Amalgamated Company Can Adjust Written Down Assets Of Constituent Companies & Claim Depreciation Without Central Govt Approval: Bombay HC

The Division Bench of Chief Justice Alok Aradhe and Justice M.S. Karnik stated that “The Tribunal was not justified in law in holding that in view of insertion of Section 72A in the Income Tax Act, 1961, the assessee (being the amalgamated company) not having obtained approval of the Central Government was not entitled to adjust the written down value of the assets of the amalgamating companies on the basis of depreciation actually allowed to them and to claim depreciation on such adjusted written down value of the assets of the amalgamating companies.”

Regarding the revenue's submission that the Assessee had not obtained approval of the Central Government under Section 72A of the IT Act and hence in terms of Section 72A unabsorbed depreciation should not be taken into account, the bench observed that the Tribunal as well as the Assessing Officer proceeded on the footing that Section 72A of the IT Act is a very specific section for carry forward and set off of unabsorbed depreciation and accumulated loss and the assessee is entitled to carry forward only if there is approval by the Central Government.

In this case, TechNova Graphic Systems Pvt. Ltd. and Image Printmakers Pvt. Ltd. had amalgamated with TechNova Platemaking Systems Limited (now known as TechNova Imaging Systems Limited/appellant).

As per the assessee, TechNova Graphic Systems Pvt. Ltd. (Transferor Company) had unabsorbed depreciation for the assessment year 1990-91. Similarly, Image Printmakers Pvt.Ltd. (Transferor Company) had unabsorbed depreciation for the Assessment Years 1988-89, Assessment Year 1989-90 and Assessment Year 1990-91.

Since both the transferor companies were dissolved without winding-up, they were not entitled to carry forward and set off unabsorbed depreciation to the assessment year 1991-92.

The assessee while calculating depreciation on the assets of the amalgamating (transferor) companies took the value of the assets on the basis of the depreciation which had been actually allowed to them and the assessee thereby enhanced the value of assets that is to the extent of the amount of unabsorbed depreciation.

The Assessing Officer held that under the provisions of Section 72A of the IT Act which specifically dealt with situation relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowances in certain cases of amalgamation, a specific order of the Central Government had to be obtained which was not obtained by the assessee/appellant.

The assessee filed an appeal before the Commissioner of Income-tax (Appeals) which was allowed.

Further, the Assessing Officer filed an appeal against the order of the Commissioner of Income-tax (Appeals) before the Tribunal. The Assessing Officer's appeal was pending before the Tribunal when the appeal for the assessment year 1992-93 was taken up for hearing.

The assessee filed its return of income for the assessment year 1992-93. As per the assessee, the Assessing Officer calculated the depreciation allowance on the basis of the written down value of the assets in the books of amalgamating (transferor) companies ignoring the unabsorbed depreciation, that is, depreciation which was not actually allowed.

Being aggrieved the assessee filed an appeal before the Commissioner of Income-tax (Appeals) which was allowed.

The Assessing Officer filed an appeal against the order of the Commissioner of Income-tax (Appeals) before the Tribunal which reversed the order of the Commissioner of Income Tax (Appeals).

The bench agreed with the assessee that the assessee did not claim carry forward of unabsorbed depreciation of amalgamation of amalgamating companies in its own assessment. The assessee's claim was with reference to the adoption of “correct written down value” of the block of assets of the amalgamating company which vested in the assessee pursuant to the scheme of amalgamation.

The bench opined that this is not a case where the assessee/appellant was trying to carry forward and set off of accumulated loss and unabsorbed depreciation of the amalgamating company in the hands of amalgamated company.

In view of the above, the bench allowed the appeal.

Case Title: Technova Imaging Systems Limited v. Deputy Commissioner of Income Tax (INCOME TAX APPEAL NO. 405 OF 2003)

Citation: 2025 LiveLaw (Bom) 156

Counsel for Petitioner/ Assessee: Pankaj Toprani

Counsel for Respondent/ Department: Suresh Kumar

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