We absorbed a loss-making group company under an NCLT-sanctioned scheme and the officer has refused the whole s.72A set-off - wrong year, no three-year business, Rule 9C already broken, no Form 62 - how much of that is right?
The client is a private limited company manufacturing industrial valves, assessed at a circle in Aurangabad. It absorbed a group company that had run a forging unit at Jalna since March 2019, carrying accumulated business loss of Rs 5,62,00,000 and unabsorbed depreciation of Rs 2,18,00,000. The scheme was sanctioned by the NCLT by order dated 7 August 2024 and the certified copy was filed with the Registrar on 26 September 2024. The appointed date in the scheme is 1 April 2023. All the property and all the liabilities of the amalgamating company passed under it; shareholders holding 96 per cent by value received shares in the client and the holder of a 4 per cent fractional entitlement was paid cash in lieu. The client claimed the set-off in its return for AY 2024-25, filed on 31 October 2024, treating the loss as its own for the previous year ended 31 March 2024. The Jalna unit ran at 34 per cent of installed capacity in FY 2024-25 and no Form 62 has been filed. The assessment under s.143(3) read with s.144B, dated 20 March 2026, disallows the whole set-off on four grounds - wrong previous year, no three-year engagement in the business, Rule 9C already broken, no Form 62 - and adds that the scheme was a device to acquire losses. The demand is Rs 2,04,00,000. A notice under s.148 for AY 2022-23 issued on 28 March 2026 in the amalgamating company's name. The appeal was filed on 17 April 2026.
Get the sanctioned scheme, the NCLT order and the Registrar filing receipt into one bundle and mark three dates on the cover: the appointed date, the date of the order and the date the order took effect on the register. Almost every ground in this assessment is a date ground dressed as a merits ground, and the notice issued in the dead company's name on 28 March 2026 is a separate matter with its own clock that will be lost if it is folded into the appeal. Then read the scheme's own loss clause and put it aside - it is worth nothing on its own, and a note built on it will fail.
The sanction is not the qualification. The library's statutory page is explicit that amalgamation for the Income-tax Act is defined by s.2(1B) and by nothing else, that an officer can hold a scheme the NCLT has called an amalgamation is not one for income-tax, and that three conditions have to be satisfied: all the property of the amalgamating company becomes the property of the amalgamated company, all its liabilities become its liabilities, and shareholders holding not less than three-fourths in value of the shares of the amalgamating company become shareholders of the amalgamated company. On this file all three are met on the documents, and the 96 per cent figure is comfortably above the threshold. Establish that first and in that order, because the four grounds in the assessment order all presuppose it and none of them attacks it - which is itself worth saying in the grounds.
Section 72A(1) does not apply to every amalgamation. The library's page on the sub-section sets out the categories - a company owning an industrial undertaking or a ship or a hotel amalgamating with another company, a banking company with a specified bank, one or more public sector companies, and the further categories added since - and an officer who says the section does not apply at all because there is no industrial undertaking is raising a real question, not a technical one. A forging unit is the easy end of that; a service company is not. The point to settle before anything else is that the statute and nothing else supplies the set-off. The Supreme Court has held, on a state agricultural income tax statute containing no provision answering to s.72A, that a clause in a scheme of amalgamation saying the transferor's losses are to be treated as the transferee's cannot supply a set-off the statute does not give. That entry is marked good law and it is the reason the scheme's own loss clause is not an argument.
The library's page on the sub-section sets out five conditions in two groups. The amalgamating company must have been engaged in the business in which the loss occurred for three or more years, and must have held continuously, as on the date of the amalgamation, at least three-fourths of the book value of the fixed assets it held two years earlier. The amalgamated company must hold three-fourths of the book value of the assets acquired in the scheme for five years, continue the business for five years, and satisfy Rule 9C. On the three-year point this company is inside it on the documents, and the ground in the order appears to count from the wrong date. On Rule 9C two entries decide the timing. A Tribunal held that the fifty per cent production level need only be reached before the end of four years from the date of the amalgamation, so the officer of an earlier year cannot deny the set-off because it has not yet been reached. The Madras High Court held that filing the Form 62 certificate for the third assessment year is at best directory and that non-compliance does not disentitle the amalgamated company.
The Supreme Court has held that every scheme of amalgamation must specify a date from which the amalgamation shall take place, that the court may modify that date while sanctioning the scheme but where it does not the date in the scheme governs, and that the amalgamation accordingly takes effect from the appointed date and not from the date of the sanction. On that footing the amalgamating company ceased to have a separate existence from 1 April 2023, its results for FY 2023-24 are the client's, and the accumulated loss is claimable in AY 2024-25 as the return has it. The machinery that goes with a late sanction is on the library as well: where a return has been furnished before the date of the order in a business reorganisation, s.170A gives the successor a modified return, and s.170(2A) saves proceedings initiated on the predecessor while the reorganisation was pending. Both should be pleaded, because they show the Act contemplates exactly this gap.
Breaking a condition later is not the same as never having satisfied one, and the assessment order runs the two together. The library's page records that where the conditions in sub-section (2) are not fulfilled, the set-off of the loss or depreciation that was allowed in an earlier year becomes the income of the amalgamated company chargeable to tax for the year in which the conditions are not complied with. That is a charge in a later year, not a denial in the first year, and the distinction is the answer to a ground built on 34 per cent production in FY 2024-25 when the four-year window under Rule 9C has not closed. A Tribunal faced with exactly that sequence - the set-off allowed in year one, production then falling below the level - restored the issue to the officer to be decided afresh following the coordinate Bench on the four-year window, and directed him in terms to consider the submission that withdrawal of the loss or depreciation can only be in the year under consideration.
Three Tribunal orders in this collection mark out what the sanction protects. One held that once a 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. Another reversed a finding that a scheme was a tool for evasion, resting on the fact that the court had approved the scheme and its terms and that the Department had raised no objection before the court at that time and could not claim afterwards that it was colourable. A third, on the neighbouring sub-section for demergers, held that a court-approved scheme of arrangement carries the force of a statute and that the Commissioner had drawn inferences under s.263 without taking cognizance of the scheme on the record. Whether the department appeared before the NCLT is therefore a fact worth proving: get that record, and the department's affidavit or its absence, on the appeal file.
Section 170(1) splits the previous year at the date of succession: the predecessor is assessed on the income up to that date and the successor on the income after it, with the successor assessable for both periods where the predecessor cannot be found. The library's concept page adds what goes with it on depreciation. That machinery answers the part-year question for FY 2023-24 and frames the s.148 notice of 28 March 2026. On that notice the Supreme Court has held that once a company amalgamates it ceases to exist, so a notice in its name is a jurisdictional illegality and not a clerical slip, that the curative provision cures defects in service and cannot supply jurisdiction, and that participation is not an estoppel. A High Court had already held an assessment framed against a non-existing entity void. The Delhi High Court has since held that the later Supreme Court decision allowing such an assessment to stand does not dilute that position - it turned on an assessee who suppressed the amalgamation and litigated throughout in the amalgamating company's name.
The three-year ground and the Form 62 ground usually go, the first on the documents and the second on the directory reading in this library. The Rule 9C ground usually goes too, because the four-year window has not closed and the entries on timing are clear about that. The device allegation usually falls away once the NCLT record is produced, though it falls away slowly and it is what makes these appeals long. The year point is the one that is genuinely open and the one most often remitted rather than decided - which is survivable only if the modified return for the alternative year has been filed in time. The real risk on this file is not the appeal at all: it is the clawback in the fourth year if the forging unit does not get to fifty per cent, and a company that wins this appeal and misses that has gained two years and lost the same money.
