DCIT, RANGE- 8(2), MUMBAI vs. M/S HOTEL LEELA VENTURE LTD., MUMBAI

PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 06/03/2013 passed by the Ld. Commissioner of Income-tax (Appeals)-17, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2007-08, raising following grounds:

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Ltd., which amalgamated with the assessee company with effect , which amalgamated with the assessee company with effect , which amalgamated with the assessee company with effect from 01/04/2006 i.e. during the previous year relevant to the from 01/04/2006 i.e. during the previous year relevant to the from 01/04/2006 i.e. during the previous year relevant to the assessment year under consideration. assessment year under consideration.

2.1 The Assessing Officer Assessing Officer has reproduced amount of carry of carry forward of business loss and business loss and unabsorbed depreciation claimed by the claimed by the assessee in para 6.2 the assessment order n para 6.2 the assessment order. For ready reference, said . For ready reference, said detail is extracted as under: is extracted as under:

“6.2 As stated above, the assessee has claimed As stated above, the assessee has claimed set off of set off of ₹25,83,74,068/ ₹25,83,74,068/- representing carry business and unabsorbed representing carry business and unabsorbed depreciation of Kovalam Hotels Ltd. The break epreciation of Kovalam Hotels Ltd. The break-up of this loss is as up of this loss is as under: Business Loss (for A.Y. 2002 Business Loss (for A.Y. 2002-03, 04-05 and 05-06 13,43,71,999/ 13,43,71,999/- Unabsorbed Depreciation (for A.Y. 2002 Unabsorbed Depreciation (for A.Y. 2002-03, 03-04, 04-05 8,26,32,781/ 8,26,32,781/- & 05-06) Total 21,70,04,780/ 21,70,04,780/- Add: Assessed Business Loss for AY 2006 Business Loss for AY 2006-07 4,09,65,442/ 4,09,65,442/-“ 2.2 The Assessing Officer Assessing Officer examined the return of income and the return of income and Tax Audit Report (TAR) (TAR) in the case of Kaovalam Hotels Ltd in the case of Kaovalam Hotels Ltd. for assessment year 2006 assessment year 2006-07, wherein he observed comment of the 07, wherein he observed comment of the Tax Auditor that losses incu that losses incurred prior to previous year cannot be rred prior to previous year cannot be

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allowed to be carried forward in terms of section 79 of the allowed to be carried forward in terms of section 79 of the allowed to be carried forward in terms of section 79 of the Income- tax Act, 1961 (in short , 1961 (in short ‘the Act’). The auditor further added that ). The auditor further added that since the losses claimed by the company, which has become since the losses claimed by the company, which has become since the losses claimed by the company, which has become subsidiary of Hotel Leela subsidiary of Hotel Leela Ventures Ltd. (i.e. the assessee) . (i.e. the assessee), which is a listed company, provisions of section 79 will not be applicable to listed company, provisions of section 79 will not be applicable to listed company, provisions of section 79 will not be applicable to such company. The Assessing Officer Assessing Officer in the case of Kovala in the case of Kovalam Hotel Ltd. for assessment year 2006 for assessment year 2006-07, declined carry forward of the business loss of ₹13, 13,43,71,999/-incurred prior to previous year incurred prior to previous year 2005-06 i.e. assessment year 2006 i.e. assessment year 2006-07.

2.3 The Assessing Officer Assessing Officer in the case of the assessee also rejected in the case of the assessee also rejected the claim for set of the claim for set off of the business loss of ₹ ₹13,43,71,999/- observing as under:

“6.5 The assessee's contention is carefully perused but is not found 6.5 The assessee's contention is carefully perused but is not found 6.5 The assessee's contention is carefully perused but is not found tenable under the Law. It is not in dispute that there is a change in tenable under the Law. It is not in dispute that there is a change in tenable under the Law. It is not in dispute that there is a change in the shareholding pattern of the Kovalam Hotels Ltd during the the shareholding pattern of the Kovalam Hotels Ltd during the the shareholding pattern of the Kovalam Hotels Ltd during the Financial Year 2005 Financial Year 2005-06 (A.Y.2006-07) as a result of which, the hotel ich, the hotel became a subsidiary of the assessee became a subsidiary of the assessee-company. Therefore, the company. Therefore, the provisions of Sec.79 are clearly attracted as far as the carry forward provisions of Sec.79 are clearly attracted as far as the carry forward provisions of Sec.79 are clearly attracted as far as the carry forward

