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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI OM PRAKASH KANT, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI OM PRAKASH KANT, AM आयकर अपील सं/ I.T.A. No.3793/Mum/2019 (निर्धारण वर्ा / Assessment Year: 2014-15) Sterling Holiday Resorts बिधम/ PCIT-2 Limited (on behalf of Room No.344, 3rd Floor, Vs. erstwhile Sterling Holiday Aayakar Bhavan, Resorts (India) Limited) Mumbai-400020. Thomas Cook building, D. N. Road, Fort, Mumbai- 400001. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AABCT7079G (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Shri Ketan Ved Revenue by: Smt Anne Varghese (Sr. AR) सुनवाई की तारीख / Date of Hearing: 14/07/2023 घोषणा की तारीख /Date of Pronouncement: 21/08/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the action of the Ld. Principal Commissioner of Income Tax-02, Mumbai dated 25.03.2019 for assessment year 2014-15 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. At the outset, the Ld. AR of the assessee submitted that the only issue on which the Ld. PCIT has invoked his revisional jurisdiction u/s 263 of the Act is in respect of following issues: - (a) Carry forward unabsorbed depreciation for AY. 2004-5 to 2009-10 of M/s. Manchanda Resorts Pvt. Ltd. amounting to Rs.54,29,744/-. (b) Carry forward unabsorbed depreciation for AY. 2005-06, 2008-09 of M/s. Sterling Holiday Resorts (I) Ltd., amounting to Rs.5,51,57,288/-. (c) Carry forward business loss of M/s. Manchanda Resorts Pvt. Ltd. for AY. 2009-10 & 2010-11 amounting to Rs.7,16,96,555/-.”
2 A.Y. 2014-15 Sterling Holiday Resorts Ltd. 3. According to the Ld. AR, in the previous assessment year AY. 2013-14, the M/s. Manchanda Resorts Pvt. Ltd. (hereinafter “M/s. Manchanda Resorts”) has been amalgamated with the assessee company w.e.f. 01.04.2012 (AY. 2013-14). M/s. Manchanda Resorts was a subsidiary company of the assessee company and the assessee company held AY. 99.99% of shares in M/s. Manchanda Resorts. And M/s. Manchanda Resorts was amalgamated with Sterling Resorts w.e.f. 01.04.2012 by order of Hon’ble Madras High Court order dated dated 26.08.2013 in Company Petition number 112 and 133 of 2013; And since M/s. Manchanda Resorts is in the business of acquiring, developing, equipping, operating, running, maintaining, selling, leasing or renting out or otherwise dealing in resorts hotels and providing all associated services, conveniences and amusements. Further, Sterling is carrying on the business of developing holiday resorts, hotels, building cottages, houses, flats, rooms, suites and sell them, let out, give on lease on a time sharing basis or property sharing basis by weeks, months etc. and subsequently got its equity shares listed on the Bombay Stock Exchange. And it was contended by the assessee that Carry forward of unabsorbed depreciation of Manchanda resorts from AY. 2004-05 to 2009-10 of Rs.54,29,744/- and carry forward business loss of Rs.7,16,96,555/- for AY 2009-10 and 2010- 11. As per the provisions of sub section (1) of section 72A of the Income Tax Act, 1961 (herein after the Act) where there has been an amalgamation of a company owning an Industrial undertaking or a ship or a hotel with another company then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and 3 A.Y. 2014-15 Sterling Holiday Resorts Ltd. the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss, or as the case maybe allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was affected and other provisions of the Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. Sterling company is carrying on the business of developing holiday resorts, hotels etc. and letting out give them on lease on a time sharing basis/property sharing basis. Manchanda company was also engaged in acquiring/developing/operating resorts hotels. We would like to submit that Manchanda resorts owned a hotel in Manali. Therefore Ld AR submitted that Manchanda (amalgamating company) as well as Sterling own hotels, and hence, as per the provisions of Section 72A, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the accumulated loss and unabsorbed depreciation of the amalgamated company(Sterling). (c) Carry forward unabsorbed depreciation for AY 2005-06 and 2008- 09 M/s Sterling Holiday Resort (I) Ltd amounting to Rs 51 57 288/-. In this regard, Ld AR submited that the unabsorbed depreciation related to Sterling Holiday Resorts(I) Ltd which according to him is eligible to be carried forward indefinitely as per the provisions of section 32(2) of the Act. Hence, it is submitted that the company is eligible to carry forward the unabsorbed depreciation. However, the Ld. PCIT exercised his revisional jurisdictional u/s 263 of the Act for non- inquiry on the part of the AO while allowing the aforesaid claims of the assessee company, after amalgamation of M/s. Manchanda Resorts.
4 A.Y. 2014-15 Sterling Holiday Resorts Ltd. The Ld. PCIT has not accepted the contention of the assessee by holding as under: - “6.1 The assessing officer while assessing the total income u/s 143(3) has allowed carry forward unabsorbed depreciation for AY 2004-05 to 2009-10 of M/s Manchanda Resorts Pvt. Ltd amounting to Rs 54,29,744/-, carry forward unabsorbed depreciation for AY 2005-06 & 2008-09 of M/s Sterling Holiday Resorts(I) Ltd., amounting to Rs 5,51,57,288/- and carry forward business loss of M/s Manchanda Resorts Pvt. Ltd for AY 2009-10 & 2010-11 amounting to Rs 7,16,96,555/- without examining the applicability of section 72A of the Income Tax Act, 1961. 6.2 The Assessing Officer has not examined the issue of amalgamation of M/s Manchanda Resorts Pvt. Ltd with the assessee company and whether both the amalgamating and amalgamated companies are in the business of Hospitality services and not in the Hotel Industry and thus were not Involved in the businesses mentioned in section 72A(1)(a) of the Income Tax Act, 1961. In view of the same the allowance of set off of losses and unabsorbed depreciation of the amalgamating company to the extent of Rs 7,71,26,299/- in the hands of the amalgamated company needs to be examined and verified. Further, the balance loss available for set off to the extent of Rs 5,51,57,288/- in case of M/s Sterling Holiday Resorts(T) Ltd. needs to be examined and verified. 7. In view of the above, I am of the opinion that the assessee’s claim of Carry forward unabsorbed depreciation for AY 2004- 05 to 2009-10 of M/s Manchanda Resorts Pvt. Ltd amounting to Rs 54,29,744/-, Carry forward unabsorbed depreciation for AY 2005-06 & 2008-09 of M/s Sterling Holiday Resorts(I) Ltd.,
5 A.Y. 2014-15 Sterling Holiday Resorts Ltd. amounting to Rs 5,51,57,288/and Carry forward business loss of M/s Manchanda Resorts Pvt. Ltd for AY 2009-10 & 2010-11 amounting to Rs 7,16,96,555/-, has been allowed by the assessing officer without examining the applicability of section 72A of the Act. It is a case of no enquiry by the assessing officer. Therefore, order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Accordingly, in view of the powers conferred upon me u/s 263 of the Income Tax Act, 1961, the assessment order is revised and the Assessing Officer is directed to examine the aforesaid claims of the assessee after due verification as to the applicability of section 72A of the Act and re-compute the total income accordingly, Necessary opportunity of hearing should be allowed to the assessee.”
Aggrieved, the assessee is before us challenging the validity of exercise of jurisdiction u/s 263 of the Act. 5. At the outset, the Ld. AR of the assessee brought to our notice certain facts which are crucial for deciding the issue racked up by the Ld. PCIT. According to him, the action of the Ld. PCIT dated 25.12.2019 holding the action of the AO passing the impugned assessment order dated 28.12.2016 u/s 143(3) of the Act on the issues raised by him are erroneous as well as prejudicial to the interest of the revenue are not valid. According to him, the Ld. PCIT has held that AO erred in allowing the claim of setting of losses/unabsorbed depreciation of M/s. Manchanda Resorts Pvt. Ltd. (hereinafter “MRPL”) and the assessee while assessing its total income. According to Ld. AR, the following facts has not been considered by the Ld.
6 A.Y. 2014-15 Sterling Holiday Resorts Ltd. PCIT before finding the assessment order dated 28.12.2016 as erroneous as well as prejudicial to revenue. 6. According to him, for the relevant assessment year viz AY 2014-15, the assessee had filed its return of income declaring a total loss of Rs. 16,54,89,059/-. Later, the assessment for the year under consideration was completed by the AO by passing assessment order dated 28th December 2016, thereby making the below-mentioned additions and thus, assessing the total income of assessee at Rs. 13,22,83,587/- Particulars Amount (in Rs.) Addition of deferred income 27,32,21,000 Amortization of deferred stock 1,43,11,433 compensation cost Disallowance u/s 14A 1,02,40,213 Total 29,77,72,646
According to Ld. AR, from the aforementioned “assessed income” AO set-off following unabsorbed depreciation of MRPL/Sterling/ losses claimed by assessee which are tabulated as under:-
Particulars Amount (in Rs.) Unabsorbed depreciation of MRPL for AY 2004-05 54,29,744 to 2009-10: Assessment year Amount (in Rs.) 2004-05 10,10,693 2005-06 11,74,407 2006-07 8,08,929 2007-08 7,14,947
7 A.Y. 2014-15 Sterling Holiday Resorts Ltd.
2008-09 9,13,596 2009-10 8,07,172 Total 54,29,744 Business loss of MRPL for AY 2009-10 and 2010-11: 7,16,96,555 Assessment year Amount (in Rs.) 2009-10 45,443 2010-11 7,16,51,112 Total 7,16,96,555 Unabsorbed depreciation of sterling for AY 2005-06 5,51,57,288 and 2008-09 : Assessment year Amount 2005-06 4,19,04,958 2008-09 1,32,52,330 Total 5,51,57,288 Total 13,22,83,587
The assessee aggrieved by the action of AO preferred an appeal against assessment order dated 28th December 2016, before Ld. CIT(A) and the Ld. CIT(A) by an order dated 28th March 2018, has decided the issue as under:- Issue before the CIT(A) Decision of the CIT(A) Addition of deferred income Allowed- addition deleted Amortization of deferred stock compensation Allowed- addition deleted cost Disallowance u/s 14A Allowed- addition deleted Unabsorbed depreciation of AY 1997-98 to Allowed 2001-02 not considered Not quantifying the amount of carry forward Prima facie allowed- AO directed to verify of losses the claim with reference to corresponding assessment records and allow carry forward of business loss and unabsorbed depreciation
8 A.Y. 2014-15 Sterling Holiday Resorts Ltd. 9. According to Ld. AR, the action of the Ld. CIT(A) has been accepted by the Assessing Officer and no appeal has been filed against the same i.e. order of Ld. CIT(A) dated 28.03.2018 before the ITAT till date. Thus according to Ld. AR it is evident from the order of Ld. CIT(A) dated 28 March 2018 that he had already deleted all the additions / disallowances made by the AO; and therefore as on the date on which the Ld. PCIT issued notice u/s 263 of the Act dated 27 February 2019 and has passed the order u/s 263 of the Act dated 25 March 2019, assessee’s income for the year reverted back to the returned loss of Rs. 16,54,89,059/- and in that event, the question of allowing the claim of set off of losses/unabsorbed depreciation i.e. for the earlier year(s) does not arise because there was no positive income for the year under consideration. 10. Accordingly, the Ld. AR submitted that in the aforesaid facts and circumstance, the question of Ld PCIT exercising revisional jurisdiction doesn’t arise after AO gave effect to Ld CIT(A) order viz., that post the first appellate order of Ld. CIT(A) dated 28 March 2018 there was no income for the year under consideration and consequentially question of set off of losses doesn’t arises. 11. Therefore, the Ld AR submits that the entire 263 proceedings and the impugned order dated 25 March 2019 passed in respect thereof is invalid, erroneous and bad in law and deserves to be struck down in the aforesaid factual scenario. 12. Per contra, the Ld. CIT-DR submitted that aforesaid development [ Ld CIT(A) order and AO giving effect order] as 9 A.Y. 2014-15 Sterling Holiday Resorts Ltd. contented by Ld AR has not been brought to the notice of the Ld. PCIT during revisional proceedings. Therefore, according to him, no interference is warranted in this case. 13. We have heard both the parties and perused the records. The assessee had filed return of income for the relevant assessment year on 25.11.2014 wherein it declared total loss of (Rs.-16,54,89,059/-). It is noted that the return was selected for scrutiny and the AO assessed the total income of the assessee vide order dated 28.12.2016 at Rs.13,22,83,587/- by making an addition of Rs.29,77,72,646/- (supra). And thereafter allowed the set-off against the unabsorbed depreciation of M/s. MRPL for AY. 2004-05 to AY. 2009-10 of Rs.54,29,744/- and business loss of M/s. MRPL for AY. 2009-10 and AY. 2010-11 amounting to Rs.7,16,96,555/- and unabsorbed depreciation of sterling for AY. 2005-06 and AY. 2008-09 amounting to Rs.5,51,57,288/- (thus total Rs.13,22,83,587/-). This action of the AO allowing the set- off of carry forward unabsorbed depreciation of M/s. MRPL, carry forward unabsorbed depreciation of M/s. Sterling Holiday Resorts (India) Ltd and carry forward of business loss of M/s. MRPL has been allowed by the AO u/s 72A of the Act has been found fault with by the Ld. PCIT in his revisional impugned order passed u/s 263 of the Act for want of inquiry. Therefore, the assessee is aggrieved by the action of the Ld. PCIT directing the AO to examine the aforesaid claims made by the assessee (set-off of carry forward depreciation and loss) u/s 72A of the Act and to re-compute the total income after due verification as to the applicability of section 72A of the Act in respect of claim made by assessee. According to the Ld. AR, the action of the 10 A.Y. 2014-15 Sterling Holiday Resorts Ltd. Ld. PCIT is without jurisdiction since AO’s action cannot be said to be erroneous as well as prejudicial to the revenue after post first appellate order passed by Ld CIT(A) (infra). 14. Before us, it has been brought to our notice that certain development has taken place in assessee’s case for the relevant year under consideration. And the assessee’s claim regarding set-off regarding unabsorbed depreciation and losses of M/s. MRPL/M/s. Sterling Ltd as allowed by the AO in the assessment order dated 28.12.2016 has changed after the order passed by first appellate authority dated 28.03.2018 [Ld CIT(A)] has been given effect to by AO, because of which, assessee did not have any positive income wherein he [Ld CIT(A)] has deleted the additions made by the AO in the assessment order dated 28.12.2016 as stated (supra). In the light of the Ld. CIT(A) order, the assessee’s returned income will be ‘nil’ as declared by it in the return of income i.e. [Rs.(-)16,54,89,059/-]. Therefore, according to the Ld. AR, the question of set-off in respect of unabsorbed depreciation/losses as done by the AO by order dated 28.12.2016 does not arise. Resultantly, the Ld. PCIT’s impugned action finding fault with the AO allowing set-off of losses & unabsorbed depreciation (refer assessment order dated 28.12.2016) does not arise. Therefore, according to the Ld. AR the foundation (AO’s action of allowing assessee’s claim regarding carry forward of unabsorbed depreciation/losses) for exercising revisional jurisdiction u/s 263 of the Act does not subsist in the aforesaid facts brought to our notice. On a query from the Bench as to whether the assessee has brought this development/Ld. CIT(A)’s order to the notice of the Ld.
11 A.Y. 2014-15 Sterling Holiday Resorts Ltd. PCIT during the proceedings u/s 263 of the Act, the Ld. AR fairly submitted that this fact could not be brought to the notice of the Ld. PCIT. In such a scenario, we are of the opinion that the aforesaid crucial fact need to be brought to the notice of the Ld. PCIT. And therefore, we set aside the impugned order of the Ld. PCIT dated 25.03.2019 and restore the same back to the file of Ld. PCIT for fresh adjudication. And the Ld. PCIT to consider and pass/drop the proceedings initiated u/s 263 of the Act after considering the Ld. CIT(A) action/AO giving effect order for AY 2014-15 as brought to our notice (supra) and pass order in accordance to law after giving opportunity to the assessee. 15. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 21/08/2023. (OM PRAKASH KANT) JUDICIAL MEMBER Mumbai; Dated 21/08/2023. Vijay Pal Singh, (Sr. PS)
12 A.Y. 2014-15 Sterling Holiday Resorts Ltd. आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. 3. आयकर आयुक्त / CIT पवभागीय प्रपतपनपि, आयकर अपीलीय अपिकरण, मुंबई / DR, ITAT, Mumbai 4. 5. गार्ड फाईल / Guard file.
आदेशधिुसधर/ BY ORDER, सत्यापपत प्रपत //// उि/सहधयक िंजीकधर /(Dy./Asstt.