ITAT Allows Set-Off of Amalgamated Company’s Losses as Section 72A Conditions Were Fulfilled

ACIT Vs Ginza Industries Private Limited (ITAT Kolkata)

The appeals filed by the Revenue and the Cross Objections filed by the assessee arose from orders passed by the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Years 2017-18 and 2018-19.

Assessment Year 2017-18

The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting the disallowance of set-off of brought forward losses amounting to Rs.5,19,10,684. The Assessing Officer (AO) had held that the assessee company was not entitled to claim the losses of the amalgamating company, M/s Sunsilk Dyeing & Printing Mills Pvt. Ltd., as the conditions prescribed under Section 72A(2) of the Income-tax Act were allegedly not satisfied.

The assessment had originally been completed under Section 143(3) and was subsequently revised under Section 263. During the reassessment proceedings, the AO observed that the assessee had claimed brought forward losses and unabsorbed depreciation pertaining to the amalgamating company. According to the AO, the assessee had failed to continue the business of the amalgamating company and had not fulfilled the conditions of Section 72A(2). Consequently, the set-off was disallowed.

The CIT(A), however, examined the facts and evidence in detail. It was noted that the amalgamating company had been engaged in the business of processing art silk cloth on a job work basis for more than three years before amalgamation. The appellate authority also found that the prescribed condition relating to retention of at least 75% of the book value of fixed assets had been satisfied. Further, evidence showed that the assessee had acquired the business assets of the amalgamating company and had continued the business for the required period following amalgamation.

The Tribunal observed that the AO had not disputed the existence or quantum of the brought forward losses and depreciation. The disallowance was based solely on the alleged non-fulfilment of Section 72A(2). After examining the findings of the CIT(A), the Tribunal held that the conditions prescribed under Section 72A(2) had been satisfied and that there was no evidence on record suggesting otherwise. It upheld the CIT(A)’s order and dismissed the Revenue’s appeal for Assessment Year 2017-18.

Assessment Year 2018-19

For this year, the Revenue challenged the deletion of an addition of Rs.28,05,53,201 made under Section 68 of the Act on account of unsecured loans and share capital treated as unexplained cash credits. The Revenue also raised an additional ground alleging violation of Rule 46A on the basis that the CIT(A) had admitted balance sheets that were not produced before the AO.

The AO had selected the case for scrutiny and issued notices seeking information. As no response was received, the assessment was completed based on available records. The AO compared the figures of loan liabilities appearing in different years and treated the increase as unexplained cash credits under Section 68.

The CIT(A) found that most of the loan liabilities consisted of secured borrowings from banks and non-banking financial companies. It was further observed that certain unsecured loans represented opening balances and did not involve fresh receipts during the relevant year. Only a fresh loan of Rs.1,60,000 had been received from a shareholder and Joint Managing Director, which was not considered doubtful. The CIT(A) held that Section 68 could be invoked only in respect of fresh credits appearing during the year and that the AO had made the addition without proper examination of the audited financial statements.

The Tribunal agreed with these findings. It noted that the AO had relied on figures extracted from ITR-6 without verifying the audited balance sheets, which were available on record through the tax audit documentation. The Tribunal observed that the details relating to secured loans, terms of repayment, security, and lenders were available in the financial statements. It concluded that the addition had been made on an ad hoc basis without proper verification.

On the issue of Rule 46A, the Tribunal held that the audited balance sheets were already available before the AO on the electronic portal. Therefore, there was no violation of Rule 46A.

Accordingly, the Tribunal upheld the order of the CIT(A), dismissed the Revenue’s appeal for Assessment Year 2018-19, and also dismissed the assessee’s Cross Objections as infructuous, except for one ground that was not pressed during the hearing. The appeals of the Revenue and the Cross Objections of the assessee were dismissed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

These are the cross appeals preferred by the Revenue and Cross Objection by the assessee are against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 21.02.2025 for the AYs2017-18 & 2018-19.

ITA No. 90111(01/2025

2. The Revenue has raised following grounds of appeal in ITA No. 901/KOL/2025 for A.Y. 2017-18:-

“1. Whether on the facts and circumstances of the case and in law, the Id. CIT (A) erred in allowing the appeal of the assessee by deleting the addition of 5,19,10,684/-made on account of disallowance of sett off of brought forward losses, especially because the assessee company has no commensurate business loss.

2. Whether the Id. CIT (A) has erred on facts and in law in not giving due cognizance to the fact the assessee company did not continue the business of the amalgamated company namely Sunsilk Dyeing & Printing Mills Pvt. ltd and that the conditions of Section 72A(2) are not satisfied.”

3. The issue raised in ground nos.1 and 2 is common and is against the order of the Id. CIT (A) wrongly allowing the brought forward loss of amalgamating company when the business of the amalgamating company was discontinued after amalgamation.

3.1. The facts in brief are that the assessee filed the return of income on 12.10.2007, declaring total income at t18,50,770/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and the assessment was framed u/s 143(3) of the Act vide order dated 14.12.2019, assessing the total income at 20.02,020/-. Thereafter, the said assessment was revised by the Id. Pr. Commissioner of Income Tax vide order dated 25.03.2022, passed u/s 263 of the Act on the ground that the said assessment was erroneous and prejudicial to the interest of the Revenue for the reason that brought forward business losses oft4,63,91,884/- pertaining to assessment years, 2008-09, 2009-10, 2012-13 to 2014-15 were claimed , despite the fact that the assessee company had no unabsorbed business losses as such. Accordingly, notice u/s 142(1) of the Act was issued on 30.12.2022, which was replied by the assessee by submitting written submission on 12.01.2023, submitting before the Id. AO that the assessee has claimed brought forward unabsorbed depreciation of the amalgamating company to the extent of 4,63,91,884/-. The assessee submitted that since the business of the amalgamating company continued uninterpreted by the amalgamated company and thus the conditions prescribed under the Act were satisfied. Accordingly, the benefit of such carryforward and setting of business losses/ unabsorbed depreciation was claimed. The assessee furnished before the Id. AO, the details of the unabsorbed depreciation/ unabsorbed losses. The assessee submitted that the unabsorbed depreciation was 14,63,91,884/- and the unabsorbed business loss was 15,19,10,684/-. The Id. AO noted that the brought unabsorbed forward losses pertaining to M/s Sunsilk Dying & Printing Mills Pvt. ltd. (Sunsilk), has been claimed by the amalgamated company .i.e. the assessee without three conditions of clause (b) of Section 72A(2) of the Act being satisfied. The Id. AR noted that it is only after the amalgamating company satisfied the conditions as stated hereinabove, the set off of carry forward of losses could be allowed. Accordingly, another notice was issued u/s 142(1) on 15.03.2023, calling for details/information which were not furnished by the assessee. Finally, the Id. AO observed that the amalgamating company M/s Sunsilk Dying & Printing Mills Pvt. ltd. (Sunsilk), was engaged in the business of processing of art silk cloth on job work basis since 2008 and assessee the amalgamating company did not continue the business of M/s Sunsilk Dying & Printing Mills Pvt. ltd. (Sunsilk) and thus, did not fulfil the conditions as laid down in section 72(A)(2) of the Act. Therefore, the loss of the amalgamating company to the tune of t4,63,91,884/-was not allowable to be set off and consequently added/rejected the same vide order dated 23.03.2023, passed u/s 144 read with section 263 of the Act. The Id. AO also made other additions on CSR expenses to the tune of 130,06,957/-, however the same was not challenged before us.

3.2. In the appellate proceedings, the Id. CIT (A) allowed the appeal of the assessee after taking into consideration the submissions and evidences filed before the Id. CIT (A) by the assessee. The Id. CIT (A) while allowing the appeal of the assessee has held and observed as under:-

“6.3 The facts of the case, the assessment order, and the submissions of the appellant have been carefully considered. It is noted that the amalgamating company Sunsik Dyeing & Printing Mills Pvt. Ltd. (‘Sunsilk’) has got amalgamated with appellant company with ‘Appointed Date of 1.4.2015. The appellant has given assessment year-wise break-up of brought forward business loss/ unabsorbed depreciation aggregating to Rs.5,19.10,684 pertaining to AY 2008-09, AY 2009-10, AY 2012-13, AY 2013-14, and AY 2015-16. All these years were stated to be subjected to scrutiny assessment. The AO has also taken note of such brought forward business loss/unabsorbed depreciation aggregating to Rs.5,19,10,684, and has not found any discrepancy in the same. Hence, the availability of such business losses/unabsorbed depreciation in hands of Sunsilk is undisputed. The question is whether or not the same would be available for set off against the income of appellant company in which Sunsilk has been amalgamated.

