By TIOL News Service

AHMEDABAD, JAN 25, 2016: THE issue is - Whether assessee-resulting company is entitled to pro rata adjustments of TDS, advance tax and MAT credits where demerged undertaking no more exists with effect from appointed day and demerger arrangement covers all assets and properties of demerged undertaking. YES is the answer.

Facts of the case

A) The assessee is a company engaged in trading and transportation of natural gas, production of compressed natural gas and sale thereof. It amortized preliminary expenses u/s. 35D. The same comprised of amounts representing ROC fees paid to increase authorized capital. The assessee's case was that its identical claims had already been allowed in AY 2007-08 u/s. 35D. The Assessing Officer was of the view that such an expenditure for increasing authorized was neither allowable u/s. 37 nor u/s. 35D(2) and hence made disallowance. Disallowance was affirmed in appeal.

B) Assessing Officer made disallowance of prior period expenditure disallowance which included professional fee. Assessing Officer observed that such a claim is allowable in the corresponding assessment year since there was no evidence of the same having been actually crystalized during the relevant previous year. CIT(A) confirmed the view.

C) Assessing Officer held that assessee was not entitled to set off MAT credits as per section 115JAA, TDS and advance taxes thereby rejecting its plea that consequential interest u/s. 234B is liable to be charged accordingly. CIT(A) upheld order of Assessing Officer on ground that the Taxes have been paid prior to demerger by A energy Ltd. Assessee claimed credit of taxes paid including MAT credit on the demerged part. However, Assessing Officer allowed credit of taxes only in the hands of A energy Ltd since the demerger scheme approved by the High Court does not speak of bifurcations of various tax credits. Thus, Assessing Officer was justified in giving credit of taxes and MAT in the hands of A energy Ltd.

Having heard the parties, the Tribunal held that,

A) ++ Jurisdictional Court in Gujarat Narmada Valley Fertilizers Company Ltd Vs. DCIT 2014-TIOL-487-HC-AHM-IT as affirmed by the apex court in (2015) 229 Taxmann 489 (SC) holds that the impugned section 35D deduction of amortization already allowed in preceding assessment years cannot be disturbed in succeeding assessment years. The Revenue is unable in rebutting this factual and legal position. Impugned order of lower authorities in invoking the impugned section 35D disallowance set aside. (para 4)

B) + There is no dispute about genuineness of the claim comprising of crane hiring charges, retainership fee, O & M expenditure, property tax, repair and maintenance, rent, printing and stationery, waiver of MGO penalty, bank interest subsidy and property tax; all forming gross sum in question relating to assessment year 2006-07. Its arguments throughout claim that the relevant previous year is the year of crystallization. There is no evidence of such crystallization forthcoming from the case file. Both the lower authorities hold accordingly that the assessee has failed in proving crystallization of the impugned expenditure. Therefore, this second substantive ground fails. Assessee raises an alternative argument that it is entitled to set off prior period income against the above stated prior period expenditure. Delhi high court in CIT vs. Exxon Mobil Lubricant Pvt. Ltd 2010-TIOL-630-HC-DEL-IT holds that if an assessee has shown prior period income and the Assessing Officer has not excluded it while working out current year taxable income, there is no reason to disallow only one part of the prior period adjustment i.e. the prior period expenditure. The Revenue fails in rebutting this proposition. Assessing Officer directed to set off assessee's prior period expenditure and income as per law. (para 6)

C) ++ Gas distribution division undertaking of M/s A Energy Ltd. demerged with M/s. A Energy Ltd (UP Pvt Ltd) later on changing its name to its present avatar M/s A Gas Ltd (assessee). The appointed date therein is 01-01-2007. This demerger arrangement covers all assets and properties of the demerged undertaking followed by all of its debts, liabilities, duties and obligations of the gas division in question. This general expression is further clarified in writing without prejudice to the former that it is inclusive of deferred tax benefits as well to name a few. Both the entities revised their returns stating incomes against that shown earlier declared at the demerged entity's behest in original return. The Revenue is also not alleging any claim of double relief of the impugned credits. (para 8)

++ once the demerged gas distribution undertaking no more exists w.e.f. 01-01-2007 coming to be the appointed day, the assessee-resulting company is entitled for all the pro rata adjustments of TDS, advance tax and MAT credits as per law; to be utilized in former's account. Assessing Officer directed to compute pro rata quantification of the demerged undertaking MAT, TDS and advance tax credits as per law. (para 13)

(See 2016-TIOL-146-ITAT-AHM)