DCIT, CHENNAI vs. SRINIVASA FASHIONS PVT LTD., CHENNAI

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-15, Chennai in New dated 12.04.2019. The assessment was framed by the DCIT, Company Circle VI(4), Chennai for the assessment year 2008-09 u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.03.2014.

The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the disallowance made by AO on depreciation. For this, Revenue has raised following grounds:- 2. The Ld.CIT(A) erred in deleting the disallowance, as the conditions of the proviso to section 32(1)(ii) of the Act were not satisfied in this case. 2.1 The Ld.CIT(A) ought to have appreciated that the depreciation in a case of succession has to be apportioned on the basis of the number of days the asset was used.

Brief facts are that the assessee filed its return of income for assessment year 2008-09 on 30.09.2008 and subsequently filed revised return on 29.09.2009 admitting ‘nil’ income after claiming deduction of Rs.2,95,01,806/- u/s.10AA of the Act for its SEZ unit and loss of Rs.49,41,561/- for its DTA unit. The case was selected for Scrutiny and notice u/s 143(2) of the Act dated 19.08.2010 was issued was issued. The AO reopened the assessment u/s 148 of the Act, on the ground that unabsorbed depreciation of Rs.97,53,913/- claimed by firm M/s.Srinivasa Exports International (SEI) has been wrongly allowed when the assessee did not claim depreciation on the assets transferred from M/s.Srinivasa Exports International but claimed as unabsorbed depreciation. After giving opportunity to assessee, the AO held that since the assessee company took over the firm only from 01.03.2018 onwards, it can set off depreciation only to the extent of Rs 8,26,151/- (31 days) only as against Rs. 97,53,913/- allowed in the original assessment and hence added Rs.89,27,762/- whereas the order of CIT(A) dated 15.02.2016 held that “the AO is directed to allow claim of set off of unabsorbed depreciation after verification of conditions as laid down in section 47 (xii) from the relevant records. These grounds of appeal are allowed for statistical purpose”. On appeal, the Tribunal in order dated 30.11.2017 has remitted back the matter to CIT(A) to pass a speaking order.

We have heard rival contentions and gone through facts and circumstances of the case. Before us, the ld.AR for the assessee stated that the assessee is eligible for claim of depreciation for full 365 days and not in proportion due to merger of the assessee company with that of M/s. Srinivasa Exports International in regard to unabsorbed depreciation. The ld.AR drew our attention to the conditions laid down in section 47(xiii) of the Act and the provisions governing the law of carry forward and set off of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation and demerger. The ld.AR drew our attention to section 72A(6) of the Act and particularly proviso which provides that certain conditions are to complied with. The relevant provision of section 72A(6) reads as under:- “Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc SECTION 72A (6) Where there has been reorganisation of business, whereby, a firm is succeeded by a company fulfilling the conditions laid down in clause (xii) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of section 47, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor firm or the proprietary concern, as the case may be, shall be deemed to be the loss or allowance for depreciation of thee successor company for the purpose of previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly:

The ld.DR could not controvert the fact situation and could not point out all the conditions mentioned in section 72A(6) of the Act not met with.

We noted that the assessee has filed complete details stating that it had fulfilled all the stipulated conditions u/s.47(iii) of the Act, that all the assets of the partnership firm became the assets of the assessee company from the date of merger. Even all the partners of the firm before the takeover have become shareholders of the assessee company in the same proportion and the partners have not got any additional benefit before the takeover other than the shares allotted in the company in the same proportion which has taken over the firm. We also noted from the chart filed before us i.e., percentage of holding that the aggregate of the shareholding in the company of the partners of the firm is not less than 50% of the total voting power and their shareholding continues to be as such 5 years from the date of succession. Another condition that the SEBI should approve the corporatization of the company is not applicable to the assessee company being a private limited company and that condition applies to the limited company. In view of the admitted factual aspects and as per provisions of law i.e., section 72A(6) of the Act and provisions of section 47(iii) of the Act or the proviso to clause xiv of section 47 of the Act, we are of the view that the assessee has complied with all the conditions and hence, entitled for claim of deduction in regard to unabsorbed depreciation and carry forward depreciation. Therefore, we confirm the order of CIT(A) and this issue of Revenue’s appeal is dismissed.

In the result, the appeal filed by the Revenue is dismissed.