SODEXO INDIA SERVICES PRIVATE LIMITED,MUMBAI vs. PCIT, MUMBAI 5, CIRCLE 13(2)(2), MUMBAI

Date of hearing 20/01/2023 Date of pronouncement 23/02/2023 ORDER PER : KULDIP SINGH : JM

Appellant, Sodexo India Services Private Limited [hereinafter referred to as the 'assessee'] by filing the present appeal sought to set aside the impugned order dated 28/03/2018 passed by the Principal Commissioner of Income-tax, Mumbai-5, Mumbai (hereinafter referred to as the ‘Ld.PCIT’) invoking revisionary jurisdiction contained under section 263 of the Income-tax Act, 1961 (in short, referred to as ‘the Act’) qua the assessment order for Assessment Year 2017-18, on the effective ground interalia that:- “The Appellant most humbly raises the following grounds of appeal which are independent of and without prejudice to one another. 1.] On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income-tax (PCIT) erred in passing the Order under Section 263 of the Income Tax Act, 1961 (the Act) setting aside the Assessment Order passed under Section 143(3) of the Act by wrongly holding the same to be erroneous in so far as it is prejudicial to the interest of the revenue without appreciating that the said assessment order was neither erroneous nor prejudicial to the interests of the revenue. Consequently, the order passed u/s 263 of the Act is without jurisdiction, bad in law and liable to be quashed. 2.] The Learned PCIT failed to appreciate that the provisions of Section 79 of the Act were not applicable to the case of the appellant. Further, the learned PCIT failed to appreciate that Sodexo SA, France being the ultimate holding company of the appellant controlled the voting power of the appellant both, prior to change in shareholding during the year and also after the change in shareholding & thus, the provisions of Section 79 of the Act were not applicable. Consequently, the order passed u/s 263 of the Act for invoking the provisions of Section 79 of the Act is bad in law and liable to be quashed. 3.] The learned PCIT failed to appreciate that no set off of loss had been claimed by /allowed to the appellant in respect of carried forward business losses in the assessment order passed u/s 143(3) of the Act for and hence, there was no prejudice caused to the revenue. Thus, assumption of jurisdiction under Section 263 of the Act is bad in law and, consequently the order passed u/s 263 of the Act is without jurisdiction, bad in law and liable to be quashed. 4.] The learned PCIT failed to appreciate that the appellant had categorically submitted during the assessment proceedings u/s 143(3) of the Act for AY 2017-18 that the provisions of Section 79 of the Act was not applicable which were considered and accepted by the AO & that the said view apart from being correct is nevertheless a possible view. Thus, the order passed u/s 263 of the Act by invoking Explanation 2 thereto to revise the assessment order passed u/s 143(3) of the Act is without jurisdiction, bad in law and liable to be quashed; even more so since the said Explanation has not been invoked in the . notice issued u/s 263 of the Act. 5.] The learned PCIT failed to appreciate that the provisions of Section 79 of the Act were not applicable to the case of the appellant. Further, the learned PCIT failed to appreciate the relevant provisions of the Double Taxation Avoidance Agreement (DTAA) between India and France and particularly Article 26 therein consequent to which the provision of section 79 of the Act were not applicable to the case of the appellant. 6.] The learned PCIT erred on facts and in law in directing the learned Assessing Officer to initiate proceedings for levying penalty under Section 270A of the Act. 7.] On the facts and in the circumstances of the case and in law, the learned PCIT erred in passing impugned order u/s 263 of the Act without providing the Appellant with sufficient and adequate opportunity and in breach of the principles of natural justice and in arriving at conclusions therein based on incorrect factual averments/legal inferences without considering/appreciating the facts of the case and the submissions made by the Appellant and therefore, the said order passed u/s 263 of the Act is bad in law and liable to be quashed or alternatively set aside after expunging the findings/directions of the learned PCIT”

2. Briefly stated, facts necessary for consideration and adjudication of the controversy at hand are that the assessment on the basis of original return filed by the assessee declaring total loss at Rs.1,19,90,092/- was completed under section 143(3) of the Act at the total loss of Rs. 71,65,790/- by making addition of Rs.48,24,302/- on account of disallowance under section 36(1)(va) of the Act.

3. From the record, Ld.PCIT noticed that 75% and 25% of the shares of the assessee company were held by Sodexo Services Asia Pte Ltd and Sodexo S.A., France, respectively. However, on 31/02/2017 former share holder held no shares whereas the latter one held 99.99% shares of the assessee company. Noticing that there was a substantial change (more than 51%) in shareholding pattern when compared to the shares held on 31/03/2016, as per provisions contained under section 79 of the Act, the assessee company cannot set off its brought forward business loss of preceding assessment years to the tune of Rs.12,05,10,296/-, which made the assessment order passed under section 143(3) dated 06/12/2019 erroneous insofar as it is prejudicial to the interest of the Revenue. Declining the contentions raised by the assessee, Ld.PCIT set aside the assessment order passed under section 143(3) on the ground that the Assessing Officer has failed to conduct all enquiries which made the assessment order erroneous insofar as it is prejudicial to the interest of the Revenue.

5. Before proceeding further, we would extract, for ready perusal, notice issued by Ld.PCIT under section 263, which is as under:-

GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX PCIT, MUMBAI-5 To, SODEXO INDIA SERVICES PRIVATE LIMITED 1ST FLOOR.GEMSTAR COMMERCIAL COMPLEX . RAMCHANDRA LANE EXTENSION,KANCHPADA,MALAD WEST Mumbai MUMBA! 400064 , Maharashtra India

PAN/TAN: A.Y. DIN & Notice No : Dated: AAAC4R2547Q 2017-18 ITBA/REV1/2021- 25/01/2022 22/1039076972(1)

NOTICE FOR THE HEARING M/s/Mr/Mrs Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the INCOME TAX ACT, 1961 – Assessment Year 2017-18. In this regard, a hearing in the matter is fixed on 01/02/2022 at 12:20 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents / information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions / representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in

Sub: Notice u/s 263 of the Income-tax Act, 1961 in your case for A.Y. 2017-18.reg.

In the instant case, the return was filede on 29.11.2017 declaring loss of Rs.1,19,90,092/-. The case was selected for scrutiny under CASS. The assessment u/s 143(3) was completed with a loss of Rs.71,65,790/- on 06.12.2019.

4. As such, the assessment order is erroneous as section 79 of income Tax Act, 1961 was applicable since there was a change in Share pattern. Hence, the order passed u/s. 143(3) on 06.12.2019 is erroneous and prejudice to the interest of revenue, within the meaning of Sec.263 of the Act.

32 b Whether a change in shareholding of the company has taken place in No the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79. 32 c Whether assessee has incurred any loss referred to in section 73A in No respect of any specified business during the previous year

“d. Details of shareholding more than 5% shares in the Company

As at As at March 31, 2016 March 31, 2015 No. of % No. of % shares shares Equity shares 5000.000 25 5000.000 25 of Rs.10 each fully paid Sodexo S.A. France Sodexo 15,000.000 75 15000.000 75 So, ultimate holding company was Sodexo SA, France. Moreover, when beneficial ownership is with ultimate holding company, loss cannot be disallowed. However, in the instant case, no such loss was claimed by the Assessee.