Taxap/311/2019 Of The Principal Commissioner Of Income Tax-2 v. Intas Pharmaceuticals Ltd

IN THE HIGH COUR T OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 311 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALASd/-andHONOURABLE MR.JUSTICE A.C. RAOSd/-==============================================================================1 Whether Reporters of Local Papers may be allowed NOto see the judgment ?2 To be referred to the Reporter or not ?NO3 Whether their Lordships wish to see the fair copy NOof the judgment ?4 Whether this case involves a substantial question NOof law as to the interpretation of the Constitution of India or any order made thereunder ? ============================================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX - 2 VersusINTAS PHARMACEUTICALS LTD. ============================================================================== Appearance: MRS MAUNA M BHATT for the Appellant(s) No. 1HIREN J TRIVEDI for the Opponent(s) No. 1 ============================================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAandHONOURABLE MR.JUSTICE A.C. RAO Date : 23/07/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act'), is at the instance of the Revenue and is directed against the order passed by the ITAT, Ahmedabad 'A' Bench, Ahmedabad, dated 9th January 2019 in the IT(SS)A No.245/AHD/2014 for the Assessment Year 2006-07. 2.The Revenue has proposed the following two substantial questions of law : “(A)Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) deleting addition of Rs.43,49,59,470/- made on account of disallowance of business loss of Dolphin Laboratories ? (B)Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) deleting addition of Rs.4,67,16,865/- made on account of disallowance of unabsorbed depreciation of Dolphin Laboratories ?” 3.It appears from the materials on record that the assessee is engaged in the business of manufacturing and trading of pharmaceutical products. There was a search operation carried out under Section 132 of the Act in the case of the assessee on 5th May 2008. The assessee filed its return of income under Section 153A of the Act, declaring the total income as Nil. Thereafter, the assessment under Section 153A of the Act was finalized on 30th December 2009, determining the total assessed income at rupees nil. In the assessment order, the Assessing Officer allowed the assessee to set off business losses of M/s.Dolphin Laboratories Limited (the company which was amalgamated) to the extent of Rs.43,49,59,740/-. The Assessing Officer also allowed the set off of the unabsorbed depreciation of Rs.4,67,16,865/-. On scrutiny of the records, the Commissioner of Income Tax (Central) - 2, Ahmedabad, formed an opinion that the assessment order could be termed as erroneous and prejudicial to the interest of the Revenue. In such circumstances, action was undertaken under Section 263 of the Act. Accordingly, an order under Section 263 of the Act dated 27th march 2012 came to be passed, directing the Assessing Officer to set-aside the assessment order and to make fresh assessment. The assessment under Sections 143(3), 263 and 153A of the Act was completed on 28th January 2013, determining the total income at Rs.48,39,71,340/- by making the following additions/disallowances : (i)Disallowance of Business Loss of DolphinLaboratories Limited of Rs.43,49,59,740/-Laboratories Limited of Rs.43,49,59,740/- (ii)Disallowance of unabsorbed depreciation of Dolphin Laboratories Limited of Rs.4,67,16,865/-Laboratories Limited of Rs.4,67,16,865/- (iii)Disallowance of Sales promotion expenses of Rs.22,95,000/-Rs.22,95,000/- (i)Disallowance of Business Loss of DolphinLaboratories Limited of Rs.43,49,59,740/-Laboratories Limited of Rs.43,49,59,740/- (ii)Disallowance of unabsorbed depreciation of Dolphin Laboratories Limited of Rs.4,67,16,865/-Laboratories Limited of Rs.4,67,16,865/- (iii)Disallowance of Sales promotion expenses of Rs.22,95,000/-Rs.22,95,000/- 4.The assessee, being dissatisfied with the order, preferred an appeal before the CIT(A). The CIT(A), vide order dated 28th March 2014, partly allowed the appeal of the assessee. The Revenue preferred an appeal before the Appellate Tribunal against the order of the CIT(A). The appeal of the Revenue came to be dismissed. 5.Being dissatisfied with the order passed by the Tribunal, the Revenue is here before this Court with the present Appeal. 6.The principal argument of Mrs.Bhatt, the learned senior counsel, is that the decision of the Appellate Tribunal is erroneous because the Tribunal should have taken into consideration the “cut off date” and not the “appointed date” or the “date of amalgamation”, i.e. 1.1.2006. 7.On the other hand, this Appeal has been vehemently opposed by Mr.Hiren Trivedi, the learned counsel appearing for the assessee. Mr.Trivedi pointed out that the issue is no longer res integra in view of the decision of this Court in the case of IRM Limited v. Deputy Commissioner of Income Tax, Circle-4, reported in (2016)72 taxmann.com 288 (Gujarat), wherein this Court took the view that, once the scheme is sanctioned, the same would relate back to the appointed date of amalgamation. We may quote the relevant observations thus : “13. It may therefore, be that when the return was filed, the scheme of amalgamation was yet not sanctioned by the High Court. However, the moment the scheme was sanctioned as per the decision of Supreme Court in case of Marshall Sons & Co. (India) Ltd. (supra), it would relate back to the appointed date as envisaged under the scheme unless of-course the High Court shifts such date while approving the scheme. The objections raised by the counsel for the Revenue that the scheme itself envisaged its effect from a different date is neither borne out from the record nor is part of the objections raised by the Assessing Officer in the reasons recorded. Reference to the effective date being later of the dates, when final sanction is granted, would not alter the appointed date of 1.4.2008. In fact, the Assessing Officer's main objection was that during the accounting period relevant to the assessment year in question, the scheme was not yet sanctioned by the High Court. There is obviously no guarantee that such sanction would be granted. The claim of the assessee for such assessment year therefore, was immature. The Assessing Officer is also not oblivion of the fact that the scheme was actually sanctioned, before the final order of assessment was passed and that such development was brought to the notice of the Assessing Officer by the assessee. 14. When once therefore, a scheme has been sanctioned by the High Court, which would relate back to the appointed date and such order is passed before the order of assessment is passed, it cannot be stated that the assessee should be denied the benefit of such development merely on the ground that during the accounting period and when the return was filed, the High Court order sanctioning the scheme was not yet passed. The very effect of the order of High Court sanctioned the scheme relating back to the appointed date would be that for all purposes including for recognising the benefit of unabsorbed depreciation and losses of a merging Company with those of principal company would be available from such date. What would be the effect of the High Court order being passed after assessment is framed is not necessary for us to enter in the present case.”