We took over an amalgamating company's brought-forward losses. What exactly must we satisfy under section 72A(2) and Rule 9C, and if we fail, in which year does the department take the set-off back?
Section 72A(2) imposes five conditions in two groups. The amalgamating company must (a)(i) have been engaged in the business in which the accumulated loss occurred or depreciation remains unabsorbed for three or more years, and (a)(ii) have held continuously, as on the date of the amalgamation, at least three-fourths of the book value of fixed assets held by it two years prior to that date. The amalgamated company must (b)(i) hold continuously for a minimum of five years from the date of amalgamation at least three-fourths of the book value of the fixed assets of the amalgamating company acquired in the scheme, (b)(ii) continue the business of the amalgamating company for a minimum of five years from that date, and (b)(iii) fulfil the conditions prescribed by Rule 9C — achieving at least fifty per cent of the installed capacity of the amalgamating company's industrial undertaking before the end of four years from the date of amalgamation and maintaining it to the end of five years, and furnishing to the Assessing Officer a certificate in Form No. 62 verified by an accountant. If any condition in sub-section (2) is not complied with, s.72A(3) deems the set-off or depreciation allowance already made in any previous year to be the income of the amalgamated company chargeable to tax for the year in which the condition is not complied with.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.72A(2) and s.72A(3), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9C, as printed on the departmental rule page (no Year stamp). It bears on section 72A, section 72A(2), section 72A(3), section 72A(1), section 288(2), section 2(1B) of the Income Tax Act 1961, in How Tax Law Is Read, Assessment & Scrutiny and Deductions & Disallowances matters.
The two groups of conditions do different work and are missed for different reasons. The (a) conditions look backwards at the amalgamating company and are fixed before the scheme is signed: if the loss-making business had not been carried on for three or more years, or the target sold down its fixed assets in the two years before the merger, there is nothing the amalgamated company can do afterwards to cure it. The (b) conditions look forward for five years and are the ones that produce demands long after the deal is closed — a post-merger disposal of plant, a decision to shut the acquired line, or a failure of production against installed capacity. Two features of the machinery are worth having at your fingertips. First, the three-fourths test in (a)(ii) is a comparison across time within the amalgamating company: three-fourths of the book value of fixed assets it held TWO YEARS BEFORE the amalgamation, still held as on the date of amalgamation. The test in (b)(i) is a different one: three-fourths of the book value of the fixed assets of the amalgamating company that the amalgamated company acquired, held continuously for five years. Second, Rule 9C carries a relief that is almost never used: a proviso allowing the Central Government, on an application by the amalgamated company, to relax the level of production or the period in which it is to be achieved or both, having regard to the genuine efforts made and the circumstances preventing them from succeeding. That is the answer to a labour stoppage, a plant fire or a market collapse, and it must be applied for rather than argued about after assessment. The sting is s.72A(3): the withdrawal is not made in the year the set-off was originally allowed but in the year the condition is broken, and it is charged as income of the amalgamated company. That is what makes the failure a cash event years later, and it is also what limits the department — the Assessing Officer of an earlier year is not entitled to reopen that year for a breach that has not yet happened.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed on the Year 2025 departmental page, s.72A(2) reads: Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) has held continuously as on the date of the amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date of amalgamation; (b) the amalgamated company— (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. Sub-section (3) reads: In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with. Rule 9C of the Income-tax Rules, 1962, headed "Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation", reads: The conditions referred to in clause (iii) of sub-section (2) of section 72A shall be the following, namely:— (a) 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: Provided 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; (b) the amalgamated company shall furnish to the Assessing Officer a certificate in Form No. 62, duly verified by an accountant, with reference to the books of account and other documents showing particulars of production, along with the return of income for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for subsequent assessment years relevant to the previous years falling within five years from the date of amalgamation. Explanation.—For the purposes of this rule,— (a) "installed capacity" means the capacity of production existing on the date of amalgamation; and (b) "accountant" means the accountant as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961.
