DCIT, JAIPUR vs. M/S MODERN INSULATORS LTD., JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES , JAIPUR Jh HkkxpUn] ys[kk lnL; ,o Jh dqy Hkkjr] U;kf;d lnL; ds le{k BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 784/JP/2011, 586/JP/2012 & 672/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2008-09, 2009-10 & 2010-11

cuke The DCIT M/s. Modern Insulators Ltd. Vs. Circle- 6 A-4, Vijay Path, Tilak Nagar Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCM 0860 G vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by :Shri H.V. Gurjar fu/kZkfjrh dh vksj ls@Assessee by: Shri Ved Jain, Advocate, Shri Himanshu Goyal CA and Shri Prahlad Gupta, CA lquokbZ dh rkjh[k@ Date of Hearing : 28/12/2016 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 30 /01/2017 vkns'k@ ORDER PER BHAGCHAND, AM These appeals have been filed by the Revenue against three separate orders of the ld. CIT(A)-II, Jaipur dated 27-06-2011, 20-03-2012 and 24-07-2014 for the assessment years 2008-09, 2009-10 and 2010-11 respectively raising therein following grounds of appeal.

2 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . ITA No. 784/JP/2011 – A.Y. 2008-09

‘’On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in:-

(i) allowing set off current year and brought forward losses and unabsorbed depreciation of M/s. Modern Terry Towels Ltd. against the income of the assessee company in directing to pass protective assessment order in case of assessee company presuming that no amalgamation has taken place following the scheme devised by Hon'ble Hon'ble Apex Court in the case of Marshall Sons and Co. (India) Ltd. vs. ITO (223 ITR 809) ignoring the fact that facts of that case are different from the present case and approval of BIFR is not received in the present case. (ii) deleting the addition of Rs. 4,14,78,795/- made by AO u/s 40a(ia) for non deduction of TDS on payment made to foreign parties holding that payment of commission to these parties was in lieu of services rendered by them for the business purposes of the assessee and holding that circular no. 7 of 22-10-2009 it not clarificatory in nature and is not applicable with retrospective effect. ITA No. 586/JP/2012 – A.Y. 2009-10

‘’(i) On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in allowing set off current year and brought forward losses and unabsorbed depreciation of M/s. Modern Terry Towels Ltd. against the income of the assessee company in directing to pass protective assessment order in case of assessee company presuming that no amalgamation has taken place following the scheme devised by Hon'ble Hon'ble Apex Court in the case of Marshall Sons and Co. (India) Ltd. vs. ITO (223 ITR 809) ignoring the fact that facts of that case are different from the present case and approval of BIFR is not received in the present case.

(ii) On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in holding that effect of

3 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . amalgamation i.e. application of provision of Section 72A will not be given in protective order because it will result in protective demand which cannot be enforced and assessee will never pay due tax even on declared income.

ITA No. 672/JP/2014 – A.Y. 2010-11

‘’(i) On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in presuming the future action of the assessee and ignored the facts in existence that proposal of amalgamation of Modern Terry Towels Ltd. (MTT) with the assessee company w.e.f. 01-01- 2008 has been rejected and revised DRS was required to be submitted with cutoff dated 31-03-2010.

2.1 First of all, we take up the grounds of appeal of the Revenue in

ITA No. 784/JP/2011 for the assessment year 2008-09 for adjudication.

2.2 Apropos Ground No. 1 of the Revenue, the facts as emerges from

the order of the ld. CIT(A) is as under:- ‘’’4.1 I have perused the copy of draft resolution scheme dated 28-07-2009. In Annexure -1, the date of amalgamation has been taken on 01-01-2008. Similarly, as per para 4(iii) of Annexure-1, all the profits accruing to the Transferor Company or losses arising or incurred (including the effect of taxes, if any, thereon) by it shall, for all purposes, be treated as the profits or losses of the Transferee Company as the case may be.

