ADITYA BIRLA NUVO LTD (SINCE AMALGAMATED WITH GRASIM INDUSTRIES LIMITED),MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL 1, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.1964/Mum/2019 for A.Y.2013-14 preferred by the order against the revision order of Pr. Commissioner of Income Tax, Central-1, Mumbai u/s.263 of the Act dated 27/03/2019 for the A.Y.2013- 14.

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was sought to be revised by the ld PCIT on 6.3.2019 on the ground that the ld AO had allowed the claim of Long Term Capital Loss (LTCL) of Rs 267,17,80,899/- which ought not to have been allowed. We find that the assessee filed detailed submissions in the course of proceedings before the ld PCIT challenging the jurisdiction u/s 263 of the Act and also on merits of the issue in dispute. The ld PCIT rejected the contentions of the assessee and proceeded to pass an order u/s 263 of the Act setting aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue with regard to the issue of allowability of LTCL to be carried forward to subsequent years on the ground that the ld AO had taken an incorrect view based on improper and incomplete appreciation and verification of facts and therefore unsustainable in law. We find that the ld PCIT also relied on Explanation 2(a) to section 263 of the Act which came into effect from 1.6.2015 to support his conclusion. Ultimately, the ld PCIT set aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue with a direction to the ld AO to carry out complete verification of the legal tenability of the SPV created on 21.2.2013, the source of finances of SPV to acquire the shares of Aditya Birla Minacs Worldwide Limited (ABMWL), the valuation of shares of ABNL IT & ITES Ltd and sale of shares, if any, on 14.3.2013.

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(A) COMPUTATION OF LONG TERM / SHORT CAPITAL GAIN/LOSS ON SALE OF SHARES

Cost Cost Name of Inflation Cost of inflation Long Term Profit / Sr. the Date of Date of No.of Index in Index Cost of Acquisition Sale Profit as Sold to Cost Index in (Loss) as per Income No. investee purchase sale shares previous Acquisition (Short consideration per Books year of Tax company year in Term) purchase purchase Aditya Birla Minacs ABNL IT & Worldwide ITES Limited 1 Limited (Note-1) Various 14.03.2013 2,56,62,266 4,43,63,44,411 Various 852 (7,10,71,26,351) 4,43,63,44,411 (2,67,07,81,942) Aditya Birla Aditya Birla Housing Finance Finance Limited 2 Limited (Note-2) 30.10.2009 30.11.2012 3,89,500 39,04,738 632 852 (52,63,982) 42,65,025 3,60,287 (9,98,957) Indigold Pantaloons Trade and Fashion & Services Retail Limited 3 Limited (Note 3) 27.02.2010 01.06.2012 5,00,000 50,00,000 632 852 67,40,506 50,00,000 TOTAL 4,44,52,49,149 (7,10,56,49,829) 4,44,56,09,436 3,60,287 (2,67,17,80,899)

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ld AO at the time of personal hearing. With regard to the queries raised by the ld AO at the time of personal hearing, we find that the ld AR had enclosed the order sheet copies in pages 177 to 179 of the factual paper book filed before us. We find that the assessee had vide its letter dated 21.10.2016 (enclosed in page 125 of the factual paper book) furnished a detailed reply regarding details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited (ABMWL) as under:- “Details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited 4.1. The Assessee company was holding investment (99.60%) in the shares of Aditya Birla Minacs Worldwide Limited (‘Minacs India’), which was engaged into the business of Information Technology & Enabled Services (ITeS). 4.2. The IT & ITes business of Minacs India was not performing as expected and therefore, due to commercial expediency, the Assessee Company wanted to exit from the ITeS business and it was in talks with the various investors. 4.3. In order to achieve the object of exiting from IT & ITes business by divestment of shares of Minacs India, the Assessee Company incorporated another subsidiary company ABNL IT & ITES Ltd. (‘ABNL IT & ITES’) (Special Purpose Vehicle (SPV) on 21st February 2013 with the capital of Rs.5,00,000 held by the Assessee Company (95%) and ABNL Investment Ltd (5%), ABNL Investments Ltd is another 100% subsidiary of the Assessee Company. 4.4. On 14th March 2013, 2,56,62,266 shares of Minacs India were sold to ABNL IT & ITES Limited at cost of Rs.172.87 (Cost of Rs.443,63,44,411 divided by 2,56,62,266 shares) which was substantially higher than the networth of Minacs India. The book value of Minacs India as on 31 March 2013 (proximate to date of sale) is computed as under:-

Total Networth (Rs.in lakhs) 19,418.21 Total Equity share outstanding (nos. in lakhs) 257.26 Book Networth / share (Rs.) Approx. 75.48

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4.5. The treatment of sale transaction given by the Assessee Company as per books of accounts and as per tax is as follow: Particulars As per Books of As per Tax Accounts Sale Consideration 443,63,44,411 443,63,44,411 Less: Cost of Acquisition / (443,63,44,411) (710,71,26,353) Indexed Cost of Acquisition Book (Loss)/Capital (Loss) Nil (267,07,81,942) 4.6. During the course of our hearing, your goodself has asked us to submit the details of loss on sale of shares of Aditya Birla Minecs Worldwide Limited. 4.7. In this regard we submit that as per the provision of Section 47(iv) of the Income Tax Act 1961 (‘the Act’) any transfer of a capital asset by a company to its wholly-owned India subsidiary company shall not be regarded as transfer for the purpose of capital gain tax. 4.8. Accordingly, your goodself would observe that the provision of Section 47(iv) covers transfer to an Indian subsidiary company which is wholly (100% share capital) owned by the transferer company. In the instant case, the Assessee company does not own whole of the shares capital of ABNL IT & ITES. It only owns 95% share capital of ABNL IT & ITES and the balance 5% share capital is owned by a separate and independent legal entity viz., ABNL Investments. 4.9. Accordingly, in view of the above, the Assessee company submits that provisions of Section 47(iv) of the Act does not apply in the instant case. 4.10. With regard to the above transaction, the Assessee Company submits that provisions of Section 47(iv) of the Act does not apply in the instant case. (emphasis supplied by us herein)  Computation of long term capital loss for A.Y.2013-14 carried forward by the Assessee Company (Annexure 5).  Copy of audited financial statements for the year ended 31 March 2016 of Minacs India (Annexure 6). 4.11. Further, during FY 14-15, the object of incorporating the SPV was achieved as SPV divested the stake in Minacs India to certain investors.

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Aditya Birla Minacs IT Services Ltd (PSI Data Systems Ltd.) Company stands merged with Aditya Birla Minacs Worldwide Ltd. w.e.f. F.Y.2011-12 Years of Nos. of Shares Cost as per Cost Inflation Indexed Cost Purchase books Index in the (F.Y.) year of 12-13=852 purchase 2001-02 5,311,669 1,002,853,083 426 2,005,706,166 2004-05 3,440 126,282 480 224,151 2008-09 463,240 33,024,192 582 48,344,693 2009-10 482,686 28,438,503 632 38,337,982 2010-11 200,367 12,002,161 711 14,382,336 6,461,402 1,076,444,221 A 2,106,995,328 Aditya Birla Minacs Worldwide Ltd., (Transworks Information Services Ltd) Year of Nos of Shares Cost Cost Inflation Indexed Cost purchase Index in the (F.Y.12- year of 13=852) purchase 2003-04 15,738,378 687,787,270 463 1,265,647,417 2006-07 5,000,000 1,500,000,000 519 2,462,427,746 2011-12 4,437,974,852 1,170,973,274 785 1,270,916,216 2012-13* - 1,139,646 852 1,139,646 3,359,900,190 B 5,000,131,024 TOTAL A + B 7,107,126,353 Sale Consideration 4,436,344,411.00 Less: Indexed Cost of Acquisition A+B (7,107,126,352.73) Long term Capital Loss on sale of Aditya Birla ============= Minas Worldwide Ltd., (2,670,781,942) ==============

7.1. We find that again the assessee vide its reply letter dated 15.11.2016 had specifically again replied in response to question no. 40 of questionnaire dated 8.11.2016 had replied regarding details of long term capital loss as under:-

“Details of Long term Capital Gains – Refer point No.40 of your letter During the year under assessment, the Assessee company has incurred Long term capital loss of Rs.267,07,81,942/- on sale of 2,56,62,266 shares of Aditya Birla Minacs Worldwide Limited to ABNL IT & ITES Limited and also has incurred a Long Term Capital loss of Rs.9,98,957/-

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on sale of 389,500 shares of Aditya Birla Housing Finance Limited to Aditya Birla Finance Limited. The working is attached as Annexure-16. Further, the Assessee Company has sold shares of Pantaloons Fashion & Retail Limited at cost of its wholly owned subsidiary Indigold Trade and Services Limited which is not regarded as transfer as per provisions of Section 47(iv) of Income Tax Act, 1961, hence no capital gain / loss has been claimed.

7.2. We further find that on personal hearing conducted on 6.12.2016, the ld AO had specifically sought an explanation from the assessee regarding the allowability of Long Term Capital Loss . This fact is evident from the order sheet noting enclosed in Page 179 of the factual paper book filed before us. To this, the assessee had relied on earlier submissions made before the ld AO which fact is also mentioned in the order sheet noting recorded on 15.12.2016 enclosed in Page 179 of the factual paper book filed before us.

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In the instant case, the assessment was completed under section 143(3) r.w.s. 144C of the Act determining taxable income at Rs.3,66,01,24,600. It was seen that the assessee claimed and was allowed Long Term Capital loss of Rs.2,67,17,80,899 to be carried forward to future years. This LTCL of Rs.2,67,17,80,899 included LTCL of Rs.2,67,07,81,942/- on sale of 25662266 shares of Aditya Birla Minacs Worldwide Limited to ABNL IT & ITES Ltd., It was seen that the transferee ABNL IT & ITES Ltd., was a 100 percent subsidiary of the assessee. As the said transaction is not to be treated as transfer under section 47, the allowance of Long Term Capital Loss was not in order. By generating LTCL in violation of the Act, the assessee would be able to reduce future LTCG tax liability by this action. Non-disallowance of irregular claim of LTCL on account of transfer of assets to its subsidiaries resulted in excess carry forward of LTCL by Rs.2,67,07,81,942 with a consequent short levy of tax of Rs.57,76,90,134 (potential)” The audit objection is not acceptable for the following reasons: On 14 March 2013, the Assessee sold 2,56,62,266 shares of Aditya Birla Minacs Worldwide Limited to ABNL IT & ITES Limited at a tax loss of Rs.2,67,07,81,942/-. ABNL IT & ITES Ltd is not a wholly owned subsidiary of the Assessee Company. The Assessee, in the course of assessment proceeding was asked for and assessee filed details vide letter dated 21st October 2016 which I have already gone through and only after proper perusal allowed such claim. On the date of such transaction, ABNL held 95% shares of ABNL IT & ITES Limited and 5% was held by ABNL Investment Ltd., Accordingly, the observation in the Audit note is factually incorrect. In this regard, you may also please refer to the attached audited Accounts of ABNL IT & ITES Ltd for Financial Year 2012-13, as Annexure-1. Accordingly, the observation being factually not correct, there is no undue benefit to the Assessee by availing the carry forward of Long Term Capital Loss since the same is not hit by the provisions of Section 47(iv) of the Act. In view of the above audit objection is not acceptable and the same may be treated as settled.”

8.1. We find that the ld AR even placed on record the copy of audit objection raised by the audit party in Page 184 of the factual paper book filed before us.

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“As per Section 47(iv) of the Act, any transfer of capital asset by a company to its Indian subsidiary company is not regarded as transfer of the parent company or its nominees hold the whole of the share capital of the subsidiary company. In the instant case, the assessment was completed under section 143(3) r.w.s. 144C of the Act determining taxable income at Rs.3,66,01,24,600. It was seen that the assessee claimed and was allowed Long Term Capital loss of Rs.2,67,17,80,899/- to be carried forward to future years. This LTCL of Rs.2,67,17,80,899/- included LTCL of Rs.2,67,07,81,942 on sale of 25662266 shares of Aditya Birla Minacs Worldwide Limited to ABNL IT & ITES Ltd., It was seen that the transferee ABNL IT & ITES Ltd., was a 100 percent subsidiary of the assessee. As the said transaction is not to be treated as transfer under section 47, the allowance of Long Term Capital Loss was not in order. By generating LTCL in violation of the Act, the assessee would be able to reduce future LTCG tax liability by this action. Non disallowance of the irregular claim of LTCL on account of transfer of assets to its subsidiaries resulted in excess carry forward of LTCL by Rs.2,67,07,81,942 with a consequent short levy of tax of Rs.57,76,90,134/- (potential). The Department did not accept the audit observation stating that ABNL IT & ITES Ltd., is not a wholly owned subsidiary of the Assessee Company. The Assessee in the course of assessment proceeding was asked for and assessee filed details vide letter dated 21st October 2016 which I have already gone through and only after proper perusal allowed such claim. On the date of such transaction, ABNL held 95% shares of ABNL IT & ITES Limited and 5% was held by ABNL Investment Ltd., Accordingly, the observation in the Audit note is factually incorrect. The reply of the Department was found not acceptable. The Assessing Officer, by accepting that the assessee had claimed that ABNL held 95% shares of ABNL IT & ITES Limited and 5% was held by ABNL Investment Ltd should have simultaneously started penalty proceeding under section 271(1)(c) of the Act against the assessee for misrepresentation of fact. At the same time, kindly note that this was a deliberate attempt on part of assessee to hoodwink revenue as it was seen that it was claiming section 47 application for sale of Pantaloons Fashion and Retails Ltd to Indigold Trade and Services Ltd during the same AY. It was seen from the Annual Report of 2012-13 (AY 2013-14 relevant to the para) page No.149 of the assessee that ABNL IT & ITES Limited was 100 percent subsidiary of the Assessee. Even though the amount involved huge tax impact, the AO did not check the records properly. Further, from the page no.172 of the

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Annual Report for 2012-13 (relevant to AY 2013-14), it was clear that ABNL IT & ITES Limited became 100 percent subsidiary from 23rd February 2013 while as per the submission of the assessee, the date of sale of shares was 14th March 2013. Thus, on the date of transfer of share, the assessee was holding 100 percent shares of ABNL IT & ITES Limited. Thus, this is a fit case for initiation of penalty under section 271(1)(c) for misleading the Assessing Officer unless the AO thinks contrary to it. In the light of above, the Department is requested to reconsider its stand.”

8.2. The aforesaid audit objection of the Revenue Audit Department goes to prove that the Revenue Audit Department apparently had not agreed with the view taken by the ld AO. Hence there exists two views on the same subject within the Income Tax Department itself. There is absolutely no incorrect assumption of fact or incorrect application of law by the ld AO. Hence it could be safely concluded that the ld AO had taken one of the possible view. Once a possible view has been taken by the ld AO, his order cannot be termed as erroneous warranting revision proceedings u/s 263 of the Act. In any case, we find that there is no dispute that the Revenue Audit Party had indeed raised an objection on the very same subject of allowability of Long Term Capital loss and that the ld AO had not accepted the same. This is evident from the detailed reply given by the ld AO to the Revenue Audit Party vide his letter dated 3.7.2017 reproduced supra. We find that the ld PCIT had invoked revision jurisdiction u/s 263 of the Act on the very same point of allowability of LTCL. Hence it could be safely concluded that the revision proceedings has been invoked by the ld PCIT u/s 263 of the Act based on audit objection, which is nothing but borrowed satisfaction. Hence the said revision proceedings u/s 263 of the Act need to be construed as bad in law. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Maharashtra Hybrid Seeds Co. Ltd reported in 102 taxmann.com 48

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(Bom). The relevant operative portion of the said judgement is reproduced hereunder:-

“9. As rightly held by the Tribunal, this note firstly shows that all the explanations and arguments of the Assessee have been considered by the Assessing Officer and secondly that the action taken under Section 263 is only on the basis of the audit party's note or report, who it would appear, ultimately did not approve of the Assessing Officer's view regarding the allowability of the deduction. Admittedly, the CIT has not referred to any audit objection but in the light of the note, the Tribunal held that it would be a fair inference that his action under Section 263 was consequent upon the audit objection. Be that as it may, this office note clearly shows that the Assessing Officer had taken all explanations and arguments of the Assessee into consideration before allowing deduction. This being the case, the CIT could not have merely substituted his own views for that of the Assessing Officer by invoking Section 263 of the I. T. Act. 10. In this factual backdrop, therefore, we have no hesitation in answering the substantial question of law referred to and reproduced by us earlier in the affirmative and in favour of the Assessee and against the Revenue.”

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to the facts of the instant case as full enquiry was already made by the ld AO in the original assessment proceedings itself. Infact the stand of the assessee was accepted by the ld AO in the assessment proceedings and also before the Revenue Audit Party which is evident from the reply to audit objection as reproduced supra. Reliance in this regard is placed on the following decisions, the operative portion are not reproduced for the sake of brevity:-

a) Decision of Co-ordinate Bench of this Tribunal in the case of Narayan Tatu Rane vs ITO reported in 70 taxmann.com 227 (Mumbai) ( Paras 19 & 20) b) Decision of Co-ordinate Bench of Delhi Tribunal in the case of Hero Honda Motors Ltd vs DCIT in ITA No. 2148/Del/2009 dated 2.2.2017 (Paras 14 to 17) 11. In view of the aforesaid elaborate observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that –

a) Adequate enquiries were indeed carried out by the ld AO in the original assessment proceedings and hence the ld PCIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act ;

b) A possible view has been taken by the ld AO on the issue of LTCL on the facts of the case and also by placing reliance on the available case laws on the subject and hence the ld PCIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act merely because he is of a completely different view and opinion on the issue of allowability of LTCL to be carried forward to subsequent years;

c) The ld AO had defended his original assessment order before the Revenue Audit Party by accepting the contentions of the assessee and by

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stating that there was no misrepresentation of facts by the assessee. The evidences in this regard are already on record and already reproduced elsewhere in this order. Hence it could be safely concluded that the revision proceedings u/s 263 of the Act had been apparently triggered only based on borrowed satisfaction i.e Audit Objection and not based on independent application of mind by the ld PCIT. Infact the show cause notice issued by the ld PCIT u/s 263 of the Act also uses the same language used by the Revenue Audit Party in its Audit Objection. Hence revision proceedings could not be invoked by the ld PCIT based on borrowed satisfaction.

Order pronounced on 24/05/2021 by way of proper mentioning in the notice board.

Sd/- Sd/- (MAHAVIR SINGH) (M.BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai; Dated 24/05/2021 KARUNA, sr.ps

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

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai