Amalgamation Expenses not Treated as Business Expenses u/s 37(1) of Income Tax Act: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that amalgamation expenses could not be treated as business expenses under Section 37(1) of the Income Tax Act, 1961 upholding the disallowance of interest on bonds issued during the amalgamation of the assessee company .

Ambalal Sarabhai Enterprises Ltd.,appellant-assessee,was involved in manufacturing drugs and pharmaceuticals. It also offered marketing and consultancy services in areas like fine chemicals, industrial glass containers, packing materials, and electronic instruments. The company had 15 divisions, including service units that supported other units within the corporation.

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The assessee submitted a return of income for the respective assessment year 2002-03 to 2007-08, and the cases were chosen for scrutiny. The assessments were finalized under section 143(3) of the Act.

The assessee raised the ground of appeal regarding the disallowance of interest claimed on bonds issued to the shareholders of Standard Pharmaceuticals Ltd. (SPL) during the amalgamation, across several assessment years. The claim was disallowed by the Assessing Officer (AO), who stated that amalgamation expenses could not be treated as business expenses under Section 37(1) of the Act.

The AO noted that similar claims in previous years had been disallowed, and the Commissioner of Income Tax(Appeals)[CIT(A)] had upheld those decisions. As a result, the interest claim on the bonds was disallowed, leading to the addition of the respective amounts.

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The CIT(A) upheld the AO's disallowance of the interest on bonds, citing previous rulings in the assessee's case, and dismissed the appeal.

The two member bench comprising Suchitra Kamble (Judicial Member) and Makarand V.Mahadeokar (Accountant Member) noted that the Authorized Representative (AR) of the assessee agreed that the Co-ordinate Bench in ITA No. 1771/Ahd/2015 for AY 2001-02 had ruled against the assessee. The Departmental Representative (DR) supported the decisions of the lower authorities.

It was noted that similar claims for interest on bonds issued during amalgamation had been disallowed in previous years and upheld by the CIT(A) and the co-ordinate bench. The CIT(A) followed the same approach in the current years. Since there were no new facts or arguments, the tribunal upheld the disallowances made by the AO and confirmed by the CIT(A).

In short,the appeal filed by the assessee was dismissed.

To Read the full text of the Order CLICK HERE

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