DCIT, NEW DELHI vs. M/S. ADM AGRO INDUSTRIES DHARWAD PVT. LTD., NEW DELHI

Brief facts of the case relevant for disposal of this appeal, are that one M/S KNG Guruswamy oil Mills was amalgamated with the assessee on 01/04/2007. In the computation of income for the assessment year 2011-12, 2 assessee claimed brought forward losses of Rs. 5,23,41,814/-relating to M/s KNG Guruswamy Oil Mills. Section 72A of the Income Tax Act, 1961 (“the Act”) provides that subject to fulfillment of certain conditions as prescribed in subsection (2), the amalgamated company shall be allowed to carry forward and set off of estimated losses and unabsorbed depreciation of the amalgamating company. In addition to the specified conditions as laid down in subsection (2), clause (iii) of subsection (2) read with rule 9C of the Income Tax Rules, 1962 (for short “the Rules”) prescribes certain other conditions that must be fulfilled by the amalgamated company and such condition specified in Rule 9C is that the amalgamated company should achieve at least 50% of the installed production capacity of the amalgamating undertaking before the end of four years from the date of amalgamation and continue to maintain the said minimum level of production till the end of five years from the date of amalgamation. The proviso appended to Rule 9C (a) says that the Central Government, on application made by the amalgamated company, may relax the condition of achieving the level of production and the period during which the same is to be achieved or both in suitable cases having regard to the genuine efforts made by the amalgamated company to attain the prescribed level of production and circumstances preventing such efforts from achieving the same.

In case of the assessee, the total capacity utilization attitude by the assessee in respect of the KNG plant in the fourth year of amalgamation that is assessment year 2011-12 was 47% which is 3% below the minimum threshold limit as prescribed under rule 9C and in the subsequent year, the 3 total level of production achieved by the assessee in respect of the KNG plant was 54% which is higher than the minimum threshold limit prescribed under rule 9C.

When called upon to justify as to how the conditions prescribed in Rule 9C for allowing carry forward of losses are complied with, it was explained on behalf of the assessee that the assessee has filed an application with the Central Board Of Direct Taxes requesting relaxation of the condition of achieving the minimum prescribed 50% level of production for the KNG plant explaining all the details; that such an application was pending with the CBDT for approval. On that ground the assessee prayed that the claim of set off of brought forward losses be allowed. Ld. Assessing officer, however, found such an explanation not acceptable because the assessee company was not complying with the conditions prescribed under rule 9C, and proceeded to disallow the claim for brought forward losses was rejected.

Impugned order speaks that during the appellate proceedings assessee submitted that the CBDT duly considered the claim of the assessee and vide orders dated 17/10/2014 has relied on the condition of achieving the minimum prescribed 50% level of production for the KNG plant to 47% level of production. Taking cognizance of such an order, Ld. CIT(A) formed an opinion that the assessee had fully complied with the conditions prescribed under section 72 A of the Act and accordingly quashed the denial of set off of losses done by the Ld. Assessing Officer. Challenging the action of the 1st appellate authority, the revenue is in this appeal before us.

4 6. We have gone through the record. Rule 9C of the Rules prescribes that the amalgamated company, owning an industrial undertaking of the amalgamating company by way of amalgamation, shall achieve the level of production of at least fifty per cent of the installed capacity of the said undertaking before the end of four years from the date of amalgamation and continue to maintain the said minimum level of production till the end of five years from the date of amalgamation. The proviso thereof, however, provides that the Central Government, on an application made by the amalgamated company, may relax the condition of achieving the level of production or the period during which the same is to be achieved or both in suitable cases having regard to the genuine efforts made by the amalgamated company to attain the prescribed level of production and the circumstances preventing such efforts from achieving the same.

It is, therefore, clear that if the assessee obtains the relaxation of the conditions from the CBDT, it would be sufficient compliance with the requirements of section 72 A of the Act. In this matter, there is no denial of the facts recorded by the Ld. CIT(A), and it is not the case of the revenue that the assessee did not obtain the orders of relaxation from the CBDT as provided in Rule 9C. We have gone through the copy of this order filed before us. In this factual situation we do not find anything illegality or irregularity in the impugned orders. There is no need to interfere with the same and we accordingly upheld it. There are no merits in this appeal and the appeal is accordingly dismissed.