The set-off and carry-forward permitted by s.72A(1) is conditional on all five conditions in s.72A(2), of which two bind the amalgamating company and three bind the amalgamated company. The prescribed conditions referred to in s.72A(2)(b)(iii) are those in Rule 9C: the fifty per cent of installed capacity test, to be achieved before the end of four years from the date of amalgamation and maintained to the end of five years, and the Form No. 62 certificate verified by an accountant, to be furnished with the return for the assessment year in which the prescribed level of production is achieved and for each subsequent assessment year within the five years. On a failure of any condition in sub-section (2), s.72A(3) charges the set-off or allowance already made as income of the amalgamated company for the year in which the condition is not complied with.
Not applicable — this is a statement of statutory and rule text taken from departmental pages. No judicial reasoning is involved.
In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with.
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Handle my notice → Ask a CA on WhatsAppSection 72A(2) imposes five conditions in two groups. The amalgamating company must (a)(i) have been engaged in the business in which the accumulated loss occurred or depreciation remains unabsorbed for three or more years, and (a)(ii) have held continuously, as on the date of the amalgamation, at least three-fourths of the book value of fixed assets held by it two years prior to that date. The amalgamated company must (b)(i) hold continuously for a minimum of five years from the date of amalgamation at least three-fourths of the book value of the fixed assets of the amalgamating company acquired in the scheme, (b)(ii) continue the business of the amalgamating company for a minimum of five years from that date, and (b)(iii) fulfil the conditions prescribed by Rule 9C — achieving at least fifty per cent of the installed capacity of the amalgamating company's industrial undertaking before the end of four years from the date of amalgamation and maintaining it to the end of five years, and furnishing to the Assessing Officer a certificate in Form No. 62 verified by an accountant. If any condition in sub-section (2) is not complied with, s.72A(3) deems the set-off or depreciation allowance already made in any previous year to be the income of the amalgamated company chargeable to tax for the year in which the condition is not complied with. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 72A, section 72A(2), section 72A(3), section 72A(1), section 288(2), section 2(1B) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.72A(2) and s.72A(3), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9C, as printed on the departmental rule page (no Year stamp). The two groups of conditions do different work and are missed for different reasons. The (a) conditions look backwards at the amalgamating company and are fixed before the scheme is signed: if the loss-making business had not been carried on for three or more years, or the target sold down its fixed assets in the two years before the merger, there is nothing the amalgamated company can do afterwards to cure it. The (b) conditions look forward for five years and are the ones that produce demands long after the deal is closed — a post-merger disposal of plant, a decision to shut the acquired line, or a failure of production against installed capacity. Two features of the machinery are worth having at your fingertips. First, the three-fourths test in (a)(ii) is a comparison across time within the amalgamating company: three-fourths of the book value of fixed assets it held TWO YEARS BEFORE the amalgamation, still held as on the date of amalgamation. The test in (b)(i) is a different one: three-fourths of the book value of the fixed assets of the amalgamating company that the amalgamated company acquired, held continuously for five years. Second, Rule 9C carries a relief that is almost never used: a proviso allowing the Central Government, on an application by the amalgamated company, to relax the level of production or the period in which it is to be achieved or both, having regard to the genuine efforts made and the circumstances preventing them from succeeding. That is the answer to a labour stoppage, a plant fire or a market collapse, and it must be applied for rather than argued about after assessment. The sting is s.72A(3): the withdrawal is not made in the year the set-off was originally allowed but in the year the condition is broken, and it is charged as income of the amalgamated company. That is what makes the failure a cash event years later, and it is also what limits the department — the Assessing Officer of an earlier year is not entitled to reopen that year for a breach that has not yet happened. If it applies to you, the first step is this: Split the conditions into the (a) group and the (b) group and test them separately. The (a) group is due diligence on the target before signing; the (b) group is a five-year compliance obligation on your own company.
As printed on the Year 2025 departmental page, s.72A(2) reads: Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) has held continuously as on the date of the amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date of amalgamation; (b) the amalgamated company— (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. Sub-section (3) reads: In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with. Rule 9C of the Income-tax Rules, 1962, headed "Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation", reads: The conditions referred to in clause (iii) of sub-section (2) of section 72A shall be the following, namely:— (a) 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: Provided 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; (b) the amalgamated company shall furnish to the Assessing Officer a certificate in Form No. 62, duly verified by an accountant, with reference to the books of account and other documents showing particulars of production, along with the return of income for the assessment year relevant to the previous year during which the prescribed level of production is achieved and for subsequent assessment years relevant to the previous years falling within five years from the date of amalgamation. Explanation.—For the purposes of this rule,— (a) "installed capacity" means the capacity of production existing on the date of amalgamation; and (b) "accountant" means the accountant as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The set-off and carry-forward permitted by s.72A(1) is conditional on all five conditions in s.72A(2), of which two bind the amalgamating company and three bind the amalgamated company. The prescribed conditions referred to in s.72A(2)(b)(iii) are those in Rule 9C: the fifty per cent of installed capacity test, to be achieved before the end of four years from the date of amalgamation and maintained to the end of five years, and the Form No. 62 certificate verified by an accountant, to be furnished with the return for the assessment year in which the prescribed level of production is achieved and for each subsequent assessment year within the five years. On a failure of any condition in sub-section (2), s.72A(3) charges the set-off or allowance already made as income of the amalgamated company for the year in which the condition is not complied with.
Not applicable — this is a statement of statutory and rule text taken from departmental pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.72A(2) and s.72A(3), as printed on the departmental Year 2025 page; Income-tax Rules, 1962, rule 9C, as printed on the departmental rule page (no Year stamp). Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 72A, section 72A(2), section 72A(3), section 72A(1), section 288(2), section 2(1B), 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 cuts both ways and is cited by both sides. The set-off and carry-forward permitted by s.72A(1) is conditional on all five conditions in s.72A(2), of which two bind the amalgamating company and three bind the amalgamated company. The prescribed conditions referred to in s.72A(2)(b)(iii) are those in Rule 9C: the fifty per cent of installed capacity test, to be achieved before the end of four years from the date of amalgamation and maintained to the end of five years, and the Form No. 62 certificate verified by an accountant, to be furnished with the return for the assessment year in which the prescribed level of production is achieved and for each subsequent assessment year within the five years. On a failure of any condition in sub-section (2), s.72A(3) charges the set-off or allowance already made as income of the amalgamated company for the year in which the condition is not complied with. It arises in How Tax Law Is Read, Assessment & Scrutiny and Deductions & Disallowances matters, on section 72A, section 72A(2), section 72A(3), section 72A(1), section 288(2), section 2(1B) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. For condition (a)(ii), pull the amalgamating company's fixed asset register as at a date two years before the amalgamation and as at the date of amalgamation, and compute the three-fourths test on book value between those two dates. For condition (b)(i), track the book value of the fixed assets of THAT amalgamating company which you acquired, and do not aggregate them with the assets of any other company that merged with you in the same year. Diarise the four-year and five-year dates from the date of amalgamation on the day the scheme becomes effective, and put the production test against installed capacity into the monthly management pack. Fix "installed capacity" as the Explanation to Rule 9C defines it — the capacity of production existing on the date of amalgamation — and document that figure contemporaneously, because it is the denominator for the whole five years. File Form No. 62, verified by an accountant within the meaning of the Explanation below s.288(2), with the return for the assessment year relevant to the previous year in which the prescribed level of production is achieved, and again for each subsequent assessment year falling within five years from the date of amalgamation. If production is going to fall short for reasons outside your control, make the application to the Central Government under the proviso to Rule 9C(a) for relaxation of the level or the period, and make it before the four years expire rather than after the assessment. If a condition has been broken, compute the s.72A(3) charge in the year of breach — not the year of the original set-off — and resist any attempt to reopen the earlier year on that ground.
Still good law. Nine departmental editions of s.72A spanning Year 2003 to Year 2025 print sub-sections (2) and (3) in identical words, which is the strongest evidence obtainable on this pass that neither has moved. Rule 9C could not be dated at all: the departmental rule page carries no "Year:" stamp, and I retrieved no notification amending it. Its text is nonetheless corroborated by two Tribunal orders read this pass which reproduce and apply both its clauses. No Finance Act or notification text was read. Sub-sections (2) and (3) are confirmed unchanged as at the departmental Year 2026 edition; I did not check whether Rule 9C has been amended by any notification, and the rule page carries neither a Year stamp nor any footnote by which it could be dated. 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.
Sub-sections (2) and (3) were transcribed this pass from https://incometaxindia.gov.in/w/section-72a-48, which printed the Act name "Income-tax Act, 1961", the heading "Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc" and "Year: 2025", and independently, word for word identically, from /w/section-72a-45 (Year: 2023), /w/section-72a-12 (Year: 2013), /w/section-72a-5 (Year: 2011), /w/section-72a-3 (Year: 2010), /w/section-72a-1 (Year: 2009), /w/section-72a-18 (Year: 2007), /w/section-72a-16 (Year: 2006) and /w/section-72a-7 (Year: 2003). RULE 9C: transcribed in full from https://incometaxindia.gov.in/w/rule-9c, which printed the instrument name "Income-tax Rules, 1962" and the rule heading "Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation". Consistent with the brief's warning, that page carries NO "Year:" stamp at all, so the rule CANNOT be dated the way a section can and I do not claim to have dated it. I asked for the Act or Rules name expressly because of the brief's record of /w/rule-133, /w/rule-39, /w/rule-40 and /w/rule-30 serving SEBI ICDR Regulations 2018 material; /w/rule-9c did not do that. The rule text is independently corroborated by two Tribunal orders read this pass which reproduce its two clauses and their operation: Bayer Material Science Pvt Ltd v ACIT (ITAT Mumbai, 13 February 2013) at paras 6 and 8, and Embio Ltd v ACIT (ITAT Mumbai, 23 April 2019) at para 18. ONE MATTER THE READER SHOULD KNOW ABOUT. In DCIT v Piramal Enterprises Ltd (ITAT Mumbai, 5 October 2021), read this pass, the Tribunal reproduced s.72A(2) "as it stood then as is relevant to A.Y.2003-04" as a provision containing only three conditions — the three in what is in fact clause (b) — and made no separate reference to the clause (a) conditions on the amalgamating company. The departmental Year 2003 page prints the clause (a)/(b) structure for that year. A reader should not take the reproduction in that order as the text of s.72A(2). I did not retrieve any footnote naming the Act that introduced the clause (a)/(b) structure and I state no date for it. Note also that the departmental Year 2000, Year 2001 and Year 2002 pages print sub-section (2) in the older single-list form while the Year 2003 page prints the clause (a)/(b) form; I could not reconcile that sequence from any source read this pass and flag it rather than explain it. 'decided_on' is the start of the assessment year for which the Year 2025 edition speaks; 'bench' and 'favours' are inapplicable. VERIFIED ON A TENTH EDITION. Sub-sections (2) and (3) were transcribed again on verification from https://incometaxindia.gov.in/w/section-72a-53, which prints the Act name "Income-tax Act, 1961", the same section heading and the stamp "Year: 2026", and both are word for word identical to the text set out above. Rule 9C was re-fetched at https://incometaxindia.gov.in/w/rule-9c with the instrument name, rule heading and Year stamp demanded expressly; it returned "Income-tax Rules, 1962", the rule heading given above, "NO YEAR STAMP ON THIS PAGE" and "NO FOOTNOTES PRINTED", and its text is word for word identical to the text set out above. Note that Rule 9C's own opening words still refer to "clause (iii) of sub-section (2) of section 72A", the pre-restructure numbering; the condition is today s.72A(2)(b)(iii), and the link between the two is made expressly by the Tribunal in Bayer Material Science at para 6. 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 set-off and carry-forward permitted by s.72A(1) is conditional on all five conditions in s.72A(2), of which two bind the amalgamating company and three bind the amalgamated company. The prescribed conditions referred to in s.72A(2)(b)(iii) are those in Rule 9C: the fifty per cent of installed capacity test, to be achieved before the end of four years from the date of amalgamation and maintained to the end of five years, and the Form No. 62 certificate verified by an accountant, to be furnished with the return for the assessment year in which the prescribed level of production is achieved and for each subsequent assessment year within the five years. On a failure of any condition in sub-section (2), s.72A(3) charges the set-off or allowance already made as income of the amalgamated company for the year in which the condition is not complied with.
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