6.4 The AO has disallowed the set off of such losses on the contention that the assessee company did not continue the business of Sunsilk and that the conditions of Section 72A(2) are not satisfied. The appellant has, however, explained as to how each of the conditions of Section 72A(2) are satisfied in its case. There are two conditions under Clause (a) of said section to be satisfied by amalgamating company, and three conditions under Clause (b) of said section to be satisfied by the amalgamated company. In this context the following observations are to be noted:

(a) As per the appellant, Sunsilk is engaged in the business of processing of art silk cloth on job work basis since 2008. The audited financial statements of Sunsilk show revenue in nature of ‘Job Work Income of Rs. 28.31 crores, Rs.26.21 crores and Rs.18.49 crores in the FY 2014-15, 2013-14 and 2012-13, respectively indicating that the said company has been continuously engaged in such business for three or more years, satisfying the first condition under clause (a) of Section 72A(2) of the Act.

(b) The appellant has stated that as on the date of amalgamation, Sunsilk holds at least 75% of the book value of fixed assets held by it in the previous two years prior to amalgamation. The appellant stated that Sunsilk transferred assets aggregating to Rs.22.82 crores, regarding which it is noted that the said figure represents the Net Block of Sunsilk’s fixed assets as on 31.3.2016 appearing at Page 303 of the compilation. Since the amalgamation has taken place since Appointed Date 1.4.2015, for the purpose of verifying the satisfaction of this condition, the comparison needs to be done between the book value of Sunsilk’s fixed assets as on 31.3.2015 and 31.3.2013. The relevant figures as appearing in the Sunsilk’s audited balance sheet are as under:

The above shows that the book value of the fixed assets held as on 31.3.2015 was much more than 75% of the book value of fixed assets held as on 31.3.2013 and thus the second condition under clause (a) of Section 72A(2) of the Act is satisfied.

1. The appellant has stated that it holds continuously for a minimum period of five years from the date of amalgamation at least 75% of the books value of the fixed assets acquired in the scheme of amalgamation. The appellant has submitted detained bifurcation of fixed assets of Sunsilk acquired under amalgamation, in 5 years following such amalgamation. The movement in gross block of such fixed assets appears at page 303-312 of compilation, which is summarized as under:

unscrupulous advantage of brought forward losses of amalgamating company without actually acquiring the business assets of amalgamating company and without continuing such business for a minimum specified period, should take place. In the instant case, it is seen that the appellant company has acquired all business assets of Sunsilk and has continued its business thereafter. There is no evidence on record to prove the dis-satisfaction of any of the conditions of Section 72A(2) of the Act. Hence, there is no reason to disallow such brought forward losses in hands of appellant being the amalgamated company. Therefore, the AO is directed allow accordingly. Hence, the ground of appeal is allowed. “

3.3. After hearing the rival contentions and perusing the materials available on record, we find that assessee during the year has claimed the setting off brought forward unabsorbed depreciation/losses relating to the amalgamating company M/s Sunsilk Dying & Printing Mills Pvt. ltd. (Sunsilk), which was amalgamated with the assessee company from the appointed date .i.e. 01.04.2015. The assessee has furnished before the Id. AO year wise breakup of unabsorbed business losses of Rs. 5,19,10,684/- and brought unabsorbed depreciation of Rs. 4,63,91,884/- pertaining to five assessment years as stated hereinabove. The Id. AO has not doubted the brought forward business losses/ depreciation but disallowed the same on the ground that the assessee company has not fulfilled the condition of Section 72A(2) of the Act. We note that the Id. CIT (A) in para no.6.4 has dealt with the issue in depth and observed that the assessee continued the business of amalgamating company (Sunsilk) for a minimum period of 5 (five) years from the date of amalgamation as such business even as of now. The Id. CIT (A) also noted that the assessee had acquired the business assets of Sunsilk and has also continued the business during five years. The Id. CIT(A) noted that there is nothing on records to prove otherwise. Therefore, the conditions under clause(b) of Section 72A(2) of the Act were satisfied. The Id. CIT (A) also noted that the amalgamated company held at least 75 of the book value of the fixed assets held the amalgamating company prior to its amalgamation. It was also noted that the amalgamating company transferred the assets aggregating to 122.82 crores which represented the net block of sunsilk fixed assets on 31.03.2016. The Id. CIT (A) has also given a comparison of gross block as on 31.03.2015, 31.03.2014 and 31.03.2013 and recorded a finding that the book value of the fixed assets as on 31.03.2016 was more than 75% of the book value of fixed assets held as on 31.03.2013 and therefore, the second condition of under Clause b of 72A(2) of the Act was satisfied. Finally, the Id. CIT (A) noted in para no.6.5 that there was no evidence on record to prove that the conditions of Section 72A(2) of the Act were not satisfied and consequently , allowed the benefit of brought forward losses in the hands of the assessee by allowing the ground raised on this issue. Thus, we observe from the perusal of the evidences before us as well as the appellate order that the Id. CIT (A) has taken into account all the aspects of the matter legal as well as on merit and reached a very reasoned finding and decision on the issue which does not require any interference at all at our end. Consequently, we uphold the order of the Id. CIT (A) by dismissing the appeal of the Revenue.

A.Y. 2018-19

ITA No. 902/KOL/2025&CO No.81/K01/2025

4. The only issue raised by the Revenue in the grounds of appeal attached with the memorandum of appeal is against the order of Id. CIT (A) allowing the appeal of the assessee by deleting the addition of 128,05,53,201/- as made by the Id. AO u/s 68 of the Act in respect of unsecured loans and share capital by treating the same as unexplained cash credit.

5. The Revenue has also raised additional ground vide letter dated 31.12.2025, challenging the order of Id. CIT (A), deleting the addition of 128,05,53,201/- as made by the Id. AO u/s 68 of the Income-tax Act, 1961 (the Act) on the ground of being in violation of Rule 46A of the IT Rules, 1962 by admitting the new evidences filed in the form of balance sheets which were not before the Id. AO in course of assessment proceedings. The additional ground raised by the revenue reads as under:-

“1. Whether on the facts and circumstances of the case and in law, the Id. CIT (A) erred in allowing the appeal of the assessee by deleting the addition of 28,05,53,201/- made u/s 68 of the Act, in violation of Rule 46A of IT Rules, 1962 when the assessee submitted new evidences in the form of balance sheet which was not submitted earlier in course of assessment proceedings as well as at the time of filing of return of income.

2. that the appeal craves leaves to add to add/ or alter, amend, modify or rescind the grounds herein above before or at the time of hearing of this appeal.”

5.1.1. After hearing the rival contentions and perusing the material on record, we find that the Revenue has raised the above additional ground of appeal challenging the order of CIT (A)to be in violation of Rule 46A of the IT Rules, 1962 by admitting the new evidences filed in the form of balance sheets, which were not produced before the Id. AO. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely covered by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and also by the decision of Hon’ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. [2017] 396 ITR 677 (Cal). Therefore, we are inclined to admit the same for adjudication.

6. Now, the issue before us is whether the Id. CIT (A) is correct in allowing the appeal of the assessee by deleting the addition of 28,05,53,201/- and whether there is any violation of Rule 46A of IT Rules.

6.1. The facts in brief are that the case of the assessee was selected for complete scrutiny under e-assessment scheme, 2019 on three issues namely; Duty drawback, unsecured loans &Deduction from Total Income under Chapter VI-A. The assessee is a limited domestic company and has furnished the return of income on 17.10.2018 by declaring total income at t3,22,07,220/, which was processed u/s 143(1) of the Act on 12.011.2019. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and statutory notice u/s 143(2) was issued on 22.09.2019. The notice u/s 142(1) was issued on 01.12.2020, along with questionnaire. The assessee has requested vide letter dated 17.12.2020, requesting for adjournment on 12.01.2021, due to Covid-19, which was allowed, but still the assessee did not file any reply. Finally, a reminder was given on 27.01.2021, seeking the information from the assessee but again no response was given. On 01.04.2021, a show cause notice was issued which was not complied with and the Id. AO framed the assessment on the basis of information available on record. The Id. AO finally inter alia made an addition on account of unsecured loans being unexplained to the tune of 128,05,53,201/- by comparing the amounts shown in the audited balance sheets as on 31.03.2018, with the corresponding figures as on 31.03.2017. The Id. AO noted that unsecured loans shown at 31.03.2018, were 145,51,76,862/- whereas as on 31.03.2017, the amounts were 117,46,23,661/- and hence, there was an increase of 128,05,53,201/-. The Id. AO treated the same as unexplained cash credit u/s 68 of the Act and added to the income of the assessee besides making two other additions in respect of disallowance u/s 36(1)(va) and disallowance u/s 37 of the Act.

6.2. In the appellate proceedings, the Id. CIT (A) allowed the appeal of the assessee after taking into account the contention’s/submissions/evidences furnished by the assessee by observing and holding as under:-

“7.4 After careful consideration of the submissions and the particulars of loans, it is noted that during the year, major loans were from Banks/Financial Institutions, where the identity, credit worthiness and genuineness of the transaction are beyond doubt. The AO has made addition out of loan from Others of Rs.45,51,76,862 and hence it would be relevant to examine these items. In this regard, the following observations are noteworthy:

a. The secured loans from NBFCs of Rs.45,38,93,970/- (earlier year Rs.56,72,45,090) cannot be doubted as these are loans from reputed NBFCs. Further, there is no fresh loans received during the year from these parties, hence there is no requirement to prove the identity, credit worthiness of party and genuineness of transaction.

b. The unsecured loan from Parent company – Twistex India Ltd. of Rs.10,54,307/-, does not include any no fresh loans received during the year. Hence there is no requirement to prove the identity, credit worthiness of party and genuineness of transaction.

c. The unsecured loan from Mr. Manoj Kumar Sethia of Rs.42,286/- does not include any fresh loans received during the year. Hence there is no requirement to prove the identity, credit worthiness of party and genuineness of transaction.

d. The unsecured loan from Mr. Arvind Kumar Sethia of Rs.1,86,299/- includes fresh loans received during the year of Rs.1,60,000/-. As per submissions, he is shareholder in the appellant company holding more than 5% stake, and is also its Joint Managing Director. Unsecured loan from him of only Rs.1,60,000/-during the year is not significant to doubt the identity, credit worthiness and genuineness of the transaction.

7.5 It is a settled position of law that the addition u/s 68 of the Act can be made only in the year in which the credit entry is found in the books of the assessee. In the present case, there is no fresh credits in books of the appellant in relation to the above-mentioned parties, except a fresh loan of a meagre sum of Rs.1,60,000/- which cannot be held doubtful. Hence, there is no justification for invoking the provision of Section 68 of the Act in present case. Further, as can be readily observed from the assessment order, the addition was made without any proper examination of details like the Balance Sheet, etc., available with the AO. The quantification of addition which is simple subtraction of the earlier year figure from the current year figure without any examination cannot be defended.

7.6 In view of the above discussion, the addition made u/s 68 of Rs.28,05,53,201 is deleted and therefore this ground of appeal is allowed.”

6.3. After hearing the rival contentions and perusing the materials available on record, we find that the Id. AO has made an addition of 28,05,53,201/- by comparing the amounts of unsecured loans as on 31.03.2017 with the amounts of unsecured loans as on 31.03.2018 by noting that there was an increase of 128,05,53,201/-. We note that the said figures were pick up from Schedule (VA-BS to the return of income ITR 6) without doing any verification of audited balance sheet available on record which were required to be uploaded mandatorily with the tax audit report. We note that in the balance sheet the bifurcation of secured loans and unsecured loans along with the disclosure of nature of security terms of repayment/ installment each secured borrowing along with the name of the lenders were available which are mandatorily to be disclosed as per the requirements of the company law and accounting standard as applicable to the company. We also observed from the return of income filed for the impugned assessment year that these loans were shown under the head “loan liabilities”. We note that the addition made by the Id. AO was purely on ad hoc basis on account of unsecured loans which were picked from ITR6, were not unsecured loans. We have examined the audited balance sheets for two financial years on 31.3.20107 and 31.3.2018 and find the Id. CIT(A) has recorded a correct finding that the substantial part of the loan was from NBFC which is a secured loan and all the details as to security , terms and conditions as to interest on loan and as to repayment are given in the audited annual accounts. We also find that the unsecured loan from the parent company M/S Twistex India Ltd is opening balance and no new loan was raised during the year. The unsecured loan from shareholder Shri Arvind Kumar Sethia of Rs 1,86,299/- includes fresh loan during the year of Rs. 1,60,000/-who is also Jt. Managing Director of the assessee company. Therefore, the order passed by the Id. CIT(A) is very reasoned and correct order after taking into account all the factual aspects and evidences on records. Therefore, we are inclined to uphold the order of Id. CIY(A) on this issue by dismissing the appeal of the revenue. So far as the additional ground relating to violation of rules 46A is considered, we observe that the audited balance sheets were available before the AO on the portal and therefore there is no violation of rules 46A of the Rules and consequently, we dismiss the additional ground raised by the revenue.

7. Coming to CO of the assessee, we find that the ground nos. 1 to 5 are in support of the order of the Id. CIT (A) as we have already dismissed the appeal of Revenue, the CO (Ground no. 1 to 5) of the assessee become infructuous and hence, dismissed. Ground no.6 is not pressed at the time of hearing, hence dismissed.

8. In the result, both the appeals of the Revenue and CO of the assessee are dismissed.

Order pronounced in the open court on 02.06.2026.