The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) restores the case to the Assessing Officer ( AO ) for fresh assessment on the carry forward of losses and unabsorbed depreciation, citing incomplete evaluation of the merger impact.
Bharat Technologies Auto – Components Ltd.,appellant-assessee,initially filed its income tax return on 27.11.2003, declaring an income of Rs.1,14,84,108. It later revised the return on 01.11.2004, declaring NIL income after adjusting carried-forward losses from M/s. Ucal Power Systems Ltd. (UPSL), a sick company it had taken over under a merger scheme approved by the Board for Industrial and Financial Reconstruction (BIFR).
During the original assessment on 31.03.2006, the AO accepted the revised return with a minor addition of Rs.4,15,173. However, the AO later reopened the case, disallowed the carried-forward losses and unabsorbed depreciation of UPSL, and added Rs.1,25,32,085 and Rs.4,11,40,145 under Sections 72A and 41(1)(b) of the Act. The AO noted that the assessee had not continued UPSL’s business operations, as required under Section 72A of the Act.
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The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, concluding that the appellant did not meet the conditions for claiming benefits under Section 72A of the Act.
The Central Board of Direct Taxes (CBDT) also intervened, asserting that the AO lacked jurisdiction to grant benefits under Section 72A and rejecting the claims. The assessee filed a writ petition before the Madras High Court, where the Single Bench dismissed the case.
On appeal, the Division Bench admitted the matter, granted an interim stay, and observed that the BIFR scheme’s purpose of rehabilitating sick industries should not be undermined.The case remains pending before the Division Bench.
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The Authorised Representative(AR) informed that the Madras High Court (Division Bench) issued an interim stay on the reassessment pending the outcome of the Writ Appeal regarding BIFR exemptions under Section 72A(2) and other provisions. He requested that the case be remanded to the AO for fresh assessment after the High Court’s decision, as it could result in no taxable income for the assessee.
The Departmental Representative(DR) disagreed, arguing that the CIT(A) had already passed a detailed order based on the High Court’s Single Bench decision, and sought no further intervention from the Tribunal.
The two member bench comprising Aby T.Varkey(Judicial Member) and Manoj Kumar Aggarwal(Accountant Member) noted that the AO made two additions based on the BIFR order from 14.01.2004, which led the assessee to file a revised return for AY 2003-04, claiming carried-forward losses from M/s. UPSL. Initially, the AO accepted the claim, but later reopened the assessment and made two additions: Rs.1,25,32,085 for disallowing carried-forward losses and Rs.4,11,40,145 under Section 41(1)(b) of the Act.
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Though the assessee’s Writ Petition was dismissed, the order was stayed, and the appeal was admitted. The tribunal found that the AO had not given the assessee a proper opportunity before making the additions. Following the Supreme Court’s ruling in TIN Box Co. v. CIT, the bench sent the case back to the AO, instructing them to wait for the Madras High Court’s decision and give the assessee a chance to be heard.
In short, the appeal filed by the assessee was allowed for statistical purposes.
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