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business losses of Kovalam Hotels Ltd are concerned. Now, it is to be business losses of Kovalam Hotels Ltd are concerned. Now, it is to be business losses of Kovalam Hotels Ltd are concerned. Now, it is to be examined whether the assessee is entitle examined whether the assessee is entitled to an exemption from the d to an exemption from the provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during the A.Y.2006-07. This aspect has been discussed in detail by the 07. This aspect has been discussed in detail by the 07. This aspect has been discussed in detail by the Assessing Officer of Kovalam Hotels Ltd. in his assessment order as Assessing Officer of Kovalam Hotels Ltd. in his assessment order as Assessing Officer of Kovalam Hotels Ltd. in his assessment order as referred to above. At t referred to above. At the end of his analysis, it is clearly found that he end of his analysis, it is clearly found that the assessee (Kovalam Hotels Ltd.) cannot be called a company in the assessee (Kovalam Hotels Ltd.) cannot be called a company in the assessee (Kovalam Hotels Ltd.) cannot be called a company in which the public is substantially interested as it has not satisfied any which the public is substantially interested as it has not satisfied any which the public is substantially interested as it has not satisfied any of the conditions as laid down u/s. 2(18) during the P.Y. 2005 of the conditions as laid down u/s. 2(18) during the P.Y. 2005 of the conditions as laid down u/s. 2(18) during the P.Y. 2005-06 (A.Y. 2006-07), hence, business loss prior to A.Y.2006 07), hence, business loss prior to A.Y.2006-07 shall not be 07 shall not be allowed to be carried forward for future set allowed to be carried forward for future set-off. Therefore, the off. Therefore, the which have been carried forward business loss of Rs.13,43,71,999/ business loss of Rs.13,43,71,999/- which have been carried forward by Kovalam Hotels Ltd prior to the assessment year under by Kovalam Hotels Ltd prior to the assessment year under by Kovalam Hotels Ltd prior to the assessment year under consideration, which have already been denied by the Assessing consideration, which have already been denied by the Assessing consideration, which have already been denied by the Assessing Officer of Kovalam Hotels Ltd from being carried forward, cannot be Officer of Kovalam Hotels Ltd from being carried forward, cannot be Officer of Kovalam Hotels Ltd from being carried forward, cannot be now allowed to be set now allowed to be set-off by the assessee in its return of income for off by the assessee in its return of income for the present A.Y. 2007 the present A.Y. 2007-08 under consideration. Therefore, out of the e, out of the total brought forward loss of Rs.25,83,74,068/ total brought forward loss of Rs.25,83,74,068/-, claimed by the , claimed by the assessee as set off representing the brought forward losses and assessee as set off representing the brought forward losses and assessee as set off representing the brought forward losses and depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/ depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/ depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/- is being excluded and the remaining amount of Rs.12,4002,069 excluded and the remaining amount of Rs.12,4002,069 excluded and the remaining amount of Rs.12,4002,069/- is being allowed as set- -off.

section 79 of the Act Act vis-à-vis section 72A of the Act Act and held that in view of fact that section 72A of the Act being specific provision it has fact that section 72A of the Act being specific provision it has fact that section 72A of the Act being specific provision it has

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to be preferred over the general provisions of section 79 of the Act, red over the general provisions of section 79 of the Act, red over the general provisions of section 79 of the Act, therefore provisions of section 79 are not applicable in the instant therefore provisions of section 79 are not applicable in the instant therefore provisions of section 79 are not applicable in the instant

case. The relevant finding of the Ld. CIT(A) is reproduced as under: case. The relevant finding of the Ld. CIT(A) is reproduced as under: case. The relevant finding of the Ld. CIT(A) is reproduced as under:

“5.8 It can be seen from the above that the section pertains to It can be seen from the above that the section pertains to It can be seen from the above that the section pertains to amalgamation of a company owing industrial undertaking or a ship amalgamation of a company owing industrial undertaking or a ship amalgamation of a company owing industrial undertaking or a ship or a hotel with another company. which is the case in appeal before or a hotel with another company. which is the case in appeal before or a hotel with another company. which is the case in appeal before me. It has also been held in various case laws that the specific me. It has also been held in various case laws that the specific me. It has also been held in various case laws that the specific provision will overrule the general provision. Recently in the case of provision will overrule the general provision. Recently in the case of provision will overrule the general provision. Recently in the case of Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on April 30, 2012 that specific provision would prevail over the general April 30, 2012 that specific provision would prevail over the general April 30, 2012 that specific provision would prevail over the general provisions. Section 72A is a specific provision r provisions. Section 72A is a specific provision r provisions. Section 72A is a specific provision relating to amalgamation of the company running a hotel with another amalgamation of the company running a hotel with another amalgamation of the company running a hotel with another company. Whereas section 79 deals with only change in the share company. Whereas section 79 deals with only change in the share company. Whereas section 79 deals with only change in the share holding. In the instant case, because it is amalgamation, it is covered holding. In the instant case, because it is amalgamation, it is covered holding. In the instant case, because it is amalgamation, it is covered by section 72A of the Income Tax Act. The Hon'ble Hi by section 72A of the Income Tax Act. The Hon'ble High Court of gh Court of Bombay vide Company Petition No. 38 of 2007 connected with Bombay vide Company Petition No. 38 of 2007 connected with Bombay vide Company Petition No. 38 of 2007 connected with Company Application No. 1124 of 2006 in the matter of scheme of Company Application No. 1124 of 2006 in the matter of scheme of Company Application No. 1124 of 2006 in the matter of scheme of amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and Company Petition No. 733 of 2007 connected with Company Company Petition No. 733 of 2007 connected with Company Company Petition No. 733 of 2007 connected with Company Application No. 749 of 2007 as on November 2, 2007 approved the plication No. 749 of 2007 as on November 2, 2007 approved the plication No. 749 of 2007 as on November 2, 2007 approved the scheme of arrangement as per section 391 to 394 of Companies Act, scheme of arrangement as per section 391 to 394 of Companies Act, scheme of arrangement as per section 391 to 394 of Companies Act, 1956. These sections of the Companies Act deal with amalgamation. 1956. These sections of the Companies Act deal with amalgamation. 1956. These sections of the Companies Act deal with amalgamation. Further the composite scheme of arrangement presented before t Further the composite scheme of arrangement presented before t Further the composite scheme of arrangement presented before the Hon'ble High Court of Bombay mentions about the amalgamation of Hon'ble High Court of Bombay mentions about the amalgamation of Hon'ble High Court of Bombay mentions about the amalgamation of the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case where section 72A should have been applied instead of section 79, as where section 72A should have been applied instead of section 79, as where section 72A should have been applied instead of section 79, as