As per Section 18 of the Sick Industrial Companies Special Provisions Act, 1985 (SICA), one of the ways of reviving a sick industrial company is by ordering amalgamation of the sick industrial company with another company. Further, amalgamations are subject to an order

4 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . being passed by the High Court u/s 394 of the Companies Act. However, for sick companies this power is vested with BIFR. Section 32(1)of SICA states that provisions of SICA and scheme framed there under shall have effect not withstanding anything inconsistent contained in any other law. Further Section 32(2) of SICA further provides that Section 72A of the Income Tax Act (carry forward and set off of losses) where there is an amalgamation will apply to an amalgamation. Both the appellant and M/s. Modern Terry Towels Ltd. have applied to BIFR for sanctioning the scheme of amalgamation with effect from 01-01-2008. The drafts scheme of amalgamation has been circulated by the Board and final order of amalgamation is expected to be received shortly. The Hon'ble Supreme Court in the case of Marshall Sons & Co. (India) vs. ITO (223 ITR 809) has observed as under:-

‘’The Counsel of the Revenue contended that if the aforesaid view is adopted then several complications will ensue in case the court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the transferee company taking into account the income of both the transferor and transferee companies. Secondly, and probably the more advisable course from the point of view of the Revenue would be to make one assessment on the transferee company taking into account the income of both the transferor or transferee companies and also to make separate protective assessments on both the transferor and transferee companies separately. There may be a certain practical difficulty in adopting this course inasmuch as separate balance sheets may not be available for the transferor and transferee companies. But that may not be an insuperable problem, inasmuch as assessment can always be made, on the available material, even without a balance sheet. In certain cases, best judgment assessment may also be resorted to. ‘’

5 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . This decision is squarely applicable to the facts of the case. Once the scheme of amalgamation is sanctioned by the appropriate authority (High Court and BIFR), it is operative from the date mentioned in the scheme and not from the date on which the formal order would be passed by the specified. In the instant case, the scheme is operative from 01-01- 2008, therefore, it follows that income/losses arising upto 31-12-2007 will be assessed separately in the hands of M/s. Terry Towels Ltd. and the appellant. From 01-01-2008, the income/loss of both the entities would be assessable in the hands of the appellant. Further as per the provisions of Section 72A of the I.T. Act, on amalgamation the accumulated losses and the allowance and allowance for unabsorbed depreciation of M/s. Terry Towels Ltd. shall be deemed to be loss or allowance for unabsorbed depreciation of the appellant for the previous year in which the amalgamation would be effectively namely, in the present case the previous year 2007-08. Therefore, the conditions specified in Section 72A(2) will have to be complied. The pertinent question is what would be the procedure followed when the formalities for effecting and amalgamation have been carried out but the final order sanctioning the amalgamation has not been received. In the case of CIT vs. J.K. Corporation Ltd. (331 ITR 303), the amalgamation took place in Jan. 1994 however the scheme was sanctioned by BIFR with retrospective effect from 01-02-1992. The assessee filed revised returns of income on 31-03-1993 claiming unabsorbed losses of sick company. The AO disallowed the claim of the assessee u/s 72A for set off and carry forward of unabsorbed business losses and depreciation. It was held that having regard to the language used in Section 26 of the SICA 1985 Act neither the Civil Court nor any other authority including the quasi judicial authority could pass an order which would impede the

6 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . operation of the scheme. In view of provisions of 1985 Act which is a special one, the Income Tax Authority was held to have no jurisdiction to render the operation of scheme nugatory. Further the sanction of a scheme of amalgamation u/s 18 of SICA necessarily implies that the requirements of Section 72A of the Income Tax Act have been met. Therefore, BIFR cannot sanction any scheme without declaring that carry forward of looses is allowable. (Indian Shaving Products Ltd. vs. BIFR 218 ITR 140). In the case of Beck India Ltd. vs. DCIT (319 ITR AT 253), the Assessing Officer held that there was no express provision in the staute to debit any brought forward loss of amalgamating company against the book profit of the amalgamated company and completed the assessment based on the original computation submitted by the assessee. On appeal, it was held that on account of retrospective operation of the Court’s decision approving the scheme of amalgamation, book losses of the amalgamating company also became the loss of the company as on January 1,2001, and hence, such losses had to be considered while computing the book profit under section 115JB of the Act. Moreover, in view of the decision of Hon'ble Supreme Court in the case of Marshall Sons & Co. (India) Ltd., it is obvious that the AO has to make substantive assessment order in the case of appellant taking into account the income of both the transferor and transferee companies. The scheme of amalgamation specifies the date of amalgamation as 01-01-2008. Therefore, prior to date of sanction by BIFR and higher Courts, there is provision in the scheme that business done by Modern Terry Towels Ltd. shall be on behalf of the appellant company. The importance of the registration of reference cannot be undermined as once a reference is registered, the provisions of SICA get triggered. There can hardly be and doubt that once a scheme is formulated after a reference is gone through the process of

7 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . Sections 17 & 18 of the SICA, the said scheme would have the force of law notwithstanding anything inconsistent therewith contained in any other law. Thus, neither the party making any concessions at the time of formulation of the scheme nor the company at whose behest the scheme is formulated and sanctioned can get out of the scheme. I accordingly, direct the AO to allow set off of current year losses and brought forward losses/unabsorbed depreciation of M/s. Modern Terry Towels Ltd. as per Section 72A against the income of the appellant. At the same time, the AO shall pass a protective assessment order in the case of appellant for A.Y. 2008-09 presuming that no amalgamation has taken place. In case if the amalgamation scheme is not sanctioned then the protective assessment order shall prevail over the substantive order. This ground of appeal is accordingly partly allowed.’’

2.3 During the course of hearing, the ld. AR of the assessee relied on

the order of the ld. CIT(A) and file the written submission to this case

which has been taken into consideration.

2.4 The ld. DR relied on the order of the AO and submitted that ld.

CIT(A) has erred in allowing the relief to the assessee and approval of

BIFR is not received in the assessee's present case.

2.5 We have heard the rival contentions and perused the materials

available on record. The brief facts of the case are that the assessee

company is a private limited company and is engaged in the business of

Manufacturing of insulators and business. During the year under

8 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . consideration, a subsidiary company namely M/s Modern Terry Towels

Limited (MTTL) merged with the assessee company w.e.f. 01.01.2008

and the assessee filed its return of income for the AY 2009-10

incorporating and setting off the brought forward business losses/

unabsorbed depreciation of preceding years of the amalgamating

company. Further, it is noted that MTTL was a sick company and

therefore, the permission of BIFR was required for statutory

amalgamation and the return filed by the assessee was subject to the order

of BIFR which is pending. However, the assessee could not receive the

approval before the assessment proceeding and therefore the AO raised

his contention to restrict the assessment only in respect of the assessee

company without considering amalgamation of MTTL with the assessee

company treating the assessee company as the separate company. In this

regard, assessee placed his reliance on the decision of Hon’ble Supreme Court in the case of M/s Marshal Sons & Co. (India) Ltd. vs ITO 223 ITR

809 in which it has been held that once a scheme is sanctioned by the

appropriate authority, it is operative from the date mentioned in the

scheme and not from the date of which order is passed by the authority.

The relevant finding of the Court is as under:-

9 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . “Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide, viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the court does not prescribe any specific date but merely sanctions the scheme presented to it---as has happened in this case---it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as " the transfer date ". It cannot be otherwise. It must be remembered that before applying to the court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several steps provided by sections 391 to 394A and the relevant rules have to be followed and complied with. During the period the proceedings are pending before the court, both the amalgamating units, i.e., the transferor company and the transferee company may carry on business, as has happened in this case, but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the transferor company (subsidiary company) shall be deemed to have carried on the business for and on behalf of the transferee company (holding company) with all attendant consequences. It is equally relevant to notice that the courts have not only sanctioned the scheme in this case, but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income-tax Officer (impugned in the writ petition) were not warranted in law.

10 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . The business carried on by the transferor company (subsidiary company) should be deemed to have been carried on for and on behalf of the transferee company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment of shares, etc., may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. Bank of Upper India Ltd., AIR 1919 PC 9.”

