AGILE ELECTRIC SUB ASSEMBLY (P) LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश /O R D E R

Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-I, Chennai (‘CIT(A)’ for short) dated 27.06.2016, partly allowing assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 14.03.2014 for assessment year (AY) 2011-12.

2 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT section 79 of the Act. The same, being the penultimate section of its Chapter–VI, titled ‘Aggregation of income and set off of loss’ of the Act, reads as under: 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 Finance Act, 1988, w.e.f. 1/4/1989) (emphasis, ours) The carry forward and the set off of loss by a company in which the public is not substantially interested, is, thus, per a non obstante provision – so that it overrides all other provisions in the said Chapter of the Act, is made subject to fifty one per cent (51%) voting power in the subject (assessee) company remaining (as at the end of the relevant previous year) with the same set of persons who held 51% voting power therein as at the end of the year/s in which the loss sought to be carry forward and set off was incurred. Fifty-one per cent of the voting power implying controlling interest, the provision, in sum, seeks to eschew trading on the tax effect of the loss on transfer of controlling interest in closely held companies. Exceptions to the general rule are provided per the first and second provisos to clause (a) of section 79.

3 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT

The share holding in the holding company thus changed by 82 per cent during the current year. The assessee’s claim for set off of brought forward loss of Rs.705.60 lacs was accordingly disallowed by the Assessing Officer (AO) invoking s. 79.

4 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT In appeal, the assessee contending that there had been no change in it’s share holding, which continues to be with its’ holding-company, the issue was examined by the ld. CIT(A) at length. The question as to whether it is the immediate, legal owner of the shares or the real, beneficial owner controlling the voting power, even if not the legal owner of the shares, had engaged the judicial mind. With reference to three decisions by the Tribunal, referred to and discussed at paras 1.4 to 1.8 (pgs. 8-10) of the impugned order, he concluded that there was a change in the beneficial share-holding in the assessee-company as there is a change in the voting power profile therein or in respect of its’ shares, so that the provision of s. 79 is triggered. However, sec. 79 would not apply to a claim for carry forward and set off of unabsorbed depreciation (included in the sum disallowed in assessment), as held in CIT vs. Concord Industries Ltd. [1979] 119 ITR 458 (Mad) and CIT vs. Surama Tubes (P.) Ltd. [1993] 201 ITR 124 (Cal). Aggrieved, the assessee is in appeal.

5 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT difference between the real (de facto) and the registered (de jure) owner of the shares, alluding to sec. 187-C of the Companies Act, 1956, which provides for a declaration by the registered share-holder, as for example, a partner or trustee holding shares for and on behalf of a partnership firm or trust, etc. There is no such declaration in the present case, so that the legal and beneficial owner is the same. The ld. DR, while confirming that the Revenue is not in appeal against the impugned order, would argue for a remand back to the file of the first appellate authority in-as-much as no argument with reference to s. 72A, protection of which is now sought, was canvassed before him and, in any case, there is no finding by him in its respect. On merits, he would submit that, even so, section 72A, for its application, requires, as a pre-condition, the satisfaction of the conditions set out in sub-section (2) of s. 72A. Why, it is even not clear if the amalgamation under reference satisfies the test of ‘amalgamation’, which is specifically defined u/s. 2(1B) for the purposes of the Act. He would then take us through the impugned order, wherein, prior to arriving at his conclusion, the ld. CIT(A) has discussed the facts and the ratio of each of the decisions relied upon by him w.r.t. sec.79. The ld. AR, in rejoinder, while conceding that acceptance of the assessee’s argument as to the application of s. 72A shall warrant a restoration for verifying the satisfaction of the conditions of s. 72A(2), on which there is no finding, would reiterate that, without prejudice, sec. 79 is not applicable in the instant case. There is no change at all in the share-holding of the assessee-company, which continues to be, both pre and post 11.11.2010, held beneficially by Agile EDTHPL. Reference was made by him to the decision by the Hon'ble Delhi High Court in Yum Restaurants (India) Pvt. Ltd. (Yum India) (in ITA Nos. 349 and 388 of 2015 dated 13.01.2016 / copy on record). In that case, he would continue, it was a converse situation. While there was a change in the share-holding of the immediate holding company from Yum Asia (predecessor-company) to Yum Singapore (successor-company), the ultimate holding company (Yum USA) remained the

6 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT same. This, however, did not find favour with both the tribunal and the Hon'ble High Court, which confirmed the tribunal’s order holding that sec. 79 is attracted.

(2) Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) has held continuously as on the date of the amalgamation at least three- fourths of the book value of fixed assets held by it two years prior to the date of amalgamation; (b) the amalgamated company— (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.

(3) In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the

7 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with. (4) Notwithstanding …. (5) The Central Government may, for the purposes of this Act, by notification in the Official Gazette, specify such conditions as it considers necessary to ensure that the demerger is for genuine business purposes. (6) to (7)’ (emphasis, ours) Our first observation in the matter is that though s. 79 does not apply to unabsorbed depreciation, that does not by itself imply that the conditions of s. 72A, which regulates the carry forward and set off of loss and unabsorbed depreciation allowance of the amalgamating company/s, are met. Even assuming it is a case of amalgamation u/s. 2(1B) of the Act, which though again cannot be presumed, the conditions of s. 72A would require being examined for their satisfaction. It is only upon the conditions of s. 72A(2) being met, which are both in relation to past and future, that the deeming of s. 72A(1) shall operate. Sub-sections (1), (3), (5) & (7) of sec. 72A are also relevant in this regard. The provision of s. 72A, which admittedly governs the claim qua unabsorbed depreciation of the amalgamating companies, would definitely require being examined for the satisfaction of its conditions, for the benefit of that provision to be accorded. In the facts of the case, the provision was, rather, specifically invoked by the assessee, claiming its’ conditions to be met (refer Grounds 6 to 8 assumed before the ld. CIT(A)). The unconditional allowance of unabsorbed depreciation of the two amalgamating companies - which is subject to s. 72A, by the ld. CIT(A), without examining the satisfaction of the conditions thereof, cannot be regarded as proper.

5.2 We next examine the principal issue before us, i.e., if sec. 72A shall apply in preference to sec. 79, i.e., in-so-far as the brought forward loss of the two amalgamating companies is concerned. We may here clarify that s. 72A applies qua the claim of ‘accumulated loss’ and ‘unabsorbed depreciation’ (both the terms defined in s. 72A(7)) of the amalgamating companies (IJTP & TL and AEPTL),

8 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT while s.79 concerns the carry forward and set off of that of the assessee company (AESPL) itself. Only where the conditions of s. 2(1B) and sub-sections (1), (2) and (5) of s. 72A are met (i.e., qua the amalgamating companies), so that the provision is applicable to the amalgamation under reference, that the accumulated loss and unabsorbed depreciation of the amalgamating companies becomes the loss or, as the case may be, depreciation of the amalgamated company for the current year. Per contra, unless, therefore, the said conditions are satisfied, the question of carry forward of accumulated loss and unabsorbed depreciation of the amalgamating companies does not arise. However, once it is so, the same are deemed to be the loss and depreciation allowance of the amalgamated company for the current year. There is thus an in-built carry forward in the provision. Sec. 79, however, has no application for unabsorbed depreciation. Both the sections shall accordingly apply in respect of carry forward of the loss of the amalgamating companies, i.e., where section 79 also applies. The accumulated loss of the amalgamating companies shall therefore have to cross the bar of both - s. 72A as well as, where applicable, s. 79, for being entitled for carry forward and set off as part of the loss of the amalgamated company. Where s. 79 is not applicable, the only hurdle for the claim of loss, as for unabsorbed depreciation, would be as presented by sec. 72A, so that meeting it would be the end of the matter. As regards the accumulated loss of the assessee company itself, the only bar would be s. 79. There is, again, no doubt of the precedence of sec. 79 over sec. 72A in-as-much as sec. 79 overrides every other provision of Chapter-VI, which includes s. 72A(1). Sec. 72A(2) only stipulates a limitation on the operation of s. 72A(1), so that it is not, as contended, a non obstante provision. All that it implies is that s. 72A(1) is subject to s. 72A(2). This sums up our understanding of the application and the interplay between the two provisions.

5.3 We, next, examine the application of s. 79; the assessee contending it as not applicable. Our understanding, as clarified here-in-before (para 2), is that the section seeks to place an embargo on the carry forward (and, resultantly, set off) of

9 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT loss where there is a change in the controlling interest during the intervening period, signified by a change in the voting power to the extent of 51% in the subject company. The word ‘beneficial’ has more than one connotation to it. It could imply the actual (de facto) ownership as against the legal, titular ownership only, as where one holds the shares in a representative capacity, even as pointed out by the ld. AR. Then, again, it could also imply as for whom, or for whose benefit, the shares are held. In the context of the provision the latter sense assumes critical significance as it is, as apparent, meant to identify as to who exercises the voting power in respect of the shares under reference, and who thus has the controlling interest in the company. The two are in fact not disparate as, in either case, it only translates into as to who exercises the voting power in relation to the (majority of the) shares. It is thus not a question of choosing one interpretation (of the word ‘beneficial’) in preference to another. The language employed makes it abundantly clear that the holding of the shares in the company is toward the capacity to exercise voting power in relation thereto, specifically qualifying the word holding to be ‘beneficial’. To restrict, for the purpose of sec. 79, the examination of the change in the shareholding to the immediate shareholding, which in the instant case continues to be with the holding-company, would be to do violence to the clear language of the provision, as well as its intent, as discerned by interpreting the word ‘beneficial’ as well as the reference to the ‘voting power’ therein, defeating it. It would be akin to the proverbial ‘to miss the woods for the trees’, as it does not reveal as to who, in fact, holds the majority voting power (fifty-one per cent or more) therein and, thus, the controlling interest in its’ three subsidiary companies. The holding company – even if carrying on an independent business, is only an intermediary and it is it’s shareholding that determines or defines as to who would exercise the voting power therein and, thus, in the amalgamated (assessee) company. As explained in Padmasundara Rao (Decd.) & Othrs. v. State of Tamil Nadu [2002] 255 ITR 147 (SC) and CIT v. Baby Marine

10 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT Exports [2007] 290 ITR 323 (SC), it is the intention of the Legislature which is the foundational basis for any interpretative exercise. Our understanding that it is the controlling interest in the subject (assessee) company that is sought to be targeted by s. 79 and relevant, is fortified by the decision by the Hon'ble Apex Court in CIT v. Italindia Cotton Company Pvt. Ltd. [1988] 174 ITR 160 (SC), relied upon by the ld. CIT(A). Though the controversy in that case was whether clauses (a) and (b) (since omitted) are to be read as representing cumulative conditions or disjunctively, so that existence of either would prevent the operation of the provision, the Apex Court, while discussing the provision, abundantly clarifies that the change in the shareholding for the purpose of s. 79 is with reference to the controlling interest in the assessee-company. Its’ observations in the context of discussing the provision are relevant in this regard, some of which we may reproduce for ready reference: (pg. 165) ‘But there may be a change in the shareholding and it may result in a change of control of the company. Yet, every change…. Attempts to acquire control over a company by controlling a majority of the shareholding are not unknown. The acquisition of control over a company provides a source of both direct and indirect financial benefit as well as power over its policies and activities’.

In fact, a holistic reading of the said decision leaves no doubt in one’s mind that it is only the controlling interest in a company in which the public is not substantially interested that is sought to be identified by the provision, and it is with reference to a change therein that s. 79 shall, or shall not, apply in the facts and circumstances of a given case. Clause (b) of the provision (omitted w.e.f. 01.4.1989) cast another condition to show that the change in the controlling interest was effected with a view to reduce the tax liability, so that the only condition that now obtains is the change in the controlling interest, and the Revenue is not obliged to show that the same is with a view to reduce the tax liability. Our understanding also agrees with that by the tribunal per the decisions relied upon by the ld. CIT(A). Coming to the decision in Yum Restaurants (India) Pvt. Ltd. (supra), relied upon by the assessee, we are unable to see as to how it assists the assessee’s case. If

11 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT a change in the share-holding of the assessee-company without a change in the controlling interest therein, in-as-much as there is no change in that of it’s holding company (as, for example, in the holding of Yum Asia and Yum Singapore, which remains with their parent company, Yum USA), did not persuade the Hon'ble Court to accept the assessee’s case, how could it be inferred that where the same is accompanied by a change in the controlling interest it would be so? All it clarifies is that it did not consider it necessary to, in the facts of the case, go beyond the share-holding of the assessee-company, which had admittedly suffered a change. We are conscious that another interpretation to the said decision is being sought to be placed by the assessee, i.e., it is the change in the holding of the subject (assessee) company alone that is relevant irrespective of whether it leads, or does not lead, to a change in the controlling interest therein. We are, however, unable to infer the proposition as being canvassed as flowing from the said decision. As is trite law, a decision is an authority only for what it actually decides, explained in Goodyear India Ltd. vs. State of Haryana & Anr. [1991] 188 ITR 402 (SC) in the following words: “A precedent is an authority only for what it actually decides and not what may remotely or even logically follow from it.” (also refer: CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC); Lachman Dass Bhatia Hingwala (P.) Ltd. vs. Asstt. CIT [2011] 330 ITR 243 (Del.) (FB); Blue Star Ltd. v. CIT [1996] 217 ITR 514 (Bom.)) ‘Controlling interest’ in a company gives substantial rights of management and control, besides being accompanied by acquisition of an asset (in the form of shares – held directly and indirectly in the company), that enables a control over its policies and activities, as emphasized by the Apex Court in Italindia Cotton Co. Pvt. Ltd. (supra), and which also explains the rationale for fixing the threshold limit of the change in the share holding at fifty-one per cent. It is, this, therefore, where achieved and exercised for business and commercial reasons, that was excepted by clause (b) of s. 79, since omitted. Again, it is this interest, accompanied as it is by the acquisition of an asset, that could be leveraged for reducing tax liability in-as-

12 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT much as it is only the person holding the shares enabling the exercise of the controlling interest in a company who would stand to be ‘benefited’ thereby, i.e., through an increase in the net-worth of the company (on account of tax shield on the loss set off) and, thus, in the value of the shares beneficially held by him in the company, i.e., whether by way of direct holding, or indirectly through the acquisition of the shares of the holding company, as in the present case. The provision (s.79), sans any prescription for controlling interest, would be bereft of any meaning, if not intent and object itself. Formation of a holding company (of the subject company), whose shares change hands - as in the instant case, would easily defeat the provision, whose language makes it abundantly clear that the beneficial share-holding therein implies as to for whose benefit, the shares are held, and who thus exercises the voting power in relation thereto. We are unable to accept that the Hon'ble HC in Yum Restaurants (India) Pvt. Ltd. (supra) had intended to read the provision as devoid of any rationale or purpose. Again, who holds the shares in Yum USA at the relevant points of time is also not clear, as it could well be that it’s share-holding has undergone a change during the relevant period. While a change in the share-holding in the assessee-company (from Yum Asia and Yum Singapore) could be for administrative reasons, that in Yum USA could be for control/acquisition (of business) purposes. It is not uncommon to find reorgani- zation (of business) pursuant to a change in the controlling interest therein. Further, the acquisition of controlling interest may not necessarily be through one intermediary company, but more than one as well. The cited decision, rendered without reference to any precedents; in fact, the Hon’ble Court declining to frame any question of law, much less answer it, cannot be said to be laying down the proposition sought to be canvassed before us. A decision by a non- jurisdictional High Court cannot even otherwise be said to be binding (refer: CIT v. Thane Electricity Supply Ltd. [1994] 206 ITR 727 (Bom)), i.e., assuming its applicability.

13 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT We have found ample support for our understanding, apart from the clear language of the provision, the decision by the Apex Court in Italindia Cotton Co. Pvt. Ltd. (supra) and that by the tribunal.

5.4 The matter with regard to the brought forward loss (of an amalgamating company) shall thus have to be examined from the stand point of both - sec.72A and sec. 79. The question as regards unabsorbed depreciation, since allowed by the ld. CIT(A), and the plea of the ld. DR for restoring the matter back to the AO for verifying if the conditions of s. 72A are met, assume significance in this context. Clearly, the conditions of s. 72A - which provision applies to both, the claim of brought forward loss and unabsorbed depreciation, cannot be deemed to be satisfied, i.e., merely because the claim of depreciation stands ‘allowed’, putting as it were, the cart before the horse. Why, we have already found - in the context of the claim of loss, as also admitted by the ld. A.R., that an examination and, consequently, a finding as to the satisfaction (or otherwise) of the conditions of s. 72A shall be required and have to be recorded. This may lead to a very anomalous situation where the said conditions, claimed by the assessee before the ld. CIT(A) to be met, are in fact not. The said conditions in fact relate to both, i.e., the period prior to amalgamation as well as subsequent thereto. If the prescribed status is not maintained in future, the benefit of s. 72A gets withdrawn (s.72A(3)), so that the same has implications for the subsequent years as well. While, therefