The Assessing Officer refused to consider our revised return claiming the demerged undertaking's brought forward losses. Does section 72A(4) transfer them from the appointed date, and does the revised return matter?
The Tribunal held that all the conditions in section 72A(4) read with section 2(19AA) had been fulfilled, that the resulting company was accordingly eligible to claim set off of the brought forward losses transferred from the demerged company, and that the carried forward losses and unabsorbed depreciation in respect of the demerged undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. It held that the claim was as per law, that the Assessing Officer had erred in refusing to consider the revised return of income, and that the Commissioner (Appeals) had rightly allowed the claim; the Revenue's grounds on this issue were dismissed as lacking merit.
Decided by the ITAT (Shri J. Sudhakar Reddy, Accountant Member and Shri A. T. Varkey, Judicial Member (Income Tax Appellate Tribunal, "C" Bench, Kolkata)) on 2020-05-22, reported as ITA No. 606/Kol/2018 (ITAT Kolkata); assessment year 2010-11; heard 15 January 2020; no law-report citation printed on the document. It bears on section 72A, section 72A(4), section 2(19AA) of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters.
Two things make this order useful in practice. The first is the appointed date. Section 72A(4) does not carry its own timing rule — it says the accumulated loss and unabsorbed depreciation of the demerged company shall be allowed to be carried forward and set off in the hands of the resulting company where directly relatable to the undertakings transferred, and apportioned in the ratio of assets retained and transferred where not. The Tribunal fixed the transfer as taking effect from the appointed date of the scheme, which is what makes it possible to claim the losses in the assessment year in which the appointed date falls rather than the year of sanction. The second is the revised return. The claim came in by way of a revised return which the Assessing Officer declined to consider; the Tribunal held he had erred in refusing it. That is a familiar procedural obstacle in reorganisation cases, where the scheme is sanctioned after the original return has gone in, and it is worth knowing that a bench has dealt with it in the taxpayer's favour. The limits should be stated. The Tribunal's conclusion that all the conditions of section 2(19AA) were satisfied is a finding on the facts of that scheme; it is not a proposition that a sanctioned scheme satisfies them. And the appeal as a whole was only partly allowed for statistical purposes, so the order is not a clean win across the board.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The Vortal Undertaking of M/s. Star Ya Kalakaar.Com Limited was demerged into the assessee, M/s. Padma Logistics & Khanij Private Limited, with an appointed date of 1 March 2010. The assessee claimed the carried forward losses and unabsorbed depreciation of that undertaking in a revised return of income for assessment year 2010-11. The Assessing Officer refused to consider the revised return and disallowed the claim. The Commissioner (Appeals) allowed it, and the Revenue appealed to the Tribunal, its grounds 1 and 2 being directed at the carry forward and set off of the demerged undertaking's accumulated losses and unabsorbed depreciation.
The Revenue's grounds 1 and 2 were dismissed as lacking merit (para 30). All the conditions stated in section 72A(4) read with section 2(19AA) having been fulfilled, the assessee company was eligible to claim the set off of the brought forward losses transferred from the demerged company, and the carried forward losses and unabsorbed depreciation in respect of the Vortal Undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. The claim was as per law, the Assessing Officer erred in refusing to consider the revised return of income, and the Commissioner (Appeals) had rightly allowed the claim. The Revenue's appeal as a whole was partly allowed for statistical purposes (para 40).
The Tribunal's route, so far as paragraph 30 discloses it, was to test the claim against section 72A(4) read with the definition in section 2(19AA), to find that all the conditions were fulfilled, and to conclude from that finding that the resulting company was eligible for the set off. It fixed the effective date of the transfer of the losses and unabsorbed depreciation as the appointed date under the scheme, 1 March 2010, and treated the Assessing Officer's refusal to consider the revised return in which the claim was made as an error, the claim itself being in accordance with law. The reasoning in the paragraphs preceding paragraph 30 was not retrieved and is not described here.
Since the assessee company meets all the requirements contained in the Income-tax Act, 1961, all the carried forward losses and unabsorbed Depreciation in respect of M/s. Vortal Undertaking were transferred, pursuant to section 72A(4) of the Act, from the demerged company (M/s. Star Ya Kalakaar.Com Limited) to the resulting company (M/s. Padma Logistic & Khanij Private Limited) w.e.f. the appointed date i.e. 01.03.2010.
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Handle my notice → Ask a CA on WhatsAppThe Tribunal held that all the conditions in section 72A(4) read with section 2(19AA) had been fulfilled, that the resulting company was accordingly eligible to claim set off of the brought forward losses transferred from the demerged company, and that the carried forward losses and unabsorbed depreciation in respect of the demerged undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. It held that the claim was as per law, that the Assessing Officer had erred in refusing to consider the revised return of income, and that the Commissioner (Appeals) had rightly allowed the claim; the Revenue's grounds on this issue were dismissed as lacking merit. This was decided by the ITAT (Shri J. Sudhakar Reddy, Accountant Member and Shri A. T. Varkey, Judicial Member (Income Tax Appellate Tribunal, "C" Bench, Kolkata)) and bears on section 72A, section 72A(4), section 2(19AA) of the Income Tax Act 1961. It is reported as ITA No. 606/Kol/2018 (ITAT Kolkata); assessment year 2010-11; heard 15 January 2020; no law-report citation printed on the document. Two things make this order useful in practice. The first is the appointed date. Section 72A(4) does not carry its own timing rule — it says the accumulated loss and unabsorbed depreciation of the demerged company shall be allowed to be carried forward and set off in the hands of the resulting company where directly relatable to the undertakings transferred, and apportioned in the ratio of assets retained and transferred where not. The Tribunal fixed the transfer as taking effect from the appointed date of the scheme, which is what makes it possible to claim the losses in the assessment year in which the appointed date falls rather than the year of sanction. The second is the revised return. The claim came in by way of a revised return which the Assessing Officer declined to consider; the Tribunal held he had erred in refusing it. That is a familiar procedural obstacle in reorganisation cases, where the scheme is sanctioned after the original return has gone in, and it is worth knowing that a bench has dealt with it in the taxpayer's favour. The limits should be stated. The Tribunal's conclusion that all the conditions of section 2(19AA) were satisfied is a finding on the facts of that scheme; it is not a proposition that a sanctioned scheme satisfies them. And the appeal as a whole was only partly allowed for statistical purposes, so the order is not a clean win across the board. If it applies to you, the first step is this: Claim the demerged undertaking's losses in the assessment year in which the appointed date of the scheme falls, and put the appointed date at the front of the computation.
The Vortal Undertaking of M/s. Star Ya Kalakaar.Com Limited was demerged into the assessee, M/s. Padma Logistics & Khanij Private Limited, with an appointed date of 1 March 2010. The assessee claimed the carried forward losses and unabsorbed depreciation of that undertaking in a revised return of income for assessment year 2010-11. The Assessing Officer refused to consider the revised return and disallowed the claim. The Commissioner (Appeals) allowed it, and the Revenue appealed to the Tribunal, its grounds 1 and 2 being directed at the carry forward and set off of the demerged undertaking's accumulated losses and unabsorbed depreciation. The matter was decided on 2020-05-22 by the ITAT (Shri J. Sudhakar Reddy, Accountant Member and Shri A. T. Varkey, Judicial Member (Income Tax Appellate Tribunal, "C" Bench, Kolkata)). On those facts the ITAT held as follows. The Revenue's grounds 1 and 2 were dismissed as lacking merit (para 30). All the conditions stated in section 72A(4) read with section 2(19AA) having been fulfilled, the assessee company was eligible to claim the set off of the brought forward losses transferred from the demerged company, and the carried forward losses and unabsorbed depreciation in respect of the Vortal Undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. The claim was as per law, the Assessing Officer erred in refusing to consider the revised return of income, and the Commissioner (Appeals) had rightly allowed the claim. The Revenue's appeal as a whole was partly allowed for statistical purposes (para 40).
The Tribunal's route, so far as paragraph 30 discloses it, was to test the claim against section 72A(4) read with the definition in section 2(19AA), to find that all the conditions were fulfilled, and to conclude from that finding that the resulting company was eligible for the set off. It fixed the effective date of the transfer of the losses and unabsorbed depreciation as the appointed date under the scheme, 1 March 2010, and treated the Assessing Officer's refusal to consider the revised return in which the claim was made as an error, the claim itself being in accordance with law. The reasoning in the paragraphs preceding paragraph 30 was not retrieved and is not described here. In the words reproduced by the source cited on this page: "Since the assessee company meets all the requirements contained in the Income-tax Act, 1961, all the carried forward losses and unabsorbed Depreciation in respect of M/s. Vortal Undertaking were transferred, pursuant to section 72A(4) of the Act, from the demerged company (M/s. Star Ya Kalakaar.Com Limited) to the resulting company (M/s. Padma Logistic & Khanij Private Limited) w.e.f. the appointed date i.e. 01.03.2010."