It is further noted that the AO did not apply the judgement given by

the Supreme Court and disallowed the set-off of current year loss of

M/s Modern Terry Towels Limited (MTTL). However, in first appeal

the ld. CIT(A) after considering the submission of the assessee and the

order passed by the AO passed a detailed order highlighting the

specific aspects of the provisions of Sick Industrial Companies Act

and BIFR and the provisions of the I.T. Act . It is further noted that the

ld. CIT(A) gave its finding at para 3 and 4.1 allowing the ground no. 1

of the assessee taking into consideration the judgement of M/s

Marshall Sons & Co. (India) Ltd. vs ITO 223 ITR 809 (SC) by

holding that the scheme was effective from 01.01.2008 and

accordingly the assessee was eligible to claim losses of amalgamated

11 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . company and therefore the AO was directed to allow set-off of current

year losses and brought forward losses/ unabsorbed depreciation of

M/s MTTL as per section 72A of the Income Tax Act against the

income of the assessee and at the same time it was also directed to the

AO that he should pass a protective assessment order in the case of the

assessee for the AY 2008-09 presuming that no amalgamation has

taken place. In case, if the amalgamation scheme is not sanctioned

then the protective assessment order shall prevail over the substantive

order. It is pertinent to mention here that assessee has received the

order of Appellate Authority for Industrial & Financial

Reconstruction, New Delhi (PB Pgs. 88-89) dated 03.06.2013

whereby it has been held as under:

“ We are of the view that the record date of merger is the date on which the merger of the sick company with M/s. Modern Insulators Ltd. has been approved by the shareholders of the company and this date cannot be arbitrarily changed by the BIFR. As such we dispose of the appeal with the clarification that the COD mentioned in the impugned order will apply only for the purpose of implementation of the sanctioned scheme. The record date for merger of the appellant company with the M/s MIL will continue to be treated as 1.1.2008 i.e., the date on which the merger was approved by the shareholder of the company.”

12 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . It may be noted that during the course of hearing, the ld. AR of the

assessee relied on following case laws:-

(i) M/s Marshall Sons & Co. (India) Ltd. vs ITO 223 ITR 809 (SC) which is also followed in the following judgements: (ii) IRM Limited vs DCIT- Circle-4 2016 (7) TMI 972 (Gujarat High Court) (iii) Pentmedia Graphics Ltd & Others vs Income Tax officer 2010 (1) TMI 753- Madras High Court.

In view of the above facts and circumstances of the case and the case

laws relied on (supra) by the ld. AR of the assessee, we find no infirmity

in the order of the ld. CIT(A) which is sustained on this issue. Thus

Ground No. 1 of the Revenue is dismissed.

3.1 As regards Ground No. 2 of the Revenue, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’4. In the fourth to eighth ground of appeal, the appellant has challenged the addition of Rs. 414,78,794/- u/s 40(a)(ia) as no TDS was deducted on payment of commission to non- residents. I find that this issue is covered in favour of the assessee by the order of my predecessor (appeal No.397/08- 09 dated 28-01-2010) and Hon'ble Jaipur Tribunal (ITA No. 281/JP/2010) dated 13-04-2011 for A.Y. 2007-08. The observation of the Hon'ble Tribunal in para 2.14 on page 8 are reproduced as under:-

13 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . ‘’2.14 We have already reproduced Section 9(1)(i) of the Act. It is not disputed after the finding of the ld. CIT(A) that non-residents have provided services for earning commission. The services have been rendered outside India. The commission so earned by non-resident is business profit. As per DTAA between India and UK and DTAA between India and UAE, it is mentioned in Article 7 of both the DTAA that business profit can be taxed in other contracting State in case the enterprise of a contracting State is having permanent establishment in other contracting State. It is not the case of the Revenue that non-resident companies are having their permanent establishment. Hence, even if commission has been received by the non- residents on account of the business connections mentioned in Section 9(1)(i) of the Act then the same is not chargeable in India because such non- resident companies are not having any permanent establishment. The CBDT circular No.333 dated 2-4-1982 has stated that the specific provision in DTAA is to be followed irrespective of the provisions of Income Tax Act. The Hon'ble Apex Court in the case CIT vs PAVL Kulandagan Chettiar 267 ITR 654 has held that where tax liability is must by the Act then agreement may be restored to either for reducing the tax liability or altogether avoiding tax liability.’’ The observation of the Hon'ble Tribunal in para 2.19 and 2.20 on page 12 are reproduced as under:- ‘’’2.19 We also agree with the view taken by the ld. CIT(A) that TDS was not required to be deducted at source on account of Circular No. 786 dated 7-2-2000. The Circular No.7 of 22-10-2009 cannot be considered retrospectively to make it applicable for payments before that date. This has been considered by Lucknow Bench in the case of DCIT vs Sanjiv Gupta 50 DTR (Lucknow) Tribunal 225. 2.20 The Hon'ble Apex Court in the case of G.E.India Technologies Centre (P) Ltd. vs CIT 327 ITR 456 has held that in case whole remittance is not chargeable in India then there is no question of tax at source being deducted. Since the tax at source is nor required to be deducted then Section 40(a) will not be applicable. It is further noticed that Section 40((a)(ia) refers to commission payable to a resident. Hence, this provision is not at all applicable. Section 40(a) is applicable in respect of payments to non-resident and the payment should be in the nature of interest, royalty, fee for technical services or other sum chargeable under this Act. It is undisputed fact that the sum is commission and the word commission is not specifically mentioned in Section 40(a). The sum paid is not chargeable in India under Income Tax Act, 1961. Hence, Section 40(a) is not applicable. The ld. CIT(A) was therefore, justified in deleting the disallowance of Rs. 6,04,58,699/-. Thus the solitary ground of the Revenue is dismissed.’’

14 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur .

Since the issue under consideration is squarely covered in favour of the assessee by the order of my predecessor and Hon'ble Tribunal for the assessment year 2007-08, therefore, maintaining judicial discipline, I direct the AO to delete the addition of Rs. 4,14,78,794 u/s 40(a)(ia) of the I.T. Act. These grounds of appeal are allowed.’’

3.2 During the course of hearing, the ld. DR relied on the order of the AO

3.3 During the course of hearing, the ld. AR of the assessee relied on

the order of the ld. CIT(A) and also filed the written submission to this

effect which has been taken into consideration.

3.4 We have heard the rival contentions and perused the materials

available on record. Taking into consideration all the facts and

circumstances of the case, we have observed that such an issue has been

decided by this Coordinate Bench in case of ACIT vs. Modern

Insulators Ltd. in ITA No. 281/JP/2010 dated 13-04-2011 for the

assessment year 2007-08 by observing as under:-

‘’2.19 We also agree with the view taken by the ld. CIT(A) that TDS was not required to be deducted at source on account of Circular No. 786 dated 7-2-2000. The Circular No.7 of 22-10-2009 cannot be considered retrospectively to make it applicable for payments before that date. This has been considered by Lucknow Bench in the case of DCIT vs Sanjiv Gupta 50 DTR (Lucknow) Tribunal 225. 2.20 The Hon'ble Apex Court in the case of G.E.India Technologies Centre (P) Ltd. vs CIT 327 ITR 456 has held that in case whole remittance is not chargeable in India then there is no question of

15 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . tax at source being deducted. Since the tax at source is nor required to be deducted then Section 40(a) will not be applicable. It is further noticed that Section 40((a)(ia) refers to commission payable to a resident. Hence, this provision is not at all applicable. Section 40(a) is applicable in respect of payments to non-resident and the payment should be in the nature of interest, royalty, fee for technical services or other sum chargeable under this Act. It is undisputed fact that the sum is commission and the word commission is not specifically mentioned in Section 40(a). The sum paid is not chargeable in India under Income Tax Act, 1961. Hence, Section 40(a) is not applicable. The ld. CIT(A) was therefore, justified in deleting the disallowance of Rs. 6,04,58,699/-. Thus the solitary ground of the Revenue is dismissed.’’ Respectfully following the decision of the Coordinate Bench dated 13-04-

2011 for the assessment year 2007-08 (supra), we find no reason to

interfere with the order of the ld. CIT(A). Thus Ground No. 2 of the

Revenue is dismissed.

4.1 Secondly, we take up the ground of appeal of the Revenue in ITA

No. 586/JP/2012 for the assessment year 2009-10 for adjudication

4.2 Apropos solitary ground of the Revenue, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’3.1 I have duly considered the submissions of the appellant. The issue in question is covered by the appellate order of undersigned for A.Y. 2008-09 (Appeal No. 464/10-11 dated 27-06- 2011) wherein I have upheld the addition made by the AO on protective basis. The finding in para 4.1 are relevant wherein it was held that prior to date of sanction by BIFR and higher Courts, there was provision in the scheme that business done by Modern Terry Towels Ltd. shall be on behalf of the appellant company. I had accordingly, directed the AO to allow set off of current year losses and brought forward losses/unabsorbed depreciation to M/s. Modern Terry Towels Ltd. as per Section 72A against the income

16 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . of the appellant. At the same time, the AO was directed to pass a protective assessment order in the case of the appellant company for A.Y. 2008-09 presuming that no amalgamation had taken placed. It was also held that in case if the amalgamation scheme was not sanctioned then the protective assessment order shall prevail over the substantive order. However, it appears that the AO has deemed that the order of BIFR dated 13-04-2011 was final and conclusive. The counsel of appellant has brought to my notice the order passed by AAIFR dated 21-11-2011 wherein it has been categorically stated that the direction of BIFR at para 3(i) regarding submissions of DRS with cutoff date on 31-03-2010 and direction at para 3(ii) shall remain stayed till the disposal of appeal. Even after the disposal of appeal by AAIFR, there will be an option to the assessee company total income file appeal before Hon'ble Jurisdictional High Court and Supreme Court. Considering these difficulties, I had directed the AO to pass both the substantive assessment and protective assessment in the case of the appellant. In case if the amalgamation scheme was not sanctioned by the AAIFR and higher Courts with effect from 01-01-2008 then the protective assessment completed by the AO shall prevail over the substantive assessment. I therefore, direct the AO to allow set off of current year losses and brought forward losses/unabsorbed depreciation of M/s. Modern Terry Towels Ltd. as per Section 72A against the income of the appellant. At the same time, the AO shall pass a protective assessment order in the case of the appellant for A.Y. 2009-10 presuming that no amalgamation has take place. This ground of appeal is allowed. 4.3 We have heard the rival contentions and perused the materials

available on record. It is not imperative to repeat facts of the case of issue

in question as the similar issue has been decided in favour of the assessee

by dismissing the ground of appeal No. 1 of the Revenue in ITA No.

784/JP/2011 and the decision therein shall apply mutatis mutandis on this

ground no. 1 of the Revenue also. Thus solitary ground raised by the

17 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . Revenue is dismissed and appeal of the Revenue in ITA No. 686/JP/2012 is dismissed,

5.1 Thirdly, we take up the grounds of appeal of the Revenue in ITA No. 672/JP/2014 for the assessment year 2010-11 for adjudication 5.2 Apropos solitary ground of the Revenue, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’3.1 M/s. Modern Terry Towels Ltd. was amalgamated with the appellant company with effect from 01-01-2008 subject to approval of BIFR. In this assessment year, the appellant company had claimed the set off of business loss of M/s. Modern Terry Towels Ltd. for A.Y. 2010-11 amounting to Rs. 62,18,541/- and has also claimed the set off of brought forward business loss and unabsorbed depreciation of M/s. Modern Terry Towels Ltd. amounting to Rs. 94,24,43,685/-. In the order u/s 143(3) dated 6-03- 12013, the Assessing Officer has not allowed the set off of losses due to amalgamation because as per the order of BIFR dated 13-04-2011, the amalgamation was effective only after 31-03-2010.

3.2 This issue also arose in A.Y. 2008-09 and 2009- 10.The submissions made by the appellant during appellate proceedings were the same as the preceding years except for two new facts as under:-

(1) The appellate authority for Industrial and Financial Reconstruction (AAIFR) has passed an order in favour of the assessee (Appeal No. 130/11 dated 3-06-2013) by holding that the record date for merger of the appellant company with M/s. Modern Terry Towels Ltd. will continue to be treated as 01-01-2008

18 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . (2) On the basis of the above, the Assessing Officer has also accepted the claim of the assessee in A.Y. 2011-12 in the order u/s 143(3) dated 27-03-2014.

The appellant has stated that its case is covered by the orders of the CIT (A)-II Jaipur for A.Y. 2008-09 and for A.Y. 2009-10.

3.3 I have perused the facts of the case the assessment order, submissions of the appellant and the above referred order of AAIFR holding the date of merger to be 01.01.2008. The issue in question is covered by the appellate order of CIT(A)-II, Jaipur for A.Y. 2008-09 (Appeal No. 464/10-11, dated 27-06.2011) and for A.Y 2009-10 (Appeal No. 502/11-12, dated 20.03.2012) wherein the additions made by the Assessing Officer on the above issue have been upheld by the CIT(A) on protective basis, in view of the decision of the Supreme Court in the case of Marshall Sons and Co. (India) Ltd. vs. ITO (1997) 223 ITR 809. The relevant extract of the order of the CIT (A)-II, Jaipur for A.Y. 2009-10 is reproduced below:- ‘’’The findings in para 4.1 (of the order of A.Y. 2008- 09) are relevant wherein it was held that prior to the date of sanction by BIFR and higher Courts, there was provision in the scheme that business done by Modern Terry Towels Ltd. shall be on behalf of the appellant company….. Considering these difficulties, I had directed the AO to pass both the substantive assessment and protective assessment in the case of the appellant. In case if the amalgamation scheme was not sanctioned by AAIFR and higher Courts with effect from 01-01-2008 then the protective assessment completed by the AO shall prevail over the substantive assessment. I therefore, direct the AO to allow set off of current year losses and brought forward loses / unabsorbed depreciation of Modern Terry Towels Ltd. as per Section 72A against the income of the appellant. At the same time, the AO shall pass

19 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur . protective assessment order in the case of appellant for A.Y. 2009-10 presuming that no amalgamation has taken place. This ground of appeal is allowed.’’

3.4 In view of the above discussion, respectfully following the above orders of the ld. CIT(A) –II Jaipur for A.Y. 2008-09 and 2009-10, the Assessing Officer is directed to allow set off of current year looses and brought forward losses/unabsorbed depreciation of M/s. Modern Terry Towels Ltd. as per Section 72A against the income of the appellant. At the same time, the AO shall pass a protective assessment order in the case of appellant for A.Y. 2010-11 presuming that no amalgamation has taken place. In case, the amalgamation scheme were not to be sanctioned by BIFR or the higher Courts with effect from 01-01-2008, then the protective assessment completed by the AO shall prevail over the substantive assessment. This ground of appeal is allowed.

5.3 We have heard the rival contentions and perused the materials

available on record. It is not imperative to repeat facts of the case of issue

in question as the similar issue has been decided in favour of the assessee

by dismissing the ground of appeal No. 1 of the Revenue in ITA No.

784/JP/2011 (supra) and the decision taken therein shall apply mutatis

mutandis on this solitary ground of the Revenue also . Thus solitary

ground raised by the Revenue is dismissed and appeal of the Revenue in ITA No. 672/JP/2014 is dismissed,

20 ITA No. 784/JP/2011 The DCIT, Circle- 6, Jaipur vs. M/s. Modern Insulators Ltd., Jaipur .

6.0 In the result, all the appeals of the Revenue are dismissed. The order is pronounced in the open Court on 30-01-2017.

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