JSW STEEL COATED PRODUCTS LTD (SUCCESSOR OF M/S. ASIAN COLOUR COATED ISPAT LTD),MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(2)(1), MUMBAI, MUMBAI

The Ld.CIT(A) while considering the submissions of assessee observed and held as under:-

With regard to this point, when all past liabilities are waived off, nothing has been left as liability, we do not believe this approval could be accorded to the company, therefore carrying forward of losses is not permitted.”

Section 79 of the Income Tax Act, 1961 which deals with carry forward and set off of losses in case of certain companies is to the following effect: “79. Carry forward and set off of losses in case of certain companies.— Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year,— (a) in the case of a company not being a company in which the public are substantially interested and other than a company referred to in clause (b), no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred; (b) in the case of a company, not being a company in which the public are substantially interested but being an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, if all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred— (i) continue to hold those shares on the last day of such previous year; and (ii) such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated: Provided that nothing contained in this section shall apply to a case where a change in the said voting power and shareholding takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift:

The Third Proviso of Section 79 sub-clause (b) provides that nothing contained in Section 79 shall apply to a company where a change in the shareholding takes place in a previous year pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

As noted above, Resolution Professional has during pendency of approval of the plan issued notice to the Income Tax Authorities but no objection was filed. We may notice the reply of the Resolution Professional where rationale behind Section 79 of the Income Tax Act, 1961 has been highlighted. In paragraphs 4 and 5 of the Reply following has been stated: “4. That the rationale behind section 79 of the Income Tax Act, 1961 was to ensure that taxpayers do not purposely, and with mala fide intent, acquire loss making companies and thereafter enjoy tax benefits of such losses while conducting profitable businesses. Therefore, Section 79 provides that carry forward of losses will not be allowed where there is a change in shareholding of the company, unless the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty- one per cent of the voting power on the last day of the year or years in which the loss was incurred.

The amendment in Section 79 of the Income Tax Act, 1961 providing for exception in case of a company where change in shareholding takes place pursuant to Resolution Plan was with purpose and object. Thus, claim of carry forward of losses is not impermissible but can only be granted giving opportunity to the appropriate Income Tax Authority. The judgment of JSW Steel Ltd. vs. Ashok Kumar Gulla & Ors. (supra) relied by the counsel for the Appellant was also a case of Successful Resolution Applicant with regard to whom Adjudicating Authority has made observations in so far as carry forward losses was concerned. In paragraph 12 and 17 of the judgment following has been laid down: “12. As to the determination of the issue of ‘carry forward losses’ of the ‘Corporate Debtor’, in spite of notice to the Income Tax Authority, no reply has been filed and no objection has been raised. However, taking into consideration the submissions made by the counsel for the Appellant-‘JSW Steel Limited’ and taking into consideration the provisions of the Income Tax Act, 1961, including Section 79 and the Rules and Regulations framed thereunder, we hold that both the ‘Successful Resolution Applicant’ and the Income Tax Department will be guided by the Income Tax Act, 1961 and the Rules and Regulations framed thereunder. If the ‘Successful Resolution Applicant’ is entitled to ‘carry forward losses’ under Section 79 of the Income Tax Act, it may claim such benefit before the appropriate Authority, who will pass appropriate order in accordance with Section 79 of the Income Tax Act, 1961 and the Rules and Regulations framed thereunder.

In view of the discussions as made above, the part of the impugned order dated 19th December, 2018 so far as it relates to laying down conditions by the Adjudicating Authority is concerned, are set aside and deleted and substituted with clarification as made above. The rest part of the impugned order dated 19th December, 2018 as clarified vide order dated 16th April, 2019 approving the ‘Resolution Plan’ in favour of the Appellant is confirmed. “The appeal is allowed with aforesaid observations. No costs.”

We, thus, are of the view that benefit of carry forward of losses can be availed by the Appellant subject of opportunity to be given to Income Tax Authority to pass appropriate orders in accordance with Section 79. We, thus, are of the view that observations in para 238 deserves to be deleted and are hereby deleted.” 4.2. Per contra, the Ld.DR submitted that, Hon’ble NCLAT has allowed the benefit of carry forward loss to the assessee subject to We have perused the submissions advanced by both the sides in light of the records placed before us.

Admittedly, there is no dispute at this stage regarding the allowability of carry forward of loss to the assessee. It is also noted that the assessee has also furnished the necessary documents in order to support its contention that, returned income for assessment year 2016-17 to 2018-19 was filed within the period as specified u/s 139(1) of the Act. Under such circumstances, we are of the opinion that assessee is eligible for carry forward of business loss pertaining to assessment years 2016-17, 2017-18 and 2018- 19. We thus, remit this issue to the Jurisdictional Assessing officer (JAO) to consider the claim of assessee and to pass necessary orders in accordance with law.