It was decided by the ITAT on 2020-05-22 and is reported as ITA No. 606/Kol/2018 (ITAT Kolkata); assessment year 2010-11; heard 15 January 2020; no law-report citation printed on the document. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 72A, section 72A(4), section 2(19AA), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's grounds 1 and 2 were dismissed as lacking merit (para 30). All the conditions stated in section 72A(4) read with section 2(19AA) having been fulfilled, the assessee company was eligible to claim the set off of the brought forward losses transferred from the demerged company, and the carried forward losses and unabsorbed depreciation in respect of the Vortal Undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. The claim was as per law, the Assessing Officer erred in refusing to consider the revised return of income, and the Commissioner (Appeals) had rightly allowed the claim. The Revenue's appeal as a whole was partly allowed for statistical purposes (para 40). It arises in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters, on section 72A, section 72A(4), section 2(19AA) of the Income Tax Act 1961, and was decided by Shri J. Sudhakar Reddy, Accountant Member and Shri A. T. Varkey, Judicial Member (Income Tax Appellate Tribunal, "C" Bench, Kolkata). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Split the claim as section 72A(4) requires: loss and unabsorbed depreciation directly relatable to the transferred undertakings go across in full under clause (a); anything not directly relatable is apportioned under clause (b) in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company. Show the section 2(19AA) conditions separately and on the documents. The Tribunal's finding was that the conditions in section 72A(4) read with section 2(19AA) had been fulfilled, and that is what the entitlement rested on. If the scheme was sanctioned after the original return, file a revised return and, if the Assessing Officer declines to consider it, cite this order for the proposition that refusing to do so is an error. Do not assume that this order settles the section 2(19AA) conditions for your scheme. It records a finding of fulfilment on those facts and does not construe any individual condition. For a demerger effected on or after 1 April 2025, apply section 72A(6B) as well: the inherited loss runs only eight assessment years from the year it was first computed for the original predecessor entity, a limit this 2020 order does not consider.
Validity check could not be completed. Validity check could not be completed. I did not search for any appeal from this order or for later consideration of it. The finding that the section 2(19AA) conditions were fulfilled is a finding on the facts of that scheme and the order construes no individual condition, so it should not be cited as authority on the meaning of any of them. I read paragraph 30 and the disposal at paragraph 40 but not the intervening paragraphs, so I do not know what part of the Revenue's appeal was restored to the Assessing Officer when the appeal was partly allowed for statistical purposes. Section 72A(6B), which applies to a business reorganisation effected on or after 1 April 2025, did not exist and is not considered. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order was read at https://indiankanoon.org/doc/44875054/. Paragraph 30, which contains the operative finding, was transcribed in full and carrying its number from a /docfragment/ retrieval keyed to "pursuant to section 72A", and the same sentences were returned on the plain document; the two renderings agree word for word on the sentence used as the key quote. The header — Kolkata "C" Bench, Shri J. Sudhakar Reddy, Accountant Member and Shri A. T. Varkey, Judicial Member, ITA No. 606/Kol/2018, assessment year 2010-11 — was returned identically on the plain document and on the ?type=print rendering, which additionally gave the hearing date of 15 January 2020 and the pronouncement date of 22 May 2020 and the disposal at paragraph 40, "In the result, the revenue's appeal is partly allowed for statistical purposes", with the line "Order is pronounced in the open court on 22nd May, 2020". I did NOT transcribe the paragraphs between paragraph 30 and paragraph 40 and therefore do not know what else in the Revenue's appeal was restored or decided; the phrase "partly allowed for statistical purposes" indicates that something was restored, and this entry states only the outcome on grounds 1 and 2, which paragraph 30 dismisses in terms. I did not read the paragraphs recording the facts of the scheme, so the facts stated here are confined to what paragraph 30 and the header disclose, and the name of the demerged company is given as paragraph 30 prints it. No law-report citation was printed. A later pass should transcribe paragraphs 20 to 40 to establish what the section 2(19AA) analysis rested on and what was restored to the Assessing Officer. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's grounds 1 and 2 were dismissed as lacking merit (para 30). All the conditions stated in section 72A(4) read with section 2(19AA) having been fulfilled, the assessee company was eligible to claim the set off of the brought forward losses transferred from the demerged company, and the carried forward losses and unabsorbed depreciation in respect of the Vortal Undertaking were transferred pursuant to section 72A(4) from the demerged company to the resulting company with effect from the appointed date, 1 March 2010. The claim was as per law, the Assessing Officer erred in refusing to consider the revised return of income, and the Commissioner (Appeals) had rightly allowed the claim. The Revenue's appeal as a whole was partly allowed for statistical purposes (para 40).
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