Income Tax Appellate Tribunal - Mumbai
Parle Agro Pvt.Ltd., Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL "C" Bench, Mumbai Before Shri D.Manmohan (VP) and Shri Rajendra Singh(AM) ITA No.814/M/2009 Assessment Year 2004-05 M/s.Parle Agro Pvt. Ltd. The ACIT Cent. Cir.25, Mumbai Western Express Highway, Aayakar Bhavan, 4th Floor, Chalkala, Andheri (East), M.K. Road, Mumbai 400 020. Mumbai 400 099. Appellant Respondent Assessee by : Shri Firoze Andhyarjina Revenue by : Shri Devdasan ORDER
PER RAJENDRA SINGH (AM) This appeal by the assessee is directed against the order dated 11.12.2008 of CIT(A) for the assessment year 2004-05. The assessee in this appeal has raised disputes on five different grounds.
2. The first ground of appeal is regarding the nature of expenditure on account of art work charges amounting to Rs.26,58,404/-. The AO in assessment order observed that the said expenditure which was debited under the head 'advertisement' was not of the nature of advertisement expenditure. It was an expenditure on apparatus which had been utilized for preparation of advertisement material. The AO therefore treated the art work charges as capital expenditure and disallowed the same. In appeal CIT(A) following the decision in assessment year 1998-99 confirmed the order of AO aggrieved by which the assessee is in appeal.
2.1 After hearing both the parties we find that the same issue had been considered by the tribunal in assessee's own case in assessment year 1998-99 in ITA No.561/M/2003. The tribunal observed that the revenue had treated the expenditure as capital expenditure without bringing on record any cogent material to support the conclusion. The tribunal accordingly set aside the order of CIT(A) and restored the matter to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. The said decision was followed in assessment years 2000-01 to 2002-03. The facts this year are identical. Therefore respectfully following the decision of tribunal (supra) we set aside the order of CIT(A) and restore the issue to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee.
3. The disputes raised in ground No.2 & 3 are regarding disallowance of expenditure of Rs.2,28,418/- relating to the exempt income under section 14A of the I.T.Act. The Learned AR for the assessee at the time of hearing of the appeal did not press these grounds of appeal. These grounds are therefore dismissed as not pressed.
4. The grounds no.4 & 5 relate to apportionment of unabsorbed business losses and unabsorbed depreciation of the demerged company between the demerged company and the resulting company. The assessee company during the year w.e.f. 1.1.2004 demerged its investment division and transferred the same to Parle Pet Pvt. Ltd., the resulting company. There were brought forward losses to the tune of Rs.1,47,20,104/- and brought forward unabsorbed depreciation to the tune of Rs.12,82,87,732/- in case of the assessee company prior to demerger. The AO observed that these losses were not directly relatable to the investment division transferred to the resulting company and therefore he apportioned the brought forward losses and unabsorbed depreciation in the ratio of the asset of the undertakings retained by the demerged company and the undertaking transferred to the resulting company in terms of provisions of section 72A(4). The said provision is reproduced below as ready reference :
72A(4) Notwithstanding anything contained in any of the provisions of this Act, in the case of demerger, the accumulated losses and the allowance for unabsorbed depreciation of the demerged company shall ;
Where such loss or unabsorbed depreciation is directly relatable to the undertaking transferred to the resulting company be allowed to be carried forward and set off in the hands of the resulting company.
Where such loss or unabsorbed depreciation is not directly relatable to the undertaking transferred to the resulting company, be apportioned between demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company as the case may be.
4.1 The AO applying the provisions of section 72A(2)(b), apportioned the business losses and unabsorbed depreciation in the ratio of assets of the investment division and those of the demerged company. He thus allocated business loss to the tune of Rs.7,87,26,396/- and brought forward unabsorbed depreciation to the tune of Rs.6,86,19,766/- to the resulting company and accordingly the losses to the extent mentioned were not allowed to be carried forward in case of the assessee company. In appeal the assessee argued that the accumulated business losses and brought forward unabsorbed depreciation related to the manufacturing concerns which had been retained by the demerged company and not to the investment division which had been transferred to the resulting company and therefore brought forward losses and unabsorbed depreciation could not be allocated to the resulting company. CIT(A) however observed that in terms of the provisions of section 72A(4)(b) in case the losses and unabsorbed depreciation were not directly relatable to the division transferred these have to be allocated in the ratio of the assets of the division transferred and the assets of the demerged company. CIT(A) also observed that the losses and unabsorbed depreciation were relatable to the manufacturing concerns of the assessee and therefore were definitely not relatable to the investment undertaking which was transferred. Therefore CIT(A) took the view that these had to be apportioned in terms of provisions of section 72A(4)(b). CIT(A) also observed that section 72A(4) only stated that the loss or unabsorbed depreciation directly relatable to the undertaking transferred has to be allowed in case of the resulting company. There were no specific provisions to the effect that in case loss or unabsorbed depreciation were directly relatable to the demerged company, these had to be allowed in case of demerged company. Therefore in case the loss/ unabsorbed depreciation was not directly relatable to the undertaking transferred, it had to be apportioned. Aggrieved by the said decision the assessee is in appeal before the Tribunal.
4.2 Before us the Learned AR for the assessee reiterated the submissions made before lower authorities that the loss/unabsorbed depreciation pertained to the manufacturing business which was retained with the demerged company and these were not at all relatable to the investment division which was transferred. Therefore it was submitted that these had to be allowed in case of the assessee company. It was pointed out that the essence of section 72A(4) as brought out by the memorandum explaining the provisions of Finance Bills was that demerger should be encouraged and such business are to be taxed neutral. Therefore the losses/ unabsorbed depreciation relating to demerged company could not be allocated to the resulting company. The Learned AR also referred to the relevant portion from the circular No.779 dated 14.9.99 of the CBDT explaining the Finance Act 1999 in support of its case which are reproduced as under :
"56.3 Extensive amendment in the income-tax act have been carried out on the basis of following broad principles.
The restructuring shall not attract additional liability to tax and also not result in the withdrawal of relief and concession available to the existing unit.
The tax benefits and concessions available to an undertaking of a part shall continue to be available to the undertaking on transfer of the same while concession and benefits that are available to the transferred company as an entity and not to the undertaking of the company proposed to be transferred and remained with the transfer company.
4.3 It was accordingly urged that the order of CIT(A) should be set aside and the claim of the assessee should be allowed. The Learned DR on the other hand supported the orders of authorities below and placed reliance on the findings given in the respective orders. We have perused the records and considered the rival contentions carefully. The dispute is regarding allocation of brought forward business loss and brought forward unabsorbed depreciation to the undertaking transferred or the undertaking retained by the demerged company in case of demerger in the memorandum explaining the provisions of the Finance Bill a copy of which have been placed on record. It has been explained that demerger should be taxed neutraly and should not be attract any additional liability to tax. It was also been explained that whether it is not possible to relate accumulated losses and unabsorbed depreciation to an undertaking. Such losses and undertaking shall be apportioned between the demerged company and the resulting company in the proportion of asset giving to the share of each as a result of demerger. The provisions of section 72A(4) relating to the accumulated losses and unabsorbed depreciation in case of demreger had therefore to be understood in the light of said explanatory notes. The section 72A(4) clearly states that in case loss/ unabsorbed depreciation is directly relatable to the undertaking transferred the same has to be allowed in case of the resulting company. Keeping in mind the purpose of amendment and the explanatory notes explaining the provision it will be quite reasonable to conclude that loss/ unabsorbed depreciation which is directly relatable to the undertaking retained by the demerged company has to be allowed in case of demerged company only. Once it is established that loss/ unabsorbed depreciation is not relatable at all to a particular undertaking the same cannot be allocated to the said undertaking as in that case the demerger would not be taxed neutraly only in cases where loss /unabsorbed depreciation is not directly relatable to the undertaking transferred or the undertaking retained by the demerged company the question of section 72A(4)(b) should arise. In this particular case CIT(A) in para 7.3 of his order has given a finding that losses and unabsorbed depreciation were relatable to the manufacturing concerns and definitely not related to the investment undertaking. Therefore in such case the loss/ unabsorbed depreciation cannot be allocated to the investment division transferred to the resulting company and in our view it has to be allowed in case of demreged company that is the assessee company. We accordingly unable to sustain the order of CIT(A), the same is set aside and the claim of the assessee is allowed.
5. In the result appeal of the assessee is partly allowed in terms of the order above.
6. The order was pronounced in open court on 29.07.2010.
Sd/- Sd/-
( D. MANMOHAN ) (RAJENDRA SINGH)
VICE PRESIDENT ACCOUNTANT MEMBER
Date : 29. 07.2010
At :Mumbai
Copy to :
The Appellant
The Respondent
The CIT(A), Mumbai concerned
The CIT, Mumbai City concerned
The DR "C" Bench, ITAT, Mumbai
// True Copy//
By Order
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
Alk
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