Section 72A(4)

Section 72A(4) — the law in short

What the courts have decided on section 72A(4), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Hinduja Global Solutions Ltd v PCIT — Chapter X-A invoked on an NCLT-sanctioned demerger: Rule issued because no appeal lies, and the s.144BA reference, the directions and the assessments stayed High CourtHelps taxpayerValidity unconfirmed
  The department has invoked GAAR on a demerger that the NCLT sanctioned after notice to the income-tax authorities, and s.72A(4) expressly allowed the loss to move with the undertaking. I have no right of appeal against the reference or the directions. What can I actually do?
  You go to the High Court under Article 226, and the Bombay High Court has said in terms that the absence of an appeal is itself a reason to entertain the writ. On 19 December 2025 it issued Rule on a petition challenging a s.144BA reference dated 31 March 2025 and directions dated 30 October 2025 invoking Chapter X-A on an NCLT-sanctioned demerger, recording that it was "mindful of the fact that there is no provisions for an Appeal for impugning the reference ... or the directions ... invoking the provisions of Chapter X-A of the IT Act". It found a strong prima facie case and granted interim relief staying the reference, the directions and the assessment proceedings for AYs 2022-23 and 2023-24. Two arguments carried that interim finding: that Chapter X-A could never have been invoked once a competent authority, the NCLT, had sanctioned the demerger after notice to the income-tax authorities who raised no objection; and that s.72A(4) expressly permits the transfer of accumulated loss and unabsorbed depreciation of the demerged undertaking, so that what the Act itself allows cannot be an impermissible avoidance arrangement.
• Bharti Airtel Limited v. PCIT, Delhi-1 (ITAT Delhi) — a section 263 revision holding a demerger was really an acquisition, and why it did not survive ITATHelps taxpayerValidity unconfirmed
  The Commissioner has revised our assessment under section 263 saying the scheme was an acquisition and not a demerger, so the section 72A(4) losses go. What did the Tribunal make of that argument?
  The Tribunal allowed the assessee's appeal. It held that the Principal Commissioner had drawn his inferences without taking cognizance of the Composite Scheme of Arrangement on the record, that a scheme of arrangement approved by the court carries the force of a statute, and that a restructuring in the telecom sector could not be branded an exercise to claim set-off of brought forward losses by a bald allegation. It recorded that section 2(19AA) refers to the provisions of the Companies Act for determining whether there is a demerger, and that the basic requirement for eligibility under section 72A(4) is that the transfer of the undertaking be in pursuance of a scheme of arrangement under the Companies Act by the demerged company. On the facts it found that the demerged company had been engaged in the consumer wireless mobile business, had been incurring loss since inception, that the entire business loss related to that undertaking alone, and that all the assets and liabilities relating to the demerged business had been transferred and vested in the assessee.
• ACIT, Circle-13(2), Kolkata v. M/s. Padma Logistics & Khanij Pvt. Ltd. (ITAT Kolkata) — where section 72A(4) read with section 2(19AA) is satisfied, the demerged company's losses pass to the resulting company from the appointed date ITATHelps taxpayerValidity unconfirmed
  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.
• Statutory position — s.2(19AA): the seven conditions of a "demerger", the going-concern requirement, transfer at book value and the Indian Accounting Standards proviso CBDT Circulars & InstructionsCuts both ways
  We hived off a division under a court-sanctioned scheme and claimed section 47(vib) and section 72A(4). The Assessing Officer says it is not a "demerger". What exactly does section 2(19AA) require, and what is the position where Ind AS forced us to record the assets at a different value?
  Section 2(19AA) requires a transfer pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of one or more of its undertakings to a resulting company, AND seven further conditions: all the property of the undertaking passes; all the liabilities relatable to it pass; the property and liabilities are transferred at values appearing in the demerged company's books immediately before the demerger; the resulting company issues its shares to the demerged company's shareholders on a proportionate basis; shareholders holding not less than three-fourths in value of the shares of the demerged company become shareholders of the resulting company; the transfer of the undertaking is on a going-concern basis; and the demerger accords with any conditions notified under s.72A(5). The book-value condition now carries a proviso which disapplies it where the resulting company records a different value in compliance with the Indian Accounting Standards specified in the Annexure to the Companies (Indian Accounting Standards) Rules, 2015.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.