Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.2366/Mum/2019 for A.Y.2012-13 preferred by the order against the final assessment order passed by the Assessing Officer dated 31/01/2017 u/s.143(3) r.w.s.144C(13) of the Income Tax Act, hereinafter referred to as Act, 1961 pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.263 of the Act dated 13/03/2019 for the A.Y.2012-13.
The assessee has raised the following grounds of appeal:-
2 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
Re.: Validity of Order u/s. 263: 1.1 On the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax ('PCIT') has erred in passing the Order dated 13 March 2019 u/s. 263 of the Income-tax Act, 1961 ('the Act'). 1.2 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Order dated 21 February 2018 passed by the Deputy Commissioner of Income Tax - 15(1}(2) (Ld DCIT') u/s. 154 of the Act was erroneous and prejudicial to the interests of revenue and in thereby revising the same. 1.3 On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the Ld DCIT was neither erroneous nor prejudicial to the interest of the revenue and hence the revision of the same by the Hon'ble PCIT u/s. 263 of the Act is erroneous and bad in law. 1.4 On the facts and circumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the Learned PCIT is to be struck down. Without prejudice to the aforesaid: 2. Re: Denial of carry forward and set off of losses and unabsorbed depreciation of INR 18,11.68.666 pursuant to the provisions of section 79 of the Act: 2.1 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Appellant is not entitled to carry forward and set off of the losses pertaining to earlier years in the current assessment year by applying the provisions of section 79 of the Act. 2.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject the provisions of section 79 are not applicable in the instant case and the stand taken by the Hon'ble PCIT is incorrect. 2.3 The Appellant submits that it should be allowed to set-off the brought forward losses against its total income for the year under consideration and to re-compute its total income accordingly. The Appellant craves to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
3 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
We have heard rival submissions. The brief facts of this appeal are that the assessment in this case was completed u/s.143(3) r.w.s. 144C(13) of the Act on 31/01/2017 assessing total income of Rs.6,70,64,070/- as against the returned loss of Rs.2,32,63,043/-. The assessee preferred a rectification application before the ld. AO u/s.154 of the Act on 15/02/2017 stating that the ld. AO had not granted the set off of brought forward losses available in the case of the assessee while framing the assessment. The details of losses allowable for set off for the assessee are as under:-
Business Loss - Rs.10,91,93,884/- Losses from House Property - Rs. 32,85,389/- Unabsorbed Depreciation - Rs. 6,86,89,393/- ================= Total Rs.18,11,68,666/- ================= 3.1. The assessee filed a complete break-up of the aforesaid losses before the ld. AO in the 154 proceedings. The assessee pleaded that once these losses are set off, there would be no taxable income for the assessee. The ld. AO remained silent on this 154 petition preferred by the assessee. The assessee reminded the ld AO for disposing off the rectification application pending before him on various occasions. The ld. AR before us stated that in view of the action of the ld. AO not disposing off the 154 petition of the assessee, the demand raised by the ld. AO in the assessment framed on 31/01/2017 remained as per records of the department and due to heavy pressure of recovery of taxes from the side of the revenue, the assessee eventually had preferred stay petition before this Tribunal and during the course of stay petition herein, the assessee had pleaded before this Tribunal that the ld. AO be directed to dispose off
4 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
the 154 petition pending before him so that there would be no tax payable by the assessee. The ld. AR stated that this Tribunal directed the ld. AO accordingly. We would like to point out that even though this was stated by the ld AR before us but no order passed by this Tribunal was placed on record for our perusal. Later, the ld. AO vide its order dated 21/02/2018 passed an order u/s.154 of the Act accepting the plea of the assessee and determined the total income for the A.Y.2012-13 at Rs. Nil and determined the refund due to assessee including interest u/s.244A of the Act thereon. In the said order, the ld. AO had recorded as under:-
“It has been brought to my notice by application dated 25/01/2018 that the following mistake has occurred in the intimation dated 31/01/2017 u/s.143(3) of the Income Tax Act, 1961 which is apparent from record. B/fd losses not given By considering the statement and examining the records, total income and demand are rectified as under:” (Underlining provided by us)
3.2. We find that the ld. Administrative CIT had sought to revise this order passed u/s.154 of the Act dated 21/02/2018 by invoking his revisionary jurisdiction u/s.263 of the Act on the ground that the assessee had violated the provisions of Section 79 of the Act due to change in shareholding pattern which fact has not been noticed or enquired by the ld. AO while granting benefit of set off of brought forward losses of earlier years. By this process, the order of the ld. AO had become erroneous in as much as it is prejudicial to the interest of the revenue in the opinion of the ld. CIT. The ld. CIT having observed so, directed the ld. AO to disallow the benefit of set off of brought forward losses of earlier years
5 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
and cancelled the order passed by the ld. AO u/s.154 of the Act dated 21/02/2018. 4. Aggrieved the assessee is in appeal before us on the aforesaid grounds. 5. In this regard, it would be pertinent to understand the shareholding pattern of the assessee company as it stood prior to amalgamation. TABLE 1
Rustic Canyon LLC (US)
99.99% 100%
Trac Holding LLC Tracmail India Pvt.Ltd (now known as BancTec (US) TPS India Pvt. Ltd 100%
Trac AR Services Pvt.Ltd
100%
HOV AR Management Services Pvt. Ltd
6 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
5.1. It would be relevant to note the shareholding pattern after the amalgamation of Tracmail AR Services Private limited (Trac AR) and HOV AR Management Service Private Limited (HOV ARM) with assessee company approved by the Hon’ble Bombay High Court vide order dated 28/01/2011. The shareholding pattern stood as under: TABLE 2
Rustic Canyon LLC (US)
100% Trac Holding LLC 42.19% (US)
57.81% Tracmail India Pvt.Ltd (now known as BancTec TPS India Pvt. Ltd
From the chart reproduced in table 2 above, it could be seen that pursuant to the scheme of amalgamation, Rustic Canyon, LLC hold 42.19% of equity directly in the assessee company and 57.81% indirectly in the assessee company through Trac Holding, LLC (US). In view of the above change in the shareholding pattern, it has to be examined whether the provisions of Section 79 of the Act were complied with by the
7 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
assessee. For the sake of convenience, the provisions of Section 79 of the Act as it stood then are reproduced hereunder:-
"79. Carry forward and .set off of losses in the case of certain companies.—Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, 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— (a) 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 Vast day of the year or years in which the loss was incurred : Provided that nothing contained in this section shall apply to a case where a change in the said voting power 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: Provided further that nothing contained in this section shall apply to any change in - the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating or demerged foreign company "continue to be the shareholders of the amalgamated or the resulting foreign company. (b)[***] 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: Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company:]
8 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
[Provided also that nothing contained in this section 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 (31 of 2016), after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.
We find that Section 79 only mandates that the shares should be beneficially held by the existing shareholders. We find from the chart given in table 2 above that Rustic Canyon, LLC (US) is holding 42.19% directly in assessee company and 57.81% indirectly in assessee company. Hence, beneficially it was holding entire 100% of the shares of the assessee company even after the amalgamation. Hence, the provisions of Section 79 have been complied with by the assessee in the instant case pursuant to the scheme of amalgamation. Hence, there cannot be any error that could be attributed in the order of the ld. AO. When the order has been passed by the ld AO in accordance with law, there cannot be any revision u/s. 263 that could be possible in the facts and circumstances of the instant case. Moreover, we find that all the facts relevant to the scheme of amalgamation and the relevant shareholding pattern were very much before the ld. AO in the course of original assessment proceedings itself framed u/s.143(3) dated 31/01/2017, more so in the annual report of the assessee company for the year ended 31/03/2012. The relevant extracts in this regard in the annual report of the assessee company are as under:- (A) Notes to financial statements as at and for the year ended 31st March 2012 Note 2.1 Share Capital Particulars As at 31 March. 2012 As at 31 March, 2011 Number of Amt. in Rs. Number Amt in Rs. share of shares
9 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
(a) Authorised 9,000,000 900,000,000 4,000,000 400,000,000 Equity shares of Rs.100/- (b) Issued, Subscribed and fully paid up Equity shares of Rs. 100 each fully paid up 8,873,920 887,392,000 3,743,920 374,392,000
Total 8,873,920 887,392,000 3,743,920 374,392,000
Details of shares held by each shareholder holding more than 5% shares: Particulars As at 31 March, As at 31 March, 20 12 2011 Numb % Numb % er of er of shares shares TracHoldings, LLC 5,130,000 57.81 Rustic Canyon, LLC 3,743,919 42.19 3,743,919 100.00
d) During 2010-11, the Company had given 5,130,000 shares to Tracholdings, LLC being consideration in the scheme of amalgamation. The allotment, however was made in the current Year, [Also refer note no. 2.21 (b) Apart from above, during the previous five years, the Company has not issued bonus shares/brought back shares/issued shares for consideration other than cash.
(B) It would also be relevant to refer to note No.2.21 of the notes to Financial Accounts for the year ended 31/03/2012 which is as under:-
10 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
2..21 a) Pursuant to approval of the 'Scheme of Amalgamation' by the Honorable High Court of Bombay vide Order dated 28th January, 2011; Tracmail AR Services Private limited (Trac AR) and HOV AR : Management Service Private Limited (HOV ARM) were merged in the Company w.e.f. 1st February, 2010 (being appointed date). The amalgamation had been accounted for as per the 'Purchase method' as envisaged in the Accounting Standard (AS}-14 on 'Accounting for Amalgamations' prescribed by the Companies (Accounting Standards) Rules. 2006. Accordingly, assets and liabilities as per details below of Trac AR and 1IOV ARM were merged at fair values as on appointed dote in the Company's respective assets and liabilities. (Amount in Rs.) Particulars Trac AR HIOV ARM Total Net Fixed Assets. 105,573,889, 11,872,243 117,446,132 Current Assets 92,131,033 147,184,954 239,315,987 Current (278,522,678) (13,091,237) (291,613,915) Liabilities Net Assets (80,817,756) 145,965,960 65,148,204
b) Goodwill of Rs.445,514,491 was arrived asunder: (Amount In Rs.) Particulars Trac AR HOV ARM Total Acquisition Cost 456,822,379 56,177,621 513,000,000 Less: Reserves (80,917,756) 145,865,960 64,988,204 Equity share capital 100,000 100,000 200,000 Goodwill/(Capital 537,640,135 (89,788,339) 447,851,796 Reserve) Less: Post-Merger -- -- 1,105,054 Adjustments Deferred tax liability reversal Excess income tax -- -- 1,232,251 provision Net Goodwill / (Capital -- -- 445,514,491 Reserve) * By issue of 5,130,000 equity shares of Rs.100 each to the shareholders of the respective merged companies. Allotment is made in the current year. In the previous year, the same was disclosed as share capital suspense. c] The Profit / (Loss) for the period from February 10 to March 10 was included in the Profit & toss Statement of the previous year as per details here under:-
11 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
(Amount In Rs.) Particulars Trac AR HOV ARM Total Incomes 36,795,345 23,450,726 110,246,071 Expenses (80,061,940) (27,275,371) (107,337,311) Profit /( Loss) 6,733,405 (3,824,645) 2,908,760 Authorization of -- -- (17,983,791) Goodwill Net Profit / (Loss) (15,075,031)
(C) It would be pertinent to refer to note No.2.24 of the notes to financial statements for the year ended 31/03/2012 under the caption “related borrowed transactions” which is as under:-
2.24. Related Party Transactions: Related party disclosures as required by AS-18 "Related Party Disclosures" are given below: A. Names of the related parties: i Parties where control exists: a. Ultimate holding company Rustic Canyon, LLC b. Holding Company: Tracholdings, LLC c. Fellow Subsidiaries: 1. Superior Asset Management Holdings, LLC 2. Superior Asset Management Inc. 3. RC GPM, LLC 4. Bay Area Credit Services, LLC
From the aforesaid disclosure made in the financial statements, it could be safely concluded that assessee had duly brought to the notice of the ld. AO about the scheme of amalgamation, about the scheme being approved by the Hon’ble High Court, about the shareholding pattern post amalgamation etc as detailed hereinabove. These facts were duly considered by the ld. AO both in the original assessment proceedings as well as in the proceedings u/s.154 of the Act. Hence, having considered
12 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
those facts and the ld. AO have taking a view thereon, the logical conclusion that could be drawn is that the ld AO ad taken one of the possible views on the matter, which cannot be the subject matter of revisionary jurisdiction u/s. 263 of the Act by the ld. CIT. The law is very well settled in this regard by various decisions of Hon’ble High Courts and Hon’ble Supreme Court. Hence, it could be safely concluded that the order of the ld. AO could not be construed as erroneous. 9. We find even on merits, with regard to denial of set off of brought forward losses of earlier years against the income of the assessee for the year under consideration, the issue is directly settled in favour of the assessee by the Co-ordinate Bench decision of Ahmedabad Tribunal in the case of CLP Power India (P) Ltd. vs. DCIT reported in 170 ITD 744(Ahmedabad Tribunal) dated 23/04/2018. The facts and the decision rendered thereon are as under:-
“3. The relevant facts in brief are that the assessment under s.143(3) of the Act for AY 2011-12 was completed by the AO vide its order dated 21/03/2014 determining the total loss at Rs.6,69,65,830/- after making certain adjustments to the loss declared by the assessee. Thereafter, the Pr.CIT in exercise of his revisionary power, issued notice under s.263 of the Act calling upon the assessee to show-cause as to why the assessment order passed under s.143(3) referred above should not be treated as erroneous and prejudicial to the interests of the revenue. The contents of show-cause notice is reproduced hereunder. "In this case, Assessee was allowed to carry forward the business losses and unabsorbed depreciation allowance for set off against the future income. During the year, the Assessee Company transferred its holding of shares, in favour of GPEC Ltd., a fellow subsidiary of ultimate holding company CLP Holding Ltd., Hong Kong on 31-3-2011. As per the provisions of Section 79 of the Act, where a change in shareholding of more than 51 percent of the voting power on the last day of the year or years in which the loss was incurred has taken place in a previous year, 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. In the case of the Assessee, there is a change of share holding pattern took place in the A.Y. 2011-12 and such change in share holding pattern is more than 51%.Therefore, the loss incurred prior to such change took place is not allowed to be carried forward in view of the
13 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
provisions of Section 79 of the Act. This being not done resulted into irregular allowance of carry forward of business losses for set off to the extent of Rs.9,24,43,289 and consequent short levy of tax of Rs.2,77,35,986." 4. It was thus alleged by the Pr.CIT that examination of records revealed that the assessment order so passed is erroneous in so far as it is prejudicial to the interests of the revenue for the reason that the AO has failed to conduct requisite enquiry with respect to allowability of carry forward of loss incurred having regard to the provisions of section 79 of the Act owing to substantive change of shareholding pattern of assessee- company. It was observed by the Pr.CIT that the AO has wrongly accepted the claim of carry forward of business losses for set off to the extent of Rs.924.43 lakhs and consequent short levy of tax in the vicinity of Rs.277.35 lakhs. It was inter alia noted by the Pr.CIT that as per the tax audit report filed by assessee, it is manifest that there is a change in share holding of the assessee-company by more than 51% of the voting power during the previous year of change in shareholding pattern relevant to assessment year attracting the embargo placed in section 79 of the Act whereby loss incurred in any year prior to previous year shall not be allowed to be carried forward for set off in subsequent assessment year(s). The Pr.CIT alleged that the AO has failed to apply the correct position of law enjoined by section 79 of the Act and has overlooked and failed to make proper verification and enquiry in this regard. The Pr.CIT accordingly cancelled the assessment framed under s.143(3) of the Act and set aside the above issue to the file of the AO for de novo adjudication. 5. Aggrieved by the action of the Pr.CIT, the assessee is in appeal before the Tribunal agitating the jurisdiction usurped by the Pr.CIT under s.263 of the Act. 6. The Ld.AR for the assessee at the outset submitted that the assessment order sought to be impugned under s.263 of the Act has been passed after taking into account relevant facts placed on record. On facts, the Ld.AR submitted that, in the present case, 100% shares of the assessee-company were held by CLP Power (GPEC) Limited, Mauritius. Thus, the assessee- company was fully owned subsidiary of the aforesaid company. During the year, the shares held by GPEC were transferred to CLP Power India Pvt.Ltd. who is again a fully owned subsidiary of the same holding company, namely CLP Power (GPEC) Limited, Mauritius. The Ld.AR accordingly submitted that one can see from the aforesaid transfer that the beneficial ownership continues with the same holding company despite transfer of shares of the assessee-company by the ultimate parent company to another wholly owned subsidiary company which in turn now holds shares of the assessee-company. The Ld.AR accordingly contended that in the absence of change in the 'beneficial' ownership of shares, section 79 has
14 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
no application on facts. It was thus submitted that the assessment order passed under s.143(3) is neither erroneous nor prejudicial to the interests of the revenue. The Ld.AR next submitted that the facts in issue are squarely covered by the decision of the Hon'ble Karnataka High Court in the case of CIT vs. AMCO Power Systems Ltd. reported at 379 ITR 379 (Kar.). The Ld.AR consequently submitted that the AO has taken a correct view in accordance with law and there is scope for any enquiry in this regard. 7. The Ld. DR, on the other hand, relied upon the order of the Pr.CIT in question and contended that despite the change in share hold pattern, the AO has omitted to examine the issue in the backdrop of section 79 of the Act which rendered its order to be both erroneous as well as prejudicial to the interests of the revenue. The Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. & Another vs. ITO in SLP No.23976/2017 order dated 29/11/2017 to submit that setting aside the order of the AO by the designated authority for the purposes of conducting proper enquiry into vital issue by invoking section 263 of the Act cannot be interfered. The Ld. DR accordingly submitted that the action of the Pr.CIT vs. 263 is in sync with authority of law on both the premises namely applicability of section 79 to the facts as well as lack of enquiry in this regard. 8. We have carefully considered the rival submissions and perused the orders of the authorities below and material placed on record. The supervisory jurisdiction conferred upon the Pr.CIT under s.263 of the Act has been invoked in the present case and the assessment order passed by the AO under s.143(3) for AY 2011-12 has been set aside on the ground that the business loss occurred prior to the change of share holding is not permissible to be carried forward for set off against future losses in view of the restrictions placed under s.79 of the Act. Consequently, the Pr.CIT quantified the irregular allowance of carry forward business loss as well as purported short levy of tax thereon. The Pr.CIT has also alleged that the assessment has been completed in a perfunctory manner endorsing the claim of carry forward of business losses for set off in future assessment year without conducting any enquiry necessitated in this regard in the light of section 79 of the Act. 9. To begin with, we shall examine the central issue as to whether the embargo placed under s.79 of the Act is applicable in the facts of the case or not. As pointed out, the 100% voting power was earlier held by the ultimate holding company GPEC Mauritius itself. The voting power (shareholding) of the assessee-company so held by the ultimate holding company was transferred to another company (CLP India Pvt. Ltd.) which is again a subsidiary of GEPC. Thus, in effect, even after the transfer of shares by the ultimate holding company to another subsidiary, the beneficial ownership of the assessee-company continues to vest with the same holding company.
15 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
Thus, the ultimate holding company continues to enjoy complete control over the assessee-company as before. 9.1. In the light of these facts, we have perused section 79 of the Act and notice that the aforesaid provision envisages "not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51% of the voting power". It is ostensible from the facts noted that the ultimate holding-company (previous shareholder holder) continues to command control over the assessee- company in the same manner as before albeit indirectly and through another subsidiary company. 9.2. The purpose of section 79 of the Act is implicit. It seeks to curtail misuse of benefit of carry forward and set off of business losses of earlier years of a company and prohibits its availability in the hands of any new owner. In the instant case, it is manifest that no such misuse can be inferred since the beneficial ownership did not change hands. 9.3. Interestingly, we also take note of the expression "held" used in section in distinction to the expression "owned". Needless to say, the expression held is far more elastic to cover the situation whereby if a person is found capable of influencing the voting rights to the extent of specified percentage (51%), section 79 will not be triggered. Therefore, while the legal ownership might have changed, the ownership/control/voting power of the assessee-company continues to be beneficially held by the same owner. This inevitably means that the cause for issuance of notice under s.263 ceases to exist. 10. In view of the discussion noted above, we find considerable merits in the plea on behalf of the assessee that section 79 has not application in the absence of change in beneficial voting power. This being so, we see no error in the order of the AO on this score. This apart, once these facts were brought to the notice of Pr.CIT, the Pr.CIT ought to have appreciated the case of the assessee objectively in perspective and could not shrink his sacrosanct obligations and resort to simply set aside a completed assessment on non-existent ground. Thus, the prerequisites of section 263 are not satisfied. 11. We also do not visualize any merit in the plea on behalf of the Revenue about the lack of enquiry on the factual aspects. In the absence of any change in the beneficial ownership, we are unable to comprehend the nature of enquiry sought by the Pr.CIT in this regard. Hence, we are disposed to hold that the action of the Pr.CIT is devoid of sanction of law. Consequently, the order passed under s.263 of the Act by the Pr.CIT is required to be cancelled. We do so accordingly.
16 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
In the result, appeal of the assessee is allowed.” 10. We also find that on merits, the assessee’s case is also covered by the decision of Hon’ble Karnataka High Court in the case of CIT vs. AMCO Power Systems Ltd., reported in 379 ITR 375 wherein the relevant operative portion are as under:- “17. The fact that ABL is the holding Company of APIL, which is the wholly owned subsidiary of ABL and that Board of Directors of APIL are controlled by ABL, is not disputed. The submission of the learned counsel for the respondent-assessee that the shareholding pattern is distinct from voting power of a Company, has force. Section 79 of the Act specifies that “not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the Company carrying not less than 51% of the voting power.” Since the ABL was having complete control over the APIL, which is the wholly owned subsidiary of ABL, in our view, even though the shareholding of ABL may have reduced to 6% in the year in question, yet by virtue of being the holding Company, owning 100% shares of APIL, the voting power of ABL cannot be said to have been reduced to less than 51%, because together, both the companies had the voting power of 51% which was controlled by ABL. 17A. The purpose of Section 79 of the Act would be that benefit of carry forward and set-off of business losses for previous years of a company should not be misused by any new owner, who may purchase the shares of the Company, only to get the benefit of set-off of business losses of the previous years, which may bear profits in the subsequent years after the new owner takes over the Company. For such purpose, it is provided under the said Section that 51% of the voting power which was beneficially held by a person or persons should continue to be held, then only such benefit could be given to the Company. As we have observed above, though ABL may not have continued to hold 51% shares, but Section 79 speaks of 51% voting power, which ABL continued to have even after transfer of 49% shares to TAFE, as it controlled the voting power of APIL, and together, ABL had 51% voting power. Meaning thereby, the control of the company remained with ABL as the change in shareholding did not result in reduction of its voting power to less than 51%.
The ld. DR vehemently argued that the ld. AO is not bound to look into ultimate ownership of shares held in the assessee company, in
17 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
support of which, he relied on the decision of the Hon’ble Supreme Court in the case of Vodafone International Holdings reported in 341 ITR 1. We find that this aspect has already been addressed by us in the light of the provisions of Section 79 which only mentions shares to be “beneficially held”. This has been duly complied with in the assessee’s case. Hence, there cannot be any violation of provisions of Section 79 of the Act. Hence, the case laws relied upon by the ld. DR on certain Mumbai Tribunal decisions and the Hon’ble Delhi High Court decision in 66 Taxman.com 47 does not advance the case of the revenue. We also find that the ld. CIT had directed the ld. AO to directly disallow the benefit of set off of losses of earlier years against the income of current year on the ground that assessee had not complied with provisions of Section 79 of the Act, ignoring the various arguments made by the assessee before him, which are part of the paper book and the materials available on record. Moreover, we find that the ld CIT should have made proper enquiries on the impugned issue before reaching to such conclusion in the light of materials available on record and decided case laws thereon, which he had failed to do so in the instant case. Once he directs the ld AO to make certain disallowance, the ld AO is bound by that and the assessee would not get any chance to adjudicate the issue on merits. In this factual background, we had to address the issue on merits also and adjudicate the issue hereinabove. We find that the ld. CIT had only tried
18 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
to substitute his opinion on the facts and circumstances of the case in the opinion of the ld. AO. This is not permissible in the revisionary jurisdiction u/s.263 of the Act. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High court in the case of Gabriel India Ltd. reported in 203 ITR 108 (Bom).
In view of the aforesaid observations, in the facts and circumstances of the instant case, we hold that the ld. CIT erred in invoking revisionary jurisdiction u/s.263 of the Act and accordingly, we are inclined to quash the same. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 04/09/2019
Sd/- Sd/- (MAHAVIR SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 04/09/2019 KARUNA, sr.ps
19 ITA No.2366/Mum/2019 M/s. BancTec TPS India Private Limited
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