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has been done by the AO. The appellant has relie has been done by the AO. The appellant has relied on the case of d on the case of Classic Shares and Stock Broking Services Ltd of Hon'ble ITAT Classic Shares and Stock Broking Services Ltd of Hon'ble ITAT Classic Shares and Stock Broking Services Ltd of Hon'ble ITAT Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Bench, New Delhi vide order no. 5524/Del/2 Bench, New Delhi vide order no. 5524/Del/2010 for A.Y. 2006 010 for A.Y. 2006-07 held on 5.8.2011 that since the scheme of amalgamation has been on 5.8.2011 that since the scheme of amalgamation has been on 5.8.2011 that since the scheme of amalgamation has been approved by the Hon'ble High Court there is no reason to suspect that approved by the Hon'ble High Court there is no reason to suspect that approved by the Hon'ble High Court there is no reason to suspect that the amalgamation was not for genuine business purpose and it was a the amalgamation was not for genuine business purpose and it was a the amalgamation was not for genuine business purpose and it was a colourable tax devise. Since secti colourable tax devise. Since section 72A were in application, the on 72A were in application, the appellant has already merged the accounts of the Kovalam Hotel Ltd appellant has already merged the accounts of the Kovalam Hotel Ltd appellant has already merged the accounts of the Kovalam Hotel Ltd with itself as on the effective date of the scheme of amalgamation i.e. with itself as on the effective date of the scheme of amalgamation i.e. with itself as on the effective date of the scheme of amalgamation i.e. 1.4.2006, and the income of that hotel is also offered by the appellant 1.4.2006, and the income of that hotel is also offered by the appellant 1.4.2006, and the income of that hotel is also offered by the appellant by revising the return of income. The assets of Kovalam Hotels Ltd he return of income. The assets of Kovalam Hotels Ltd he return of income. The assets of Kovalam Hotels Ltd have been completely taken over by the appellant. When the AO of have been completely taken over by the appellant. When the AO of have been completely taken over by the appellant. When the AO of Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006 Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006 Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006-07 and the appellant was holding the appellant was holding-only 51% share and the complete merger, only 51% share and the complete merger, as per the order of Hon'ble High Court, took place from the effective per the order of Hon'ble High Court, took place from the effective per the order of Hon'ble High Court, took place from the effective date i.e. April 1, 2006. This specific date is falling in A.Y. 2007 date i.e. April 1, 2006. This specific date is falling in A.Y. 2007 date i.e. April 1, 2006. This specific date is falling in A.Y. 2007-08 i.e. the year in appeal. While the AO of Kovalam Hotels Ltd was dealing the year in appeal. While the AO of Kovalam Hotels Ltd was dealing the year in appeal. While the AO of Kovalam Hotels Ltd was dealing with the issue for A.Y. 2006 with the issue for A.Y. 2006-07 when the amalgamation had not amation had not taken place. Hence, once the amalgamation is approved by Hon'ble taken place. Hence, once the amalgamation is approved by Hon'ble taken place. Hence, once the amalgamation is approved by Hon'ble High Court of Bombay and the accounts were merged, provisions of High Court of Bombay and the accounts were merged, provisions of High Court of Bombay and the accounts were merged, provisions of section 72A only will come into play and not section 79 as held by the section 72A only will come into play and not section 79 as held by the section 72A only will come into play and not section 79 as held by the AO. Therefore, it is held that the appe AO. Therefore, it is held that the appellant is eligible for carry llant is eligible for carry forward of losses of Kovalam Hotel Ltd as per section 72A of the forward of losses of Kovalam Hotel Ltd as per section 72A of the forward of losses of Kovalam Hotel Ltd as per section 72A of the Income tax Act, 1961 and the ground of appeal of the appellant is Income tax Act, 1961 and the ground of appeal of the appellant is Income tax Act, 1961 and the ground of appeal of the appellant is allowed.”

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2006-07 for carry forward of losses of years prior to previous year for carry forward of losses of years prior to previous year for carry forward of losses of years prior to previous year 2005-06. Thus, the Thus, the Assessing Officer in that case has correctly in that case has correctly declined carryforward of losses. declined carryforward of losses.

i. DCIT Vs Credila Financial Services Financial Services Private Limited [2018] 91 taxmann.com [2018] 91 taxmann.com 112 (Mumbai) ii. DCIT Vs Instant Traders P Ltd DCIT Vs Instant Traders P Ltd [2018] 96 taxmann.com 378 (Mumbai [2018] 96 taxmann.com 378 (Mumbai-Trib.) iii. M/s Meredith Traders P Ltd M/s Meredith Traders P Ltd v. ITO (ITA Nos. 3435 & 3436/M/2010) v. ITO (ITA Nos. 3435 & 3436/M/2010) 7. We have heard rival submission We have heard rival submissions of the parties ies on the issue in dispute and perused the relevant material on record. In the case two dispute and perused the relevant material on record. In the case two dispute and perused the relevant material on record. In the case two

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events have happened which happened which are having impact on the claim having impact on the claim of business loss sought to be set off by the assessee t to be set off by the assessee. The first event . The first event happened in the previous year 2005 ed in the previous year 2005-06, correspon corresponding to assessment year 2006 assessment year 2006-07. During the previous year 2005 During the previous year 2005-06, M/s Hotel Leela Venture Ltd., ( Hotel Leela Venture Ltd., (which is a company in which publ which is a company in which public are substantially interested substantially interested) acquired majority shareholding ( ) acquired majority shareholding (i.e. more than 51%) of M/s Kovalam Hotels Limited of M/s Kovalam Hotels Limited. Prior to such acquisition Prior to such acquisition of shares, majority shares , majority shares of Kovalam Hotels Ltd. were of Kovalam Hotels Ltd. were held by M/s MFAR Hotels Ltd., a company in which public is not not substantially interested, and therefore , and therefore M/s Kovalam Hotels Ltd was a closely held valam Hotels Ltd was a closely held company, prior to change of shareholdings company, prior to change of shareholdings during previous year ng previous year 2005-06. The provisions of section 79 gets attracted on happening The provisions of section 79 gets attracted on happening The provisions of section 79 gets attracted on happening of this first event i.e. AY 2006 of this first event i.e. AY 2006-07.

7.1 The second event happ The second event happened in assessment year 2007 ened in assessment year 2007-08, which is corresponding to previous year 2006 onding to previous year 2006-07. By way of the . By way of the order of the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd. f the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd. f the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd.,

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amalgamated with the assessee company from the e with the assessee company from the e with the assessee company from the effective date as on 01/04/2006. So with effe . So with effect from assessment year 2007 ct from assessment year 2007-08, the said M/s Kovalam Hotels Ltd said M/s Kovalam Hotels Ltd. became part of the assessee company. became part of the assessee company. The provisions of section 72A of the Act gets attracted in the event The provisions of section 72A of the Act gets attracted in the event The provisions of section 72A of the Act gets attracted in the event of merger/amalgamated, therefore of merger/amalgamated, therefore, in the case section 72A comes in the case section 72A comes into picture only at the stage of second event i.e. into picture only at the stage of second event i.e. AY 2007 AY 2007-08.

7.2 In the case of M/s Kovalam In the case of M/s Kovalam Hotels Ltd. for assessment year for assessment year 2006-07, the assessee claimed 07, the assessee claimed carry forward of business loss of business loss of earlier years amounting to earlier years amounting to ₹13,43,71,982/-. The year The year-wise details of such loss has been tabulated by the Ld. CIT(A) tabulated by the Ld. CIT(A) in para 5.3 of the in para 5.3 of the impugned order. For ready reference, said detail or ready reference, said detail is extracted as under: AY Business Loss (In ₹) 2002-03 45,13,758/- 45,13,758/ 2003-04 8,92,29,786/- 8,92,29,786/ 2004-05 2005-06 4,06,28,455/- 4,06,28,455/ Total 13,43,71,982/ 13,43,71,982/-

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7.3 The Assessing Officer Assessing Officer in the case of Kovalam Hotels Ltd in the case of Kovalam Hotels Ltd. for assessment year 2006 assessment year 2006-07 has rejected the claim for carryforward rejected the claim for carryforward of the loss of ₹13,43,71,999/ 71,999/-. The assessee has filed co . The assessee has filed copy of the said assessment order, which is available on page 56 which is available on page 56 to 60 of the which is available on page 56 paperbook. The rele paperbook. The relevant part of the said assessment order is vant part of the said assessment order is reproduced as under for ready reference: reproduced as under for ready reference:

“The assessee company is not covered under the provisions of Sub The assessee company is not covered under the provisions of Sub The assessee company is not covered under the provisions of Sub clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. provision of Section 2(18) is The only probability of covering the The only probability of covering the provision of Section 2(18) is under Sub clause (b). For this assessee has to satisfy the condition under Sub clause (b). For this assessee has to satisfy the condition under Sub clause (b). For this assessee has to satisfy the condition either under Item (A) or Item (B). Condition under Item (A) is not either under Item (A) or Item (B). Condition under Item (A) is not either under Item (A) or Item (B). Condition under Item (A) is not satisfied as the company is not listed in a stock exchange as on the satisfied as the company is not listed in a stock exchange as on the satisfied as the company is not listed in a stock exchange as on the last day of the previ last day of the previous year. So the assessee company has to satisfy ous year. So the assessee company has to satisfy the condition in the Item (B) to claim as a company in which the the condition in the Item (B) to claim as a company in which the the condition in the Item (B) to claim as a company in which the public are substantially interested. To satisfy this condition more public are substantially interested. To satisfy this condition more public are substantially interested. To satisfy this condition more than 51% of the shares of the assessee company should have held by than 51% of the shares of the assessee company should have held by than 51% of the shares of the assessee company should have held by the Government or Corporation or a company in which public are ernment or Corporation or a company in which public are ernment or Corporation or a company in which public are substantially interested throughout the relevant substantially interested throughout the relevant previous year. More previous year. More than 51% of the share of the assessee company was held by M/S 1% of the share of the assessee company was held by M/S 1% of the share of the assessee company was held by M/S MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a company in which the public are substantially interested in any part company in which the public are substantially interested in any part company in which the public are substantially interested in any part of the relevant previous year. M/s Hotel Leela Ventures Ltd is a of the relevant previous year. M/s Hotel Leela Ventures Ltd is a of the relevant previous year. M/s Hotel Leela Ventures Ltd is a

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company in which the public are substantially interest company in which the public are substantially interest company in which the public are substantially interested. But the shares of the assessee company were not held by the M/s Hotel Leela shares of the assessee company were not held by the M/s Hotel Leela shares of the assessee company were not held by the M/s Hotel Leela Ventures Ltd throughout the relevant previous year. Thus the Ventures Ltd throughout the relevant previous year. Thus the Ventures Ltd throughout the relevant previous year. Thus the assessee company does not satisfy the condition in the Item (B) also. assessee company does not satisfy the condition in the Item (B) also. assessee company does not satisfy the condition in the Item (B) also. It is very clear that M/s Kovalam Hotels Ltd It is very clear that M/s Kovalam Hotels Ltd is not a company in is not a company in which the public are substantially interested during the previous year which the public are substantially interested during the previous year which the public are substantially interested during the previous year 2005-06 and hence the provisions of section 79 is applicable in the 06 and hence the provisions of section 79 is applicable in the 06 and hence the provisions of section 79 is applicable in the assessee's case. The business loss of Rs.13,43,71,999/ assessee's case. The business loss of Rs.13,43,71,999/- incurred prior incurred prior to the previous year 2005 to the previous year 2005-06 is not allowed to carry forward u/s 79 06 is not allowed to carry forward u/s 79 of the IT Act.” 7.4 Thus according to the Thus according to the Assessing Officer of Kovalam Hotels essing Officer of Kovalam Hotels Ltd., business loss of ₹13,43,71, 13,43,71,999/-was not available for carryforward was not available for carryforward to next assessment year i.e to next assessment year i.e. AY 2007-08 because change in 08 because change in shareholding has happened or taken place in Kovalam Hotels Ltd eholding has happened or taken place in Kovalam Hotels Ltd., eholding has happened or taken place in Kovalam Hotels Ltd which was a closely held company and Kovalam Hotels Ltd. as which was a closely held company and Kovalam Hotels Ltd. as which was a closely held company and Kovalam Hotels Ltd. as company in which public are substantially hich public are substantially interested interested is resultant company due to such change, therefore, provisions of section 79 are company due to such change, therefore, provisions of section 79 are company due to such change, therefore, provisions of section 79 are applicable over the facts of the case. applicable over the facts of the case.

7.5 But the assessee in the year under consideration has claimed But the assessee in the year under consideration has claimed But the assessee in the year under consideration has claimed the set off of the said loss on the ground that M/s Kovalam Hotels the set off of the said loss on the ground that M/s Kovalam Hotels the set off of the said loss on the ground that M/s Kovalam Hotels

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Ltd. has been merged with the assessee company with effect from merged with the assessee company with effect from merged with the assessee company with effect from assessment year 2007 assessment year 2007-08.

7.6 In our opinion, once the In our opinion, once the Assessing Officer in the case of Kovalam Hotels Ltd for assessment year 2006 Kovalam Hotels Ltd for assessment year 2006-07 has already 07 has already rejected claim of carry carry forward of the said business loss forward of the said business loss in terms of section 79 of the Act, section 79 of the Act, then same cannot be available to the assessee n same cannot be available to the assessee for set off u/s 72A of the Act f u/s 72A of the Act until and unless said finding of the until and unless said finding of the Assessing Officer is reversed by the higher appellate authorities. The is reversed by the higher appellate authorities. The is reversed by the higher appellate authorities. The Ld. counsel of the assessee intimated of the assessee intimated that appeal against the order that appeal against the order of the Assessing Officer Assessing Officer in the case of Kovalam Hotels Ltd in the case of Kovalam Hotels Ltd. for AY 2006-07 is pending before the 07 is pending before the Ld. First Appellate Authority First Appellate Authority. In our considered view, the said business loss becomes eligible for the set considered view, the said business loss becomes eligible for the set considered view, the said business loss becomes eligible for the set off in the year under off in the year under consideration only subsequent to decision of consideration only subsequent to decision of the allowability of carryforward in the case of Kovalam Hotel Ltd the allowability of carryforward in the case of Kovalam Hotel Ltd the allowability of carryforward in the case of Kovalam Hotel Ltd. under section 79 of the under section 79 of the Act in the favour of assessee in the favour of assessee. As on date, the assessment order in the case of Kovalam Hotels Ltd assessment order in the case of Kovalam Hotels Ltd. for AY 2006-07

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is in operation and which has not been reversed by the Ld CIT(A) or is in operation and which has not been reversed by the Ld CIT(A) or is in operation and which has not been reversed by the Ld CIT(A) or ITAT, thus, said business loss of thus, said business loss of ₹13,43,71,999/- has not been carry has not been carry forwarded to assessment year 2007 to assessment year 2007-08 and therefore same is not 08 and therefore same is not available for set off against different heads of the inc available for set off against different heads of the inc available for set off against different heads of the income of the assessee as per the provisions of assessee as per the provisions of section 72A the the Act for the assessment year under consideration. assessment year under consideration. The issue of set off of business he issue of set off of business loss in AY 2007-08 u/s 72A of the Act u/s 72A of the Act is consequent to the issue of is consequent to the issue of carry forward of loss in AY 2006 carry forward of loss in AY 2006-07 in Kovalam Hotels Ltd m Hotels Ltd. in terms of section 79 of the Act of section 79 of the Act. The Ld. CIT(A) in the year under The Ld. CIT(A) in the year under consideration is not justified in deciding the question of consideration is not justified in deciding the question of consideration is not justified in deciding the question of carryforward of loss in the case of Kovalam Hotels Ltd carryforward of loss in the case of Kovalam Hotels Ltd carryforward of loss in the case of Kovalam Hotels Ltd. for assessment year 2006 assessment year 2006-07 invoking section 72A of the Act invoking section 72A of the Act as that issue has to be adjudicated by the appellate authorities having issue has to be adjudicated by the appellate authorities having issue has to be adjudicated by the appellate authorities having jurisdiction over the case of Kovalam Hote n over the case of Kovalam Hotels Ltd. for AY 2006 Ltd. for AY 2006-07 . Therefore, we are also not adjudicating on the issue whether , we are also not adjudicating on the issue whether , we are also not adjudicating on the issue whether carryforward of the said business loss in the case of K carryforward of the said business loss in the case of K carryforward of the said business loss in the case of Kovalam Hotels

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Ltd. for AY 2006-07 is permitted under the law 07 is permitted under the law. Accordingly, we set Accordingly, we set aside the finding of the Ld. aside the finding of the Ld. CIT(A) on the issue in dispute CIT(A) on the issue in dispute. The Assessing Officer is directed to give effect is directed to give effect of set off of business loss of set off of business loss in the case of the assessee in the case of the assessee, consequent to the finding of consequent to the finding of appellate authorities in the case of Kovalam Hotels Ltd. in the case of Kovalam Hotels Ltd. on the issue of carry on the issue of carry forward of business loss u forward of business loss under reference. The ground of the appeal . The ground of the appeal of the Revenue is accordingly allowed. is accordingly allowed.

Order pronounced in the Court on ounced in the Court on 10/08/2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 10/08/2022 Rahul Sharma, Sr. P.S.

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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai