DCIT 9(2)(2), MUMBAI vs. CREDILA FINANCIAL SERVICES P.LTD, MUMBAI

आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 1491/Mum/2016 for assessment year(AY) 2012-13 and Cross Objections bearing no. 305/Mum/2017 for AY 2012-13 , are both directed against the appellate order dated 22.12.2015 passed by learned Commissioner of Income-tax (Appeals)-16, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 02.03.2015 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “(i) "On the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in allowing the carry forward of losses of Rs. 5,32,99,080/- for A.Y. 2007-08 to A.Y. 2010-11 even though there is a clear change in the shareholding pattern of the assessee company, thereby attracting by provisions of Section 79 of the I.T. Act, 1961, which prohibits the carry-forward and set-off of losses on account of changing shareholding pattern of a company". (ii) "Without prejudice to the above and on the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in holding that the provisions of section 79 will not apply to the assessee company as it is deemed to be a public limited company on account of it being a subsidiary of HDFC Ltd, which is a public limited company even though the assessee company is not a wholly owned subsidiary of HDFC Ltd, a public limited company and thereby it does not satisfy the express provision stated in Section 2(18)(b)." The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 9(2)(2) be restored . The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 “ The Assessee files its cross objection in the above matters on the following amongst other grounds. 1. The CIT(A) ought to have held that the AO was not justified in adding Rs. 6461/- based on the entry in Form No. 26AS which did not pertain to the assessee. 2. The CIT(A) ought to have held that, notwithstanding the application of section 79 of Income Tax Act to the assessee case, carry forward of unabsorbed depreciation relating to earlier years could not be denied. 3. The Assessee may be allowed to carry forward brought forward loss relating to AY 2007-08 to 2009-10 since the provisions of section 79 of IT Act has no application to it. 4. The Assessee may be allowed to carry forward brought forward loss relating to AY 2010-11 since the provisions of section 79 of IT Act has no application to it. The assessee craves leave to add, to amend , to alter or to omit any of the above grounds as may be advised.” 4. At the outset Ld. Counsel for the assessee submitted that assessee has filed Cross Objections (hereinafter called “ the CO” ) which is delayed by 17 days beyond the time stipulated u/s 253(4) of the 1961 Act for filing the CO. It was submitted that proper affidavit as well application for condonation of delay has been duly submitted before the tribunal and prayer is made for condoning the said delay. It is prayed by learned counsel for the assessee that it is due to bona-fide reasons , the CO could not be filed in time as the assessee was seeking proper advice and counselling from its counsel and chartered accountant with respect to the appeal filed by the Revenue and the asssessee was advised by its counsel and chartered accountant in the process to file CO against the appeal filed by the Revenue. Thus it is claimed that there was a bonafide delay of 17 days in filing of the CO with the tribunal beyond the time stipulated u/s 253(4) of the 1961 Act and prayer has been made to condone the aforesaid delay. It is also the submissions of the assessee that purely legal ground is raised by the assessee in CO filed with the tribunal by way of ground no. 3 which is a ground raised for the first time before the tribunal seeking carry forward of brought forward loss relating to AY 2007-08 to 2009-10 as the provisions of

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 Section 79 of the 1961 Act has no application to the assessee. It was submitted that the said loss was not claimed in the return of income filed with the Revenue but since it is purely a legal ground which does not requires investigation into new facts and the facts as are emanating from the orders of the authorities below are sufficient to adjudicate this ground no. 3 . Thus, prayer was made to admit the said additional grounds of appeal being ground no. 3 raised for the first time before the tribunal and adjudicate the same on merits. The Ld. DR objected to the condonation of delay application filed by the assessee seeking condonation of delay of 17 days in filing CO late beyond time stipulated u/s 253(4) of the 1961 Act and prayed that CO may be dismissed . Similar prayer was made for rejecting the ground no.3 being raised for the first time before the tribunal. After carefully considering the submissions of both the parties , perusing the material on record and keeping in view substantial interest of justice , we are of the considered view that the issue/grounds raised in the CO filed by the assessee emanates from the appellate order passed by the learned CIT-A and/or are legal grounds which does not require investigation of new facts. The new legal ground being ground no. 3 raised for the first time before the tribunal does not require investigation of new facts and such legal ground can be raised even before the appellate authorities for the first time in view of decision of Hon‟ble Supreme Court in the case of National Thermal Power Company Limited v. CIT (1998) 229 ITR 383(SC). Thus, we order admission of this ground no. 3 raised in CO by the assessee in the interest of justice. As also In the interest of substantial justice , we are also of the considered view that delay of 17 days in filing of CO late by the assessee beyond the time stipulated u/s 253(4) need to be condoned and consequentially the CO filed by the assessee is directed to be admitted for adjudication on merits. When technicalities are pitted against substantial justices, the Courts will always lean towards dispensation of justice instead of closing and shutting the doors of justice to a bonafide and genuine litigant although we are fully aware that right to appeal is a statutory right arising from the provisions of the statute and the litigant has no vested right in delay but doors of justice cannot be shut to a genuine and bonafide litigant in the interest of substantial justice. The decision of Hon‟ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji 1987 taxman.com 1072(SC) is a guiding light in that directions. We order accordingly.

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 5. The brief facts of the case are that the assessee is engaged in the business of ground handling operations and related activities at Airport. We shall take up both the Revenue‟s appeal as well CO filed by the assessee together as the issue relating to carry forward and set off of business losses and unabsorbed depreciation per-se are common in both the Revenue‟s appeal and the CO filed by the assessee. 6.1 The first issue raised before us is concerning difference of Rs. 6461/- in the income reported by the assessee as per its books of accounts and as reflected in AIR date base of the Revenue. The assessee had not reported this income of Rs.6461/- in return of income filed with the Revenue while the same found mentioned in the AIR data base of the Revenue. The AO had observed from AIR data base i.e. 26AS , that the assessee had an undisclosed income-tax deducted at source (TDS) of Rs. 646.31 which was deducted u/s 194H @10% on income of Rs.6461/- The AO added the same to the income of the assessee vide assessment order dated 02-03-2015 passed by the AO u/s 143(3) of the 1961 Act. 6.2 Aggrieved by the assessment order dated 02-03-2015 passed by the AO u/s 143(3) , the assessee filed first appeal before learned CIT(A) and contended that the aforesaid income of Rs. 6461/- as was reflected in 26AS i.e. AIR data base did not pertain to the assessee. The learned CIT(A) vide its appellate orders dated 22-12-2015 directed AO to verify the contentions of the assessee as to factual aspect of the matter and grant relief on merits. 6.3 Now the assessee has filed the CO and raised this ground before the tribunal. At the outset Ld. Counsel for the assessee submitted that issue being small and there was no transaction with the said party , no income of Rs. 6461/- was earned by the assessee and merely because the income is reflected in AIR data base of the revenue i.e. 26AS , the same cannot be added to the income of the assessee. It was submitted by Ld. DR that Ld. CIT-A vide his appellate order has only issued instructions to the AO to verify the contentions of the assessee as to factual aspects on merits and hence no prejudice is caused to the assessee and the AO will merely make necessary verifications and pass orders on merits . 6.4 We have considered rival contentions and perused the material on record. We are of the considered view that income of Rs. 6461/- was

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 reflected in the AIR Data base of the Revenue i.e. in form no 26AS in the case of the assessee and tax of Rs. 646.13 was reflected to have been deducted u/s 194H @10% on the said income on behalf of the assessee for which the learned CIT-A has issued necessary direction to AO to verify contention of the assessee as to factual aspect of the matter and to pass orders thereafter on merits. The assessee is free to raise all contentions on merits in the said de-novo proceedings before the AO including raising the contention that the said income was not earned by the assessee and the AO shall after making necessary verifications of the contentions of the assessee will pass such orders on merits in accordance with law . We fail to see what prejudice is caused to the assessee in undergoing such verifications process more-so the said income of Rs. 6461/- on which income-tax was shown to be deducted at source@10% u/s 194H is reflected in 26AS i.e. AIR data base of the Revenue to be pertaining to the assessee and hence we have no hesitation in confirming the appellate order of the learned CIT-A on this ground and hence the contention of the assessee stood rejected and the ground taken by the assessee in CO stood dismissed. Needless to say the AO shall grant proper and adequate opportunity of being heard to the assessee in the proceedings conducted by the AO in pursuance to the direction of learned CIT(A) and shall admit evidences and explanation submitted by the assessee in its defence. The AO shall conduct necessary verification process to reach to the conclusion as to whether the said income pertain to the assessee as the assessee has so far denied to have dealt with the said party who had deducted said TDS of Rs. 646.13 on behalf of the assessee. We order accordingly. 7.1 The next issue is concerning carry forward and set off of brought forward losses. The assessee has claimed brought forward losses amounting to Rs. 5,32,99,080/- from A.Y 2007-08 to 2011-12 for set off. The AO observed that there was a change in the shareholding pattern in the case of the assessee in AY 2012-13 and the assessee was hit by the provision of Section 79 of the 1961 Act and the brought forward losses are to be disallowed which cannot be set off against current year profits. The assessee was show caused to explain the same and the assessee submitted as under:- "Carry forward and set off of losses wherein a change in shareholding has taken place in a previous year:

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 In view of the decision of the Honourable High Court in case of CIT vs. Concord Industries Ltd.(1979) 119 ITR 458(Madras) and CIT vs Shri Shubhalaxmi Mills ltd. (2001)-119 Taxman 281 (Supreme Court) the section 79 is applicable only for the carry forward of losses (business) and the carry forward of unabsorbed depreciation are not covered by section 79. Therefore the depreciation losses are allowed to be carried forward for set off in future profits irrespective of whether the change in shareholding has taken place or not as on 31.03.2011."

7.2 The AO rejected the contention of the assessee and held that in view of the provision of Section 79 of the 1961 Act wherein it is mentioned that 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 and hence brought forward losses of the previous year‟s including unabsorbed depreciation cannot be allowed to be set off against the profits of the future years in view of the provisions of Section 79 of the 1961 Act, and hence the same was disallowed by the AO vide assessment order dated 02-03-2015 passed by the AO u/s 143(3) of the 1961 Act. In nutshell the learned AO assessed the business loss to the tune of Rs. 5,76,40,926/- and depreciation to the tune of Rs. 65,52,900/- aggregating to Rs. 6,41,93,826/-for the impugned assessment year 2012-13 which was not allowed to be carried forward by the AO in view of provisions of Section 79 of the 1961 Act. The assessee never sought carry forward and set off of brought forward business loss from AY 2007-08 to 2009-10 in the return of income filed with Revenue. The assessee however sought carry forward and set off of business losses from AY 2010-11 to 2011-12 and also the assessee claimed set off of total unabsorbed depreciation till AY 2011-12 which was denied by the AO on the grounds of the assessee being hit by the bar created by the provisions of Section 79 of the 1961.

7.3 Aggrieved by the assessment order dated 02-03-2015 passed by the AO u/s 143(3), the assessee filed first appeal with learned CIT-A and submitted that the AO has wrongly denied the carried forward and set off of business loss and unabsorbed depreciation by invoking provision of Section 79 of the Act on the grounds that there is a change in shareholding pattern in A.Y 2012- 13. It was submitted by the assessee that in A.Y 2012-13 there was no change in shareholding pattern and in the A.Y 2012-13 the assessee was a company in which public were substantially interested in view of the facts

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 the assessee was subsidiary of HDFC Ltd. which was listed company and quoted on Bombay Stock Exchange and hence provision of Section 79 of the Act were not applicable to the assessee company in AY 2012-13. The assessee produced copy of annual return of HDFC Ltd. for F.Y 2010-11 and in the said report it was clearly mentioned that the assessee was a subsidiary company of HDFC Asset Management Company Ltd. . The assessee also submitted certificate from the Company Secretary explaining that the assessee is a Public Limited Company in view of provision of Section 3(1)(iv)(c) of the Companies Act 1956. The assessee also relied upon the decision of the Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Ltd. (2001) 249 ITR 795(SC).

7.4 The learned CIT-A called for the remand report from the AO with respect to the change in shareholding pattern of the assessee company during AY 2012-13 as the assessee was denying any change in shareholding pattern during the said period while the AO was contending that there was a change in shareholding pattern during said period. The AO submitted remand report to the learned CIT(A) as under:- “Carry-forward and set-ff of losses:- In respect of carry forward and set off of losses, section 79 says that:- “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 percent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty one percent of the voting power on the last day of the year or years in which the loss was incurred." The year wise share holding pattern of M/s. Credila Financial Services Pvt. Ltd. as furnished by the auditors in form 3CD (Annexure 5) is reproduced hereunder for your ready reference:

Sr. - Asstt.Year Equity Shareholding (in percentages) Share holding pattern No. comparison viz-a-viz the immediate preceding uear

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 1 2007-08, 50 50 0 0 100 2 50 50 0 0 No change 2008-09 100 No change 3 2009-10 50 50 0 0 100 100 change 4 37.18 37.18 25.64 0 2010-11 100 change 5 2011-12 18.86 18.86 62.28 0 100 No change 6 2012-13 18.86 18.86 62.28 0

In view of the provisions of section 79 and the details in Table-I the following may be deduced: (a) The losses (unabsorbed depreciation and business loss) from A.Y 2007-08 to 2009-10 cannot be allowed to be carried forward from A.Y.2010-11 onwards on account of change in shareholding pattern. (b) The loss (unabsorbed depreciation and business loss) of A.Y.2010- 11 cannot be allowed to be carried forward from A.Y.2011-12 onwards on account of change in shareholding pattern. (c) The loss (unabsorbed depreciation and business loss) of A.Y.2011-12 can be allowed to be carried forward to A.Y.2012-13 as the shareholding pattern has remained the same. To summarise, the losses (unabsorbed depreciation and business loss) from A.Y.2007-08 to 2010-11 can neither be carried forward nor can be allowed for set-off on account of the change in the share holding pattern of the company, while the loss (unabsorbed depreciation and business loss) of A.Y.2011-12 can be allowed to be carried forward to AY 2012- 13 as the shareholding pattern has remained the same.”

7.5 The learned CIT-A observed that there was no change in the shareholding pattern in the case of the assessee in A.Y 2012-13. The learned CIT(A) observed that during the appellate proceeding the assessee has contended that the assessee is a domestic company in which public are substantially interested being a subsidiary of listed company-HDFC Ltd. The learned CIT(A) observed in view of above facts , the assessee has contended that provisions of Section 79 are not applicable in the case of the assessee. The assessee also relied upon provision of Section 2(18) of the 1961 Act and provisions of Section 2(71) of the Companies Act,1956. It is pertinent to mention here that the impugned assessment year under consideration before the tribunal is assessment year 2012-13 and Companies Act, 2013 has no application for the financial year 2011-12 and the erstwhile Companies Act ,1956 will continue to apply for financial year 9

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 2011-12 and relevant provisions of the Companies Act, 1956 are Section 2(35), 2(37) and Section 3 and 4 of the Companies Act 1956. The assessee also submitted that CBDT instruction no. 676 dated 05.04.1964 will be applicable wherein in the case of the company in which equity share to the extent of not less than 50%(40% in the case of industrial company) is held by the another company in which public are substantially interested or by 100% subsidiary of such company will be regarded as a company in which public are substantially interested , if it satisfies the other conditions of Section 2(18). The assessee submitted that combined reading of provisions of Section 2(68) /2(71) of the Companies Act and Section 2(18) and 79 of the 1961 Act along with above CBDT instructions , it is clear that where a private company is subsidiary of a public company, such private company shall also be considered a „public company‟ . The assessee also relied upon the decision of the ITAT, Mumbai in the case of Meredith Traders P. Ltd. v. ITO in ITA no. 3435 & 3436/Mum/2010.

7.6 The learned CIT-A observed that there was no change in the shareholding of the assessee company during the impugned A.Y as claimed by the assessee and hence provisions of Section 79 are not applicable to the assessee company as the same are not applicable to the company in which public are substantially interested. The learned CIT(A) held that the assessee is a company which is subsidiary of HDFC Limited , a listed company with Bombay Stock Exchange and hence the assessee is undoubtedly a public limited company in which public are substantially interested. The appeal of the assessee was allowed by learned CIT(A) and the AO was directed to allow the carry forwarded loses and depreciation to the tune of Rs. 6,41,93,826/-, vide appellate orders dated 22-12-2015 passed by learned CIT(A). Thus, in nutshell the learned CIT(A) allowed the carry forward of the assessed business losses and depreciation for the AY 2012-13 to the tune of Rs. 5,76,40,926/- as assessed business loss and depreciation to the tune of Rs. 65,52,900/- , aggregating to Rs. 6,41,93,826/-for the impugned assessment year 2012-13 .

7.7 Aggrieved by the appellate order dated 22-12-2015 passed by learned CIT(A), the Revenue has come in an appeal before the tribunal while the assessee has filed CO with the tribunal on the same issue concerning carry forward

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 and set off of brought forward of business losses and unabsorbed depreciation. The assessee never sought carry forward and set off of brought forward business loss from AY 2007-08 to 2009-10 in the return of income filed with Revenue. The assessee however sought carry forward and set off of business losses from AY 2010-11 to 2011-12 and also the set off of total unabsorbed depreciation till AY 2011-12 which was also denied by the learned CIT(A). However, what appears from the content/body of the appellate order of learned CIT(A) is that the learned CIT(A) allowed the business loss from AY 2007-08 to AY 2011-12 onwards although in the conclusion the learned CIT(A) only allowed business loss and unabsorbed depreciation for AY 2012-13 to be carried forward aggregating to Rs. 6,41,93,826/-for the impugned assessment year 2012-13 which has caused prejudice to the Revenue as in the opinion of Revenue unabsorbed losses from AY 2007-08 to 2009-10 cannot be allowed as there is a change in shareholding of the assessee company which has infringed provisions of Section 79 of the 1961 Act, while the assessee is now aggrieved by non allowability of unabsorbed depreciation of earlier years to be carried forward and set off as well has raised new ground for the first time that business losses from AY 2007-08 to 2009-10 and also brought forward losses for AY 2010-11 be also allowed to be carried forward which is a matter of the CO filed before us. In nutshell the whole controversy revolves around the allowability of brought forward losses and unabsorbed depreciation of the earlier years as well current year in the midst of bar created by Section 79 in the cases where there is a change in shareholding pattern of a company in the case of companies in which public are not substantially interested .

7.8 The Ld. Counsel for the assessee contended before the tribunal that there has been no change in the shareholding of the assessee company during the previous year relevant to the impugned A.Y. 2012-13 under consideration . It was submitted that the assessee is a company in which public are substantially interested and hence at outset bar raised by provisions of Section 79 is not applicable . It was submitted that HDFC is holding more than 51% of the shares of the company during the year under consideration and brought forward/carry forward of the losses of the earlier years are to be allowed to be set off against current year income and allowed to be carried forward to the subsequent years.

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017

7.9 The Ld. DR on the other hand submitted that assessee is hit by a bar created by provisions of Section 79 of the Act, and our attention was drawn to the assessment order of the A.O and appellate order of learned CIT-A to contend that there was a change in shareholding pattern in the case of the assessee company wherein the old promoters namely Mr Ajay Bohora and Mr Anil Bohora who held 100% shareholding have their shareholding come down to less than 51% in the AY 2011-12 and HDFC Limited is holding 62.28% shares in the assessee company in AY 2011-12 and 2012-13 , while holding of HDFC Limited was 25.64% in AY 2010-11.

7.10 The Ld. Counsel for the assessee brought our attention to statement of fact filed by the assessee before the learned CIT-A along with memo of appeal and it was submitted that until AY 2009-10 , Mr Ajay Bohora and Mr Anil Bohora held 50% each shares in the assessee company whereby 100% shareholding were with these two shareholders. It was submitted that in A.Y 2010-11 there was a change in shareholding wherein HDFC Ltd. purchased 25.64% shareholding of the assessee company from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25.64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37.18% each aggregating to 74.36% . The said DSP Merril Lynch Limited sold its shareholding to HDFC Limited during the previous year 2009-10 relevant to AY 2010-11. Thus the shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74.36% while HDFC Limited held 25.64% during AY 2010-11. It was further submitted that in A.Y 2011-12 , there was fresh allotment by way of issue of new shares by the assessee company in favour of HDFC Ltd. and no fresh shares were allotted to Mr Ajay Bohora and Mr Anil Bohora, wherein the shareholding of HDFC Ltd. increased to 62.28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18.86% each aggregating to 37.72% . Thus , in AY 2011-12 HDFC Limited became majority shareholder holding 62.28% and hence its shareholding increased beyond 51% and consequently bar created by provisions of Section 79 of the 1961

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 Act will come into play. it is submitted by learned counsel for the assessee that there was no change in the shareholding of the assessee company in A.Y 2012-13. It was submitted that in the return of income filed by the assessee, there was an unabsorbed depreciation of the earlier years which is to be allowed from AY 2007-08 to 2011-12 to be carry forward to subsequent years as in any case provisions of Section 79 has no applicability so far as carry forward and set off of unabsorbed depreciation is concerned . The Ld. Counsel would rely on the decision of Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Ltd. (2001) 249 ITR 795(SC) to contend that Section 79 of the 1961 Act has no applicability to the carry forward and set off of unabsorbed depreciation. It was brought to our notice that Section 72A of the 1961 Act speaks of unabsorbed depreciation and losses separately and hence where-ever the legislature wanted reference to unabsorbed depreciation in contradistinction to unabsorbed losses, the terms is separately used by the legislature and since Section 79 does not speak of unabsorbed depreciation, the scope cannot be expanded by implication by the Courts. It is contended that taxing statute is to be strictly construed. It was submitted by learned counsel for the assessee that business losses for the period A.Y 2007-08 to 2009-10 were not claimed in the return of income filed with the revenue for AY 2012-13 and it is only the losses for 2010-11 which were claimed to be brought forward and set off against income of the current year under consideration i.e. AY 2012-13. It was also submitted by learned counsel for the assessee that brought forward losses for AY 2010-11 should be allowed to be carried forward. It was submitted that Departmental Appeal is concerning only with respect to the allowability of set off of the unabsorbed losses for AY 2007-08 to 2009-10 , while the assessee filed CO to claim the allowability of unabsorbed business losses from AY 2007-08 to 2009-10. It was submitted that there was no dispute so far business losses for A.Y 2012-13 are concerned as there was no change in the shareholding during the year under consideration i.e. AY 2012-13 which was confirmed by the AO in remand report. Our attention was drawn to the order of the learned CIT-A and it was submitted that learned CIT(A) decided the issue in favour of the assessee . It was strongly contended by learned counsel for the assessee that Section 79 has applicability only to a company in which public are not substantially interested . Our attention was drawn to provisions of Section 2(18) of the 1961 Act . The asseessee relied upon the

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 decision of Hon‟ble Supreme Court in the case of CIT v. Italindia Cotton Company Private Ltd. (1988) 174 ITR 160(SC). It was submitted that in return of income , no losses were claimed for AY 2007-08 to 2009-10 and additional grounds are raised before ITAT for the first time for allowability of the said losses by filing CO. It was also a proposition raised by learned counsel for the assessee that if at the end of the relevant previous year under consideration more than 50% shares are held by the company in which public are substantially interested, then in that scenario it will not be relevant to see shareholding as at the end of the previous year in which losses took place . On being asked by the Bench at this point as to whether there is any authoritative pronouncement to that effect by any Court‟s , It was submitted by learned counsel for the assessee that there are no decisions of any Court available on this proposition. It was submitted by learned counsel for the assessee that in AY 2010-11, same set of shareholders held more than 50% share as they were there in AY 2012-13 . It was submitted that Mr Ajay Bohra, Mr Anil Bohora and HDFC Ltd. jointly held 100% share both in AY 2010-11 and AY 2011-12.

7.11 The Ld. DR at this point pointed out that contentions of the assessee are not correct as it is mandatorily required as per the provisions of Section 79 of the 1961 Act to hold shares throughout the previous year and by referring to shareholding pattern of the assessee as at the end of the year i.e. 31-03-2012 as contended by learned counsel for the assessee does not meet the requirements of Section 79 of the 1961 Act in the opinion of learned DR.

7.12 We have considered rival contention and perused the material on record including case laws relied upon and orders of the authorities below. The assessee is a company engaged in business of ground handling operations and related activities at Airport. The assessee company‟s shares was initially held by Mr. Ajay Bohora and Mr. Anil Bohora both holding 50% shares each aggregating to 100% from previous year 2006-07 to 2008-09(AY 2007-08 to 2009-10) . In A.Y 2010-11 there was a change in shareholding wherein HDFC Ltd. purchased 25.64% shareholding of the assessee company shares from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25.64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37.18% each aggregating to 74.36% on the said allotment of shares . The said DSP Merril Lynch Limited sold its entire shareholding in assessee company to the tune of 25.64% to HDFC Limited during the previous year 2009-10 relevant to A.Y. 2010-11. Thus the consolidated shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74.36% , while HDFC Limited held 25.64% during AY 2010-11 . In A.Y 2011-12 , there was a fresh allotment of shares by way of issue of new shares by the assessee company in favour of HDFC Ltd. while at the same time no fresh shares were allotted to Mr Ajay Bohora and Mr Anil Bohora, wherein the shareholding of HDFC Ltd. in assessee company increased to 62.28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18.86% each aggregating to 37.72% . The HDFC Ltd. was a listed company which was duly listed on the recognised stock exchanges in India. The assessee become subsidiary company of HDFC Ltd. , a company in which public are substantially interested , as shareholding of HDFC Limited in assessee company exceeded fifty percent in previous year 2010-11 relevant to AY 2011-12 . There was no change in the shareholding pattern of the assessee company in previous year 2011-12 (AY 2012-13). The AO did not allow carry forward of business losses as well unabsorbed depreciation till AY 2012-13 on the allegation that the assessee company is hit by bar created by provisions of Section 79 of the 1961 Act owning to the aforesaid change in shareholding pattern and consequently voting power of the shareholders. While learned CIT(A) allowed business losses and unabsorbed depreciation for AY 2012-13 to be carried forward to the subsequent years for set off , while rest of the business losses and unabsorbed depreciation of the preceding years stood disallowed by learned CIT(A) .

7.13 Before proceedings further, it will be extremely useful and relevant to reproduce Section 79 of the 1961 Act. The said Section 79 was amended by Finance Act,1988 wherein clause (b) to Section 79 stood deleted w.e.f. 01- 04-1989 . The amended provisions of Section 79 as was applicable during the year under consideration is reproduced hereunder:-

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 “Carry forward and set off of losses in the case of certain companies. 79. 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 last 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) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]”

7.14 First of all , we shall discuss about the carried forward of unabsorbed depreciation of the earlier years . Perusal of provisions of Section 79 of the Act read in conjunction with Section 72A of the 1961 Act which incidentally falls in the same chapter VI which deals with Chapter „Aggregation of Income and set off or carry forward of loss‟ will reveal that both the afore-stated sections deals with provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation in different circumstances , the perusal of these two sections reveal that wherever statute wanted it has used unabsorbed depreciation and accumulated losses separately which is evident from provisions of Section 72A , while in Section 79 lawmakers have consciously restricted to disallowance of losses under certain circumstances

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 while there is no mention of unabsorbed depreciation in Section 79. Provisions of Section 72A deals with provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc while Section 79 of the 1961 Act deals with provisions for carry forward and set off of losses in case of certain companies in which public are not substantially interested and there has been a change in shareholding carrying not less than fifty-one percent of the shareholding. Taxing statute are to be construed strictly and when the language used in taxing statute is clear, plain ,simple and unambiguous , it is impermissible to insert or delete words into taxing statute which are not mentioned therein by the legislature. The taxing statute are to be strictly construed as per the language used by legislatures if the words used are simple , clear , plain and unambiguous provided the results produced by their use are not absurd , albeit the result produced may be harsh. No words are to be ordinarily added or deleted from the statute as there are no surplusages in the words used by legislature in enacting statute and each words so used by legislature has to be given ordinarily full effect. Perusal of provisions of Section 79 clearly reveals that it did not speak about carry forward and set off of unabsorbed depreciation and in our considered view the bar created by provisions of Section 79 will not be applicable so far as carry forward and set off of unabsorbed depreciation is concerned. Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Limited reported in (2001) 249 ITR 795(SC) has affirmed the decisions of Hon‟ble Gujarat High Court in the case CIT v. Shri Subhulaxmi Mills Limited(supra) by holding that Section 79 has no applicability so far as carry forward and set off unabsorbed depreciation is concerned. The relevant portion of decision of Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Limited(supra) is reproduced hereunder:- “3. So far as question No. 2 is concerned, the question is whether in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate. The High Court has answered the question saying that when section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court.” Thus, keeping in view aforesaid decision of Hon‟ble Supreme Court , we hold that the assessee will be entitled for carry forward and set off of unabsorbed

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 depreciation for AY 2007-08 to 2012-13 and we hold that Section 79 of the 1961 Act has no applicability so far as carry forward and set off of unabsorbed depreciation is concerned. The assessee succeeds so far as this ground raised by the assessee being ground no. 2 in the CO filed with the tribunal. We order accordingly. 7.15Now, we will take up the provisions of Section 79 of the 1961 Act so far as carry forward and set off of business losses are concerned. To resolve controversy , it is important to reproduce relevant provisions of the 1961 Act and The Companies Act, 1956 to understand whether the assessee company is a company in which public are substantially interested and if yes from which date and whether it is hit by bar created by provisions of Section 79 of the 1961 Act is concerned so far as carry forward and set off of business losses is concerned :-

Income-Tax, 1961 Definitions. 2. In this Act, unless the context otherwise requires,— ***** ***** [(17) “company” means— (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii)any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv)any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ;]

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 (18) “company in which the public are substantially interested”—a company is said to be a company in which the public are substantially interested— [(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank ; or] [(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (1 of 1956) ; or (ab)if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested : Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or] [(ac)if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or] [(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;] [(b)if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :— (A)shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; [(B)shares in the company (not being shares entitled to a fixed rate of

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by— (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.] Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words “not less than fifty per cent”, the words “not less than forty per cent” had been substituted ;]]” “Carry forward and set off of losses in the case of certain companies. 79. 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 last 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.]

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 (b) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]”

The Companies Act,1956

2.Definitions.— In this Act, unless the context otherwise requires, — (10) "company" means a company as defined in section 3; **** (19) "holding company" means a holding company within the meaning of section 4 **** (35) "private company" means a private company as defined in section 3; **** (37) "public company" means a public company as defined in section 3; **** (46) "share" means share in the share capital of a company and includes stock except where a distinction between stock and shares is expressed or implied; (47) "subsidiary company" or "subsidiary" means a subsidiary company within the meaning of section 4; (48) "total voting power", in regard to any matter relating to a body corporate, means the total number of votes which may be cast in regard to that matter on a poll at a meeting of such body, if all the members thereof and all other persons, if any, having a right to vote on that matter are present at the meeting and cast their votes;

3.Definitions of company, existing company, Private company and public company.— (1) In this Act, unless the context otherwise requires, the expressions "company", "existing company", "private company" and "public company", shall, subject to the provisions of sub-section (2), have the meanings specified below :— (i) "company" means a company formed and registered under this Act or an existing company as defined in clause (ii):

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(ii) "existing company" means a company formed and registered under any of the previous companies laws specified below:— (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and repealed by that Act; (b) the Indian Companies Act, 1866 (1006 1966); (c) the Indian Companies Act, 1882 ( 6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and (f) any law corresponding to any of the Act or the Ordinance aforesaid and in force in the merged territories or in a Part B Sate, or any part thereof, before the extension thereto of the Indian Companies Act, 1913( 7 of 1913); (iii) "private company" means a company which, by its articles,— (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to fifty not including — (i) persons who are in the employment of the company, and (ii) persons who having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member; (iv) "public company" means a company which is not a private company. (2) Unless the context otherwise requires, the following companies shall not be included within the scope of any of the expressions defined in clauses (i) to (iv) of sub-section (1), and such companies shall be deemed, for the purposes of this Act, to have been formed and registered outside India:— (a) a company the registered officer whereof is in Burma, Aden or Pakistan and which immediately before the separation of that country from India was a company as defined in clause (i) of sub- section (1); (b) a company the registered office whereof is in the State of Jammu and Kashmir and which immediately before the 26th day of January, 1950, was company as defined in clause (i) aforesaid. Section 4.Meaning of holding company and subsidiary.— (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, —

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 (a) that other controls the compositions of its Board of directors; or (b) that other holds more than half in nominal value of its equity share capital; or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B.Company C is a subsidiary of Company A by virtue of clause (c) above.If Company D is a subsidiary of Company Commencement Company D will be subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above; and so on. (2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say — (a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such power as aforesaid; (b) that a person's appointment thereto follows necessarily from his appointment as director,managing agent, secretaries and treasurers, or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by that other company itself or by a subsidiary of it. (3) In determining whether one company is a subsidiary of another— (a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it; (b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable — (i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity); or (ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity; shall be treated as held or exercisable by that other company;

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 (c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded; (d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary [not being held or exercisable as mentioned in clause (c) ] shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) In this section, the expression "company" includes any body corporate, and the expression "equity share capital" has the same meaning as in sub- section (2) of section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purpose of this Act also, whether the requirements of this section are fulfilled or not. 43A. PRIVATE COMPANY TO BECOME PUBLIC COMPANY IN CERTAIN CASES (1) Save as otherwise provided in this section, where not less than twenty-five per cent of the paid-up share capital of a private company having a share capital is held by one or more bodies corporate, the private company shall,- (a) on and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven :

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company if, but only if, the following conditions are satisfied in respect of such share, namely : (a) that the share- (i) forms part of the subject matter of a trust, (ii) has not been set apart for the benefit of any body corporate, and (iii) is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of that trust ; or (b) that the share- (i) forms part of the estate of a deceased person, (ii) has not been bequeathed by the deceased person by his will to any body corporate, and (iii) is held by the banking company either as an executor or administrator of the deceased person or in its own name on behalf of an executor or administrator of the deceased person; and the Registrar may, for the purpose of satisfying himself that any share is held in the private company by a banking company as aforesaid, call for at any time from the banking company such books and papers as he considers necessary. [Explanation.-For the purposes of this sub-section, "bodies corporate" means public companies, or private companies which had become public companies by virtue of this section.] (1A) Without prejudice to the provisions of sub-section (1), where the average annual turnover of a private company, whether in existence at the commencement of the Companies(Amendment) Act, 1974, or incorporated thereafter, is not, during the relevant period, less than [such amount as may be prescribed], the private company shall, irrespective of its paid-up share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this sub-section : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1B) Where not less than twenty-five per cent of the paid-up share capital of a public company, having share capital, is held by a private company, the private company shall,- (a) on and from the date on which the aforesaid percentage is first held by it after the commencement of the Companies (Amendment) Act, 1974, or

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(b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1974 on and from the expiry of the period of three months from the date of such commencement, unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the public company, become, by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause ( iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. [(1C) Where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven.] (2) Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" before the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association. [(2A) Where a public company referred to in sub-section (2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word `private company' for the word `public company' in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company.]

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 (3) Sub-section (3) of section 23 shall apply to a change of name under sub-section (2) as it applies to a change of name under section 21. (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Governmentand in accordance with the provisions of this Act, again become a private company. (5) If a company makes default in complying with sub-section (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. (6) & (7) [Omitted by the Companies (Amendment) Act, 1988, with effect from 15-6-1988.] (8) Every private company having a share capital shall, in addition to the certificate referred to in sub-section (2) of section 161, file with the Registrar along with the annual return a second certificate signed by both the signatories of the return, stating either- (a) that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, no body or bodies corporate has or have held twenty-five per cent or more of its paid-up share capital, [***] (b) [Omitted by the Companies (Amendment) Act, 1988, with effect from 15-6-1988], (c) that the private company, irrespective of its paid-up share capital, did not have, during the relevant period, an average annual turnover of [such amount as is referred to in sub-section (1A) or more], [(d) that the private company did not accept or renew deposits from the public.] (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent or more of the paid-up share capital of one or more public companies. [(10) Subject to the other provisions of this Act, any reference in this section to accepting, after an invitation is made by an advertisement, or renewing deposits from the public shall be construed as including a reference to accepting, after an invitation is made by an advertisement,

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 or· renewing deposits from any section of the public and the provisions of section 67 shall, so far as may be, apply, as ifthe reference to invitation tothe public to subscribe for shares or debentures occurring in that section, includes a reference to invitation from the public for acceptance of deposits.] [(11) Nothing contained in this section, except sub-section (2A), shall apply on and after the commencement of the Companies (Amendment) Act, 2000.] Explanation.- For the purposes of this section,- (a) "relevant period" means the period of three consecutive financial years,- (i) immediately preceding the commencement of the Companies (Amendment) Act, 1974, or (ii) a part of which immediately preceded such commencement and the other part of which immediately, followed such commencement, or (iii) immediately following such commencement or at any time thereafter; (b) "turnover" of a company, means the aggregate value of the realisation made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year ; [(c) "deposit" has the same meaning as in section 58A.]”

It is undisputed that HDFC Limited which is a listed company on recognized stock exchanges in India did not held any shares in the assessee company till assessment year 2009-10 and the entire shareholding vested with Mr Anil Bohora and Mr Ajay Bohora who held 50% shares each in assessee till previous years relevant to AY 2009-10. In A.Y 2010-11 there was a change in shareholding of the assessee company wherein HDFC Ltd. purchased 25.64% shareholding of the assessee company shares from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25.64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37.18% each aggregating to 74.36% on the said allotment of shares . The said DSP Merril Lynch Limited sold its entire shareholding in assessee company to the tune of 25.64% to HDFC Limited during the previous year 2009-10 relevant to A.Y. 2010-11. Thus the consolidated shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 74.36% , while HDFC Limited held 25.64% during AY 2010-11. In the previous year 2010-11 relevant to A.Y 2011-12 , there was a fresh allotment of shares by way of issue of new shares by the assessee company in favour of said HDFC Ltd. while at the same time no fresh shares were allotted to other existing shareholders namely Mr Ajay Bohora and Mr Anil Bohora, wherein the shareholding of HDFC Ltd. in assessee company increased to 62.28% while the shareholding of Mr Ajay Bohora and Mr Anil Bohora came down to 18.86% each aggregating to 37.72% . Thus, the assessee company became subsidiary company of HDFC Ltd. in previous year 2010-11 relevant to AY 2011-12 as shareholding of HDFC Limited in assessee company exceeded fifty percent in previous year 2010-11 relevant to AY 2011-12 by virtue of Section 4(1)(b) of the 1956 Act . The HDFC Limited did not held more than 51% shares for the entire previous year 2010-11 relevant to AY 2011-12 as the said increase in shareholding beyond 51% occurred during the previous year 2010-11 relevant to AY 2011-12 and it is only for part of the previous year 2010-11 , the HDFC Limited held shares more than fifty one percent. There was no change in the shareholding pattern of the assessee company in F.Y. 2011-12 (AY 2012-13) and HDFC Limited held 62.28% in assessee company for the entire previous year 2011- 12 relevant to AY 2012-13. It is also not disputed that for the entire period running from AY 2007-08 to AY 2012-13, the assessee company incurred business losses. The perusal of the relevant provisions of the 1961 Act and the 1956 Act as are reproduced above clearly reveals that the assessee was a private company and not a public company . Even the concept of deemed public company as was contained in Section 43A of the 1956 Act which existed prior to the coming into force of the Companies(Amendment) Act, 2000 stood abolished which , inter-alia, earlier stipulated that in case where not less than twenty-five percent shares of a private company are held by body corporate being public company or private companies , the said private company shall be deemed to be public company by virtue of Section 43A . There was an insertion of sub-section (11) to Section 43A by the Companies Amendment Act, 2000 which stipulated as under: “Section 43A **** **** (11) Nothing contained in this section, except sub-section (2A) , shall apply on and after the commencement of the Companies (Amendment) Act,2000.”

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 Thus, as per new law as is applicable during the relevant period , the assessee company continued to be a private company when the HDFC stepped in as shareholder in AY 2010-11 with shareholding exceeding 25%. Thus, this condition as is contained in Section 2(18)(b) of the 1961 Act is not met and hence the assessee cannot be categorised as company in which public are substantially interested. One of the other conditions stipulated u/s 2(18) of the 1961 Act is w.r.t. company becoming a company in which public are substantially interested is that more than fifty percent shares carrying voting rights are beneficially held throughout the year by a company listed on recognized stock exchanges. HDFC Limited no doubt is a company which is listed on recognised stock exchanges in India. In AY 2010-11 , HDFC Limited acquired 25.64% in assessee company which was later enhanced to 62.28% in previous year 2010-11(AY 2011-12) . Thus, in the previous year 2010-11 relevant to AY 2011-12 , a listed company HDFC Limited did held more than 50% shares in the assessee company but it did not hold the same for the entire previous year 2010-11 and hence the other condition for becoming a public company in which public are substantially interested as is stipulated in Section 2(18)(b)(B)(c) of the 1961 Act was also not met. Now, coming to provisions of Section 79 of the 1961 Act which is applicable to a company in which change in shareholding has taken place in the previous year to a company which is not a company in which public are substantially interested , stipulates that 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 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 percent of the voting power on the last date of the year or years in which the loss was incurred. There is no difficulty so far as previous year 2009-10 (AY 2010-11) is concerned as HDFC Limited only acquired 25.64% shares in the assessee company and the persons who held more than fifty- one shares in AY 2007-08 to AY 2009-10 namely Mr Anil Bohora and Mr Ajay Bohora continued to hold more than fifty-one percent shares in the assessee company as at the end of the previous year 2009-10(AY 2010-11) as their shareholding fell from 100% to 74.36% as on 31-03-2010. The difficulty arose in the previous year 2010-11(AY 2011-12) when the HDFC Limited were allotted new shares by the assessee company which took its shareholding to 62.28% and thus the persons namely Mr Anil Bohora and Mr Ajay Bohora who held 100% shares in the previous relevant to AY 2007-08 to 2009-10 and 74.36% in AY 2010-11 which

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017 were in any case more than 51% had their shareholding skid to 37.72% in previous year 2010-11(AY 2011-12) which led to falling of their equity below fifty-one percent thereby being hit by the bar created by provisions of Section 79 of the 1961 Act so far as carry forward of losses for AY 2007-08 to 2010-11 is concerned. This would lead to disallowance of the brought forward losses of the assessee from AY 2007-08 to 2010-11 in AY 2011-12 itself and no carry forward of losses for AY 2007-08 to 2010-11 shall be allowed. In AY 2012-13, there was no change in shareholding of the assessee company as the HDFC Limited continued to hold 62.28% shareholding in the assessee company and there will be no difficulty in allowing set off or carry forward further of losses for the AY 2011-12 to the succeeding years. Similarly, there is no difficulty in carry forward of the assessed losses for the AY 2012-13 to the succeeding years is concerned. The assessee has relied upon the decision of Hon‟ble Supreme Court in the case of CIT v. Italindia Cotton Company Private Limited reported in (1988) 174 ITR 160(SC) wherein the Hon‟ble Supreme Court was dealing with an un-amended provisions of Section 79 wherein it used to had clause (a) and(b) in Section 79, and clause (b) to Section 79 stood omitted by the Finance Act, 1988, w.e.f. 1-4-1989 and hence the decision cannot be of any help to the assessee as the only condition now remaining in amended Section 79 of the 1961 Act as is contained in clause(a) only, which the assessee unfortunately could not meet with as we have elaborately discussed above. Thus, with the above stated elaborate discussions and reasoning as detailed above, we conclude our order. In the result both appeal of the Revenue and CO filed by the assessee are partly allowed as indicated above. We order accordingly. 8. The appeal of the Revenue is partly allowed as well as CO filed by the assessee is partly allowed. Order pronounced in the open court on 16.02.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 16.02.2018 को की गई ।

Sd/- Sd/- (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, dated: .02.2018

I.T.A. No.1491/Mum/2016 CO. No.305/Mum/2017

Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, C 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI