Section 72A

Section 72A — the law in short

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

• Aspinwall and Co Ltd v Inspecting Assistant Commissioner Supreme CourtHelps department
  My company absorbed a loss-making company under a court-sanctioned scheme of amalgamation, and the scheme says the transferor's losses are to be treated as mine. Can I set those accumulated losses off against my own income under the Kerala Agricultural Income Tax Act, 1991?
  No. The Kerala Agricultural Income Tax Act, 1991 contains no provision answering to s.72A of the Income-tax Act, 1961, and counsel could point to none under which the losses of the amalgamating company may be set off against the income of the amalgamated company. A clause in the scheme of amalgamation saying the transferor's losses shall be deemed to be the transferee's does not supply the missing statutory right, and Dalmia Power does not help where the State of Kerala was never noticed in the amalgamation proceedings. The five appeals were dismissed.
• CIT v Eastman Exports Global Clothing Pvt Ltd High CourtHelps taxpayerNo later treatment found
  The Commissioner has issued a s.263 notice saying the transferor companies had not been in business for three years, so the losses we took over cannot be carried forward. Our arrangement was a demerger, not an amalgamation. Does the three-year condition apply?
  No. The three-year condition is in s.72A(2), which governs amalgamation. A demerger is governed by s.72A(4), which contains no such condition. The Madras High Court held that a revision order built on the wrong sub-section, and which merely remitted the matter to the assessing officer for enquiry, did not satisfy the requirement that the order sought to be revised be erroneous.
• Cargill India Pvt Ltd v CBDT High CourtHelps departmentUnder appeal
  We could not reach 50 per cent of the amalgamating company's installed capacity within four years. Will the Central Government relax Rule 9C if we show we genuinely tried?
  Not as a matter of course. The Delhi High Court held that the proviso to Rule 9C(a) is an exception, that the power to relax is not to be exercised liberally but only in exceptional cases and only to the extent necessary, and that the guiding purpose is the revival of the amalgamating company's industrial undertaking. Rejection was upheld where the threshold had still not been reached even within the extended period the applicant itself had asked for.
• PCIT v Lotte India Corporation Ltd High CourtHelps taxpayer
  We took over a loss-making company by amalgamation and did not file Form 62 for the third year after the merger. Does that by itself destroy the s.72A carry forward?
  Not on this view. The Madras High Court held that filing the Form 62 certificate for the third assessment year is not a condition precedent or a mandatory condition, but at best directory, and that non-compliance does not disentitle the amalgamated company. What matters is that the level of production prescribed by Rule 9C is in fact achieved, and that can be reached at any point within four years of the merger.
• 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 taxpayerNo later treatment found
  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.
• DCIT, Circle 7(1), Mumbai v. M/s. Piramal Enterprises Ltd. (ITAT Mumbai) — a scheme the High Court sanctioned cannot be attacked as a colourable device, but section 72A and Rule 9C still have to be satisfied ITATHelps taxpayerNo later treatment found
  The Assessing Officer says our merger was a device to buy the target's losses, even though the High Court sanctioned the scheme. How far does the sanction protect us, and what must we still prove?
  The Tribunal held that once the scheme of merger has been duly approved by the High Court, having in mind the larger public interest, it cannot be disturbed by the Revenue merely by alleging that the merger was done only to buy losses and was a colourable device — the more so where the Income Tax department, being part of the Union of India which is a party to the scheme petition, filed no objection before the High Court and preferred no appeal under section 391(7) of the Companies Act, 1956. But the Tribunal did not stop there. It went on expressly to address "the next crucial aspect" — whether the assessee had complied with section 72A read with Rule 9C, "which alone would enable it to get the benefit of set off of accumulated losses of amalgamating company in addition to the scheme of merger approved by the Hon'ble Bombay High Court" — and found on the facts that the conditions and the Rule 9C production and Form No. 62 requirements were satisfied.
• 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 taxpayerNo later treatment found
  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.
• Embio Ltd v. ACIT 15(1)(2), Mumbai (ITAT Mumbai) — where production falls below fifty per cent of installed capacity, the Rule 9C relaxation is applied for and the withdrawal is confined to the correct year ITATHelps taxpayerNo later treatment found
  We got the section 72A set-off in year one, then production collapsed and we fell below fifty per cent of installed capacity. Can the Assessing Officer withdraw the set-off, and if so for which year?
  The Tribunal restored the issue to the Assessing Officer to be decided afresh following the coordinate bench decision in Bayer Material Science, and directed him in terms to consider the assessee's submission that withdrawal of the loss or depreciation, if any, can be only in the year under consideration. The order is therefore a remand on the merits, not a decision that the assessee wins; its value is that it fixes the framework — Rule 9C is to be applied on the Bayer construction, and the year in which the set-off is taken back is a question to be decided, not assumed. The order also records the machinery a taxpayer in this position should use: the assessee had applied to the Central Government under Rule 9C for an extension of the time for achieving the minimum fifty per cent production beyond the stipulated four years, on the ground of labour unrest.
• Bayer Material Science Pvt. Ltd. v. ACIT, Circle 10(3), Mumbai (ITAT Mumbai) — the three-fourths test is applied to each amalgamating company separately, and Rule 9C bites only at the end of four years ITATHelps taxpayer
  The Assessing Officer has denied our section 72A set-off in the very first year after the merger because we have not yet reached fifty per cent of installed capacity and have not filed Form No. 62. Can he do that before the four years are up?
  No. The Tribunal held that Rule 9C(a) requires the fifty per cent production level to be achieved before the END of four years from the date of amalgamation, so it may be achieved in the first, second, third or fourth year, and the Assessing Officer of an earlier year is not required — and by implication not entitled — to examine that condition at that stage. The Form No. 62 certificate under Rule 9C(b) is due for the first time only for the assessment year relevant to the previous year in which the prescribed production level is achieved, so a demand for it before that is premature. Separately, the Tribunal held that the three-fourths of book value test in section 72A(2)(b)(i) is applied qua the particular amalgamating company whose loss is being claimed, and that where two companies amalgamate in the same year the disposals of the second company's assets cannot be aggregated with the first's.
• Statutory position — s.72A(6B): inserted by the Finance Act, 2025 with effect from 1 April 2026, an inherited business loss runs only eight assessment years from the year it was first computed for the original predecessor entity, for any reorganisation effected on or after 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  We are planning an amalgamation this year and the target has losses that are already several years old. Does the eight-year clock restart in our hands?
  No — not for an amalgamation or business reorganisation effected on or after 1 April 2025. Sub-section (6B) of section 72A provides that where any amalgamation or business reorganisation is effected on or after that date, any loss forming part of the accumulated loss of the predecessor entity under sub-section (1), (6) or (6A) which is deemed to be the loss of the successor entity shall be carried forward in the successor's hands for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for the original predecessor entity. "Original predecessor entity" is defined in s.72A(7)(ab) as the predecessor entity in respect of the FIRST amalgamation under sub-section (1) or the first business reorganisation under sub-section (6) or (6A). Sub-section (6B) and the definition in s.72A(7)(ab) were inserted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2026, so the provision first governs assessment year 2026-27 — which is the first assessment year in which a reorganisation effected on or after 1 April 2025 can fall, the two dates dovetailing exactly.
• Statutory position — s.2(1B): the three conditions of an "amalgamation", and why a scheme sanctioned by a court or tribunal does not by itself produce one CBDT Circulars & InstructionsCuts both ways
  The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that?
  Yes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order.
• Statutory position — s.72A(1) and s.72A(7)(aa): which amalgamations carry accumulated loss and unabsorbed depreciation across, and the closed definition of "industrial undertaking" CBDT Circulars & InstructionsCuts both ways
  We amalgamated a loss-making service company into ours. The Assessing Officer says section 72A does not apply at all because there is no industrial undertaking. Is that right, and what does the section actually cover?
  Section 72A(1) does not apply to every amalgamation. It applies to an amalgamation of (a) a company owning an industrial undertaking or a ship or a hotel with another company, (b) a banking company within s.5(c) of the Banking Regulation Act, 1949 with a specified bank, (c) one or more public sector companies with one or more public sector companies, or (d) an erstwhile public sector company with one or more companies where the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation and the amalgamation is carried out within five years from the end of the previous year in which that restriction ends. "Industrial undertaking" is exhaustively defined in s.72A(7)(aa) as an undertaking engaged in the manufacture or processing of goods, the manufacture of computer software, the business of generation or distribution of electricity or any other form of power, the business of providing telecommunication services (basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services), mining, or the construction of ships, aircrafts or rail systems.
• Statutory position — s.72A(2), s.72A(3) and Rule 9C: the five conditions, the fifty per cent production test, the Form No. 62 certificate and the year the set-off is taken back CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — section 79: which version of the change-in-shareholding bar applies to your year CBDT Circulars & InstructionsCuts both ways
  My closely held company changed hands and the Assessing Officer has knocked out the brought-forward loss under section 79. The section has been rewritten more than once — which text governs my assessment year?
  Four different texts of s.79 have governed the last decade, and the one that applies is the one in force for the assessment year in which the set-off is claimed. The Finance Act 2017 (Act 7 of 2017) substituted s.79 with effect from 1 April 2018 in a clause (a) and clause (b) form; the Finance (No. 2) Act 2019 (Act 23 of 2019) substituted it again with effect from 1 April 2020 into the present sub-section (1), (2) and (3) form; the Finance Act 2021 and the Finance Act 2022 added carve-outs with effect from 1 April 2022; and the Finance Act 2023 (Act 8 of 2023) substituted 'ten' for 'seven' in the start-up proviso with effect from 1 April 2023.

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.