section 132 was conducted on May 5, 2008. The assessee filed a return under Section 153A declaring Nil income. The initial assessment under Section 153A, finalized on December 30, 2009, allowed set-off of business losses of Rs. 43,49,59,740/- and unabsorbed depreciation of Rs. 4,67,16,865/- from Dolphin Laboratories Ltd. (amalgamated company). The Commissioner initiated proceedings under Section 263, deeming the assessment order erroneous and prejudicial to revenue. A fresh assessment under Sections 143(3), 263, and 153A was completed on January 28, 2013, determining total income at Rs. 48,39,71,340/-, by disallowing the business loss and unabsorbed depreciation of Dolphin Laboratories, and also disallowing sales promotion expenses. The CIT(A) partly allowed the assessee's appeal. The Revenue's appeal to the ITAT was dismissed.

Held

The High Court dismissed the appeal filed by the Revenue. The Court relied on its own decision in IRM Limited v. Deputy Commissioner of Income Tax, Circle-4, (2016) 72 taxmann.com 288 (Gujarat). The reasoning was that once a scheme of amalgamation is sanctioned by the High Court, it relates back to the appointed date specified in the scheme, unless the High Court shifts this date during approval. This retrospective effect means that for all purposes, including the recognition of unabsorbed depreciation and losses of the merging company with the principal company, the benefit would be available from the appointed date. The Court noted that the assessee had brought the fact of the scheme's sanction to the Assessing Officer's notice before the final assessment order was passed. Therefore, the assessee could not be denied the benefit of this development merely because the High Court's sanction order was passed after the accounting period and after the return was filed. The principle established is that a sanctioned amalgamation scheme's retrospective effect to the appointed date is valid for claiming benefits like set-off of losses and unabsorbed depreciation, provided the sanction occurs before the assessment order.

Key Issues

1. Whether the Appellate Tribunal erred in law and facts in upholding the deletion of the addition of Rs. 43,49,59,470/- made on account of disallowance of business loss of Dolphin Laboratories? (Section 153A, Section 143(3)) 2. Whether the Appellate Tribunal erred in law and facts in upholding the deletion of the addition of Rs. 4,67,16,865/- made on account of disallowance of unabsorbed depreciation of Dolphin Laboratories? (Section 153A, Section 143(3)) Assessee's contentions: The assessee argued that the issue is settled by this Court's decision in IRM Limited v. Deputy Commissioner of Income Tax, Circle-4, (2016) 72 taxmann.com 288 (Gujarat). This precedent held that once a scheme of amalgamation is sanctioned, it relates back to the appointed date, even if the sanction occurred after the return filing or initial assessment, allowing benefits like set-off of unabsorbed depreciation and losses from the appointed date. Revenue's contentions: The Revenue contended that the Appellate Tribunal erred by not considering the "cut off date" and instead relying on the "appointed date" or "date of amalgamation" (1.1.2006).