Section 72AB of ITA, 1961 : Section 72Ab: Provisions Relating To Carry Forward And Set-Off Of Accumulated Loss And Unabsorbed Depreciation Allowance In Business Reorganisation Of Co-Operative Banks

Explanation using Example

Imagine that there are two co-operative banks, 'Bank A' and 'Bank B'. Bank A has been suffering losses for the past few years and has a significant amount of unabsorbed depreciation on its books. To strengthen its financial position and streamline operations, Bank A decides to amalgamate with the more stable Bank B, creating a successor co-operative bank, 'Bank AB'.

Under Section 72AB of the Income-tax Act, 1961, Bank AB would be allowed to set off the accumulated losses and unabsorbed depreciation of Bank A against its profits, as if the amalgamation had not occurred. This benefit is subject to the condition that Bank A was engaged in the banking business for at least three years before the amalgamation and had held most of its fixed assets for two years prior to the reorganization.

Furthermore, Bank AB must continue to hold these fixed assets and run the banking business for at least five years after the amalgamation. If Bank AB fails to meet these conditions at any point within five years, the tax benefits received from setting off the losses and depreciation would be reversed, and the amount would be treated as income, taxable in the year the conditions were breached.