The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held that MAT credit of the transferee company can be carried forward and set off against tax liability of the amalgamated company.
In the revised return of income, the assessee had set off the current year’s business loss and depreciation of Rs.6,41,89,512/- against a short-term capital gain of Rs.15,90,79,618/- and the remaining short-term capital gain of Rs.9,48,90,106/- was reduced to ‘nil’ by setting off against the brought forward unabsorbed depreciation.
The remaining brought forward unabsorbed depreciation was adjusted against income from other sources amounting to Rs.1,21,88,323/- and a long-term capital gain of Rs.1,23,58,478/-. The Assessing Officer set off only Rs.9,48,90,106/- against the short-term capital gain and Rs.1,21,88,323/- against income from other sources and the balance unabsorbed depreciation of Rs.1,23,58,478/- was set off against long-term capital gain.
The assessee has set off the MAT credit of Rs.9,32,990 brought forward by the amalgamating company while computing its tax liability in consonance with the Court approved scheme of amalgamation which was not allowed by the Assessing Officer. CIT(Appeals) considered the entire amalgamation scheme as a tax avoidance tool and held that the entire MAT Credit of the amalgamating company would lapse.
CIT(Appeals) held that since the claim of depreciation or any loss arising from amalgamation had not been allowed, the ground becomes infructuous and does not require any adjudication.
It was contended by the assesseethat provisions of section 32(2) of the Act provide that the brought forward unabsorbed depreciation becomes part of the current year’s depreciation and is to be set off by provisions of section 71 of the Act. Further argued that in the absence of any specific mode of set off, in terms of CBDT Circular No. 26 (LXXVI-3)(F. No. 4(53)-IT/54] dated 7.7.1955 – unabsorbed depreciation is to be adjusted in a manner, which is most beneficial to the assessee.
A Coram of Shri Rajpal Yadav, Vice-President & Shri Rajesh Kumar, Accountant Member observed that the brought forward unabsorbed depreciation becomes a part of the current year’s depreciation in terms of the provisions of section 32(2) of the Act and set off has to be done by the provisions of section 71 of the Act.
The Tribunal allowed the set-off, which is most beneficial to the assessee and held that the MAT Credit of amalgamating company will be available to the assessee and restored the issue to the file of the Assessing Officer with a direction to allow the same.
The appeal of the assesseewas allowed for statistical purposes. Sri Saumen Adak, Shri Ashish Jhawar & Prashant Jaiswal appeared on behalf of the assessee and Smt. Sucheta Chattopadhyay appeared on behalf of the Revenue.
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