Daily Archives: April 27, 2019


Priapus Developers (P.) Ltd v ACIT [2019] 104 taxmann.com 298 (Delhi – Trib.) Background: Two subsidiary companies of the assessee were amalgamated with the assessee company. Delhi High Court had sanctioned the scheme of Amalgamation. As per the Scheme of Amalgamation the accounting principles and ‘purchase method’ as prescribed in ‘AS-14 was adopted. Further, as per the Scheme, all the assets and liabilities of the amalgamating companies were to be transferred at their respective fair values. The scheme also provided for transferring any excess (difference between fair value and book value of the assets) to capital reserve. Equity shares of a listed company – IFHL held by the subsidiary company were revalued and recorded in the books of the assessee company at fair value. The difference between book value of the shares so acquired and the FMV at which it was recorded in the books of the assessee being the amalgamated entity was credited to capital reserves. In the subsequent year, the shares were sold at a loss and STT was paid thereon. In the year of amalgamation, the transfer of assets were claimed as exempt by virtue of section 47(vi). No adjustment was made in relation to the revaluation / excess value of the shares credited to capital reserves in the MAT computation u/s 115JB in the year of amalgamation. The sale of shares at a loss in the subsequent year was disallowed by the assessee itself u/s 10(38). However, the loss on sale recorded in the P&L A/c was not separately disallowed in the MAT computation u/s 115JB. The AO observed that reserve created on account of revaluation of shares was not credited to P&L A/c and held that in terms of clause (v) to Explanation 1 of section 115JB, such revaluation of shares has to be taken into account while computing the book profit. In the first level of appellate proceedings, the CIT(A) upheld the order of AO. Revenue’s Arguments: Amalgamation has been used by the assessee as a tool for tax evasion. As per AS-13 for accounting for investments, investments are to be carried at cost and not fair market value. Further AS-13 also clarifies that difference between carrying amount and disposal proceeds net of expenses, has to be recognised in the P/L A/c. Thus, the assessee has not even followed the accounting treatment required to be followed as per AS-13. The adoption of fair market value of the Investments is nothing but revaluation. Merely, the credit of increase in value to “capital reserve” would not alter the true character and substance of the event. HELD: The scheme has been duly approved by Delhi High Court. High Court had issued notices to the Income Tax Department / Assessing Officer to provide any objections to the said Scheme, if any. The Assessing Officer/ Department nowhere had objected to said Scheme at any point of time. Thus, Scheme of Amalgamation sanction by High court had become final. Reliance was placed on the Supreme Court in the case of […]

No adjustment of revaluation u/s 115JB upon amalgamation when the same is credited to capital ...