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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आयकर अपीलीय अिधकरण, ‘सी’ �यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी महावीर �संह, उपा�य� एवं �ी मनोज कुमार अ�वाल, लेखा सद�य के सम� BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
आयकरअपीलसं./ITA No.: 2004/CHNY/2019 िनधा�रण वष�/Assessment Year: 2008 - 09 The ACIT, Srinivasa Fashions Pvt. Ltd., Corporate Circle 6(2), vs. 1A, Regency Apartments, No.5, 1st Lane, Chennai. Nungambakkam High Road, Chennai – 600 034. PAN: AAICS 9511R (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri P. Sajit Kumar, JCIT ��यथ� क� ओर से/Respondent by : Shri T. Banusekar, CA सुनवाई क� तार�ख/Date of Hearing : 05.09.2022 घोषणा क� तार�ख/Date of Pronouncement : 21.10.2022 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-15, Chennai in New ITA No.348/2018-19/CIT(A)-15 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.
2 ITA No.2004/Chny/2019 2. 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.
3 ITA No.2004/Chny/2019 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 ITA No.1965/Mds/2017, order dated 30.11.2017 has remitted back the matter to CIT(A) to pass a speaking order.
3.1 As per the direction of the Tribunal, the CIT(A) after considering the assessee’s submissions allowed the claim of assessee by observing as under:- 4.3.3 The AR has furnished all the supporting documents to substantiate her claim that all the conditions stipulated u/s 47xiii) are fulfilled. As per the provisions of the IT Act, once a partnership firm is taken over by a limited company, the brought forward loss of the partnership firm should be carried forward to the Limited company. Since the appellant's company has fulfilled all the conditions, the entire brought forward unabsorbed depreciation of Rs. 97.53 lacs including the disallowed portion of 89.27 lacs should be allowed to be brought forward to the appellant's company. In view of the above remarks, the AO is directed to allow the appellant's claim of brought forward unabsorbed depreciation pertaining to the partnership firm as claimed by the appellant's company. Accordingly the appellant's grounds are allowed.
Aggrieved, Revenue is in appeal before the Tribunal.
4 ITA No.2004/Chny/2019 4. 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:
Provided that if any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) to section 47 are not complied with, the
5 ITA No.2004/Chny/2019 set off of loss or allowance of depreciation made in any previous year in the hands of the successor company, shall be deemed to be the income of the company chargeable to tax in the year in which such conditions are not complied with.”
4.1 Further, he referred to the provisions of section 47 of the Act, transactions not regarded as transfer and argued that all the conditions in the present case are fulfilled and he filed details as under:- (a) all the assets and liabilities of the firm 3"[or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company;
Srinivasa Fashions have took over all the assets and liabilities of the firm SEI and incorporated in its balance Sheet of “SFPL DTA unit" w.e.f from 01.03.2008.
(b) all the partners of the firm immediately before the succession become the Shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;
Srinivasa Exports International (SEI) the firm had its partners namely Mr. CV Ravindran and Mrs. Vijayalakshmi Ravindran and Equity shares of Srinivasa Fashions Pvt Ltd have been allotted to the above two partners on the basis of Partners Capital outstanding in Srinivasa Exports International as on 01.03.2008. Please refer agreement made between Srinivasa Exports International and Srinivasa Fashions Pvt ltd dated 1st Mar 2008. The copy of audited balance sheet of M/s Srinivasa Exports International as on 01.03.2008 reflecting closing balance of partners is also enclosed for your kind perusal.
(c) the partners of the firm do not receive any consideration or benefit, directly or directly n any form or manner, other than by way of allotment of shares in the company; and
6 ITA No.2004/Chny/2019 The partners of Srinivasa Exports International have been allotted Equity Shares to the extent of their Capital outstanding as on 01.03.2008. Please refer agreement dated: 01.03.2008 and Form 2 filed with Registrar of Companies on 05.03.2008 and audited financials of SEI as on 01.03.2008.
(d) the aggregate of the shareholding in the company of the partners of the firm is not less, than fifty per cent of the total voting power in the company and their Shareholding continues to be as such for a period of five years from the date of the succession;
Following is the shareholding pattern of the partners of "Srinivasa Exports International" namely Mr. CV Ravindran and Mrs. Vijayalakshmi in "Srinivasa Fashions Pvt Ltd" before acquisition and post acquisition of Srinivasa Exports International"
SEI Partner Capital as on 01.03.2018 was as follows
Mr C V Ravindran Rs.16650527 (1665053 Shares @10) Mrs Vijaylakshmi Rs. 509561 (50956 Shares @10)
SFPL Share Holding before takeover Date of Allotment / Mr CV Mrs. Total issued Transfer Ravindran Vijayalakhsmi Shares Opening Balance as 16,00,000 24,00,000 40,00,000 on 28.02.2008 % of holding 40.00% 60.00% 100%
SFPL Share Holding after takeover Date of Allotment / Mr CV Mrs. Total issued Transfer Ravindran Vijayalakhsmi Shares Opening Balance as 16,00,000 24,00,000 40,00,000 on 28.02.2008 before Acquired “SEI” Share Allotted 16,65,053 50,956 17,16,009 01.03.2008 Closing Balance 32,65,053 24,50,956 57,16,009 % of holding 57;12% 42.88% 100%
7 ITA No.2004/Chny/2019 (e) the [demutualization or] or corporatization of a recognized stock exchange in India is carried out in accordance with a scheme for [demutualization or] corporatization which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
This condition is not applicable as “srinivasa fashions private limited” is not a listed company.”
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
8 ITA No.2004/Chny/2019 for a period of 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.
Order pronounced in the open court on 21st October, 2022 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 21st October, 2022 RSR आदेशक��ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु� /CIT 5. िवभागीय�ितिनिध/DR 6. गाड�फाईल/GF.