Case Law Details
Brief of the Case: In the case of CIT Vs. MGF Automobiles Ltd., Delhi High Court upheld the order of the ITAT that the additions could have been made by the AO only if some incriminating document was found during search. There was no incriminating material found during search. Hence, the Assessee’s appeal was upheld.
Facts of the Case: The Assessee was a company dealing in the business of car dealership and service station. During the A.Y.2004-2005 it entered into amalgamation agreement with Compact Motors Limited (CML). Pursuant to an order passed by the High Court on 27th September 2004, the amalgamation of CML with the Assessee was made effective from 1st April, 2003. In terms of Section 72A of the IT Act it was permissible for the losses of the amalgamating company (i.e. CML) to be set off or carried forward in the assessment of the amalgamated company (i.e. the Assessee) subject to the fulfilment of conditions stipulated in Section 72A(2) of the IT Act. Relevant to the present appeals is the condition under Section 72A(2)(b)(i) which requires the amalgamated company to hold continuously for a minimum period of five years from the date of amalgamation “at least three fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation.”
For AY 2004-05 returns were to be filed on or before 30th October 2004. The Assessee filed its return on 30th October 2004 under Section 139 (1) of the Act declaring Nil income. For the AY 2005-06, it filed its return on 27th October 2005 declaring an income of Rs.50,04,700. The last dates by which the Revenue could resort to Section 143(3) of the Act were 31st March, 2007 and 31st March 2008 respectively. In the return for AY 2004-05, the Assessee had set off the losses of CML to the extent of Rs.l,65,09,929.93 against the Assessee.s business income pursuant to the amalgamation as ordered by the High Court. In the AY 2005-06, the Assessee set off the balance unadjusted carried forward loss of the earlier year.
A search took place in the Assessee’s premises on 12th September, 2007. During the search cash of Rs.48 lakhs was seized. On 6th October, 2007 a major fire took place at Mayur Bhawan which houses the offices of the Income Tax Department. In the said fire none of the materials seized during the search from the premises of the Assessee could be retrieved or salvaged.
Consequent upon the search, the AO proceeded with the assessment and passed separate assessment orders for the two AYs in question. The AO disallowed the set off of the losses of CML against the business income of the Assessee for the AYs in question on two grounds. One, since neither the Assessee nor CML was an industrial undertaking within the meaning of Section 72 A (7) (aa) of the IT Act. Secondly, the Assessee failed to retain three-fourths of the book value of the fixed assets as required by Section 72 A (2) (b) (i) of the IT Act since it had during AY 2007-2008 sold the land of CML valued at Rs.37,93,375.
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