[Opinion] Amalgamation – Pandora Box of Myriad Tax Controversies

Simran Keswani – [2025] 174 taxmann.com 481 (Article)

Under the Income Tax Act, the accumulated loss and unabsorbed depreciation of the predecessor entity are allowed to successor entity in case of business reorganisation undertaken via mode of amalgamation for certain specified categories of taxpayers on satisfaction of certain conditions. However, what if the conditions are not fullfilled or what if the special provisions permitting the carry forward of lossess are not applicable (i.e. cases of non-specified amalgamations). In such a scenario a question arises as to whether the unabsorbed depreciation which cannot be carry forward can it be added to the WDV of the block of the assets?

In this context, it is worthwhile to refer to some of the below relevant provisions:

Section 32(2) of the Act:

(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.

Section 43(6) of the Act

Explanation 2.—Where in any previous year, any block of assets is transferred,—

(a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or

(b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company,

then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.

Explanation 3.—Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation “actually allowed”.

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