The Statutory Conditions
Section 72A allows the amalgamated company to carry forward and set off the accumulated loss and unabsorbed depreciation of the amalgamating company. The conditions are: the amalgamated company holds at least three-fourths of the book value of the fixed assets of the amalgamating company for five years; the amalgamated company continues the business of the amalgamating company for at least five years; and the amalgamation is in the public interest. The “public interest” condition is satisfied by the NCLT’s sanction, but the asset and business continuity conditions must be independently met.
The NCLT’s Role
The NCLT’s scheme order does not automatically confer the Section 72A benefit. The scheme should record the amalgamated company’s undertaking to comply with the conditions, and the tax authorities may examine the compliance in the assessment. The NCLAT has refused to sanction a scheme where the Section 72A undertaking was absent.
The Business Continuity
The amalgamated company must continue the amalgamating company’s business for five years. A scheme that involves the closure of the amalgamating company’s business or the sale of its assets may disqualify the Section 72A benefit. The scheme should address the business continuity plan.
The Documentation
The file should contain: the Section 72A analysis; the asset-continuity computation; the business-continuity undertaking; and the NCLT order. A scheme that claims the Section 72A benefit without the undertaking is exposed to a disallowance.
Call to Action: For Section 72A analysis, accumulated loss carry-forward structuring, or NCLT undertaking drafting, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.