CIT Vs Eastman Exports Global Clothing Private Limited (Madras High Court)
The Madras High Court dismissed the tax appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal, which had set aside a revisionary order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. The dispute related to Assessment Year 2007–08 and arose from the CIT’s order dated 27.03.2012 revising an assessment originally completed on 18.12.2009.
The assessee had carried forward unabsorbed depreciation and business losses of three entities following court-approved corporate restructuring. The CIT issued a show cause notice on the premise that the arrangement was an amalgamation and applied Section 72A(2), which imposes conditions including a minimum three-year period of business existence for the amalgamating companies. Since the three entities had existed for less than three years, the CIT treated the carry forward as incorrect and revised the assessment.
In response, the assessee clarified that the restructuring sanctioned by the Company Court was not an amalgamation but a demerger. The High Court had approved schemes of demerger whereby specific manufacturing divisions of the three entities were vested in the assessee. Accordingly, the assessee argued that Section 72A(4), which governs demergers, applied. Unlike Section 72A(2), Section 72A(4) does not prescribe any minimum period of existence for the demerged companies, and therefore the carry forward of losses and depreciation was legally permissible.
