Written Down Assets of Constituent Companies can be adjusted by Amalgamated Company Without Central Govt Approval: Bombay HC [Read Order]

The Bombay High Court stated that amalgamated company can adjust written down of assets of amalgamating companies and claim depreciation without central government's approval.

The appellant TechNova Platemaking Systems Limited (now known as TechNova Imaging Systems Limited) was formed by the merger of TechNova Graphic Systems Pvt. Ltd. and Image Printmakers Pvt. Ltd. The transferor company, TechNova Graphic Systems Pvt. Ltd., had unabsorbed depreciation for the 1990–91 assessment year, according to the assessee. Similarly, for the assessment years 1988–89, 1989–90, and 1990–91, Image Printmakers Pvt.Ltd. (Transferor Company) had unabsorbed depreciation.

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Both transferor firms were not allowed to carry forward and set off unabsorbed depreciation to the assessment year 1991-92 since they were dissolved without winding up. The assessee increased the value of the assets by the amount of unabsorbed depreciation when calculating depreciation on the assets of the merging (transferor) companies. The assessee did this by basing the asset value on the depreciation that had been actually permitted to them.

In accordance with Section 72A of the IT Act, which addressed the carryover and setoff of accumulated loss and unabsorbed depreciation allowances in specific amalgamation cases, the Assessing Officer determined that a specific Central Government order was required, which the assessee/appellant failed to obtain.

Before the Commissioner of Income-tax (Appeals), the assessee filed an appeal, which was granted. Before the Tribunal, the Assessing Officer appealed the Commissioner of Income-tax's (Appeals) decision. When the appeal for the 1992–1993 assessment year was heard, the Assessing Officer's appeal was still pending before the Tribunal.

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For the assessment year 1992–1993, the assessee submitted its income return. The assessee claims that the Assessing Officer determined the depreciation allowance by using the written-down asset value in the amalgamating (transferor) companies' records, disregarding unabsorbed depreciation—that is, depreciation that was not permitted. The assessee, feeling wronged, appealed to the Commissioner of Income-tax (Appeals), and it was granted.

Before the Tribunal, the Assessing Officer appealed the Commissioner of Income-tax's (Appeals) decision, and the Tribunal overturned the Commissioner's decision.

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The bench concurred with the assessee that, in its own assessment, the assessee had not claimed carryover of unabsorbed depreciation of amalgamating entities.

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While allowing the appeal, the division Bench of Chief Justice Alok Aradhe and Justice M.S. Karnik ruled that the Tribunal's conclusion that the assessee, the amalgamated company, lacked the Central Government's approval to modify the written down value of the amalgamating companies' assets based on depreciation that was actually permitted to them and to claim depreciation on such adjusted written down value of the amalgamating companies' assets was not legally justified with the insertion of Section 72A in the Income Tax Act, 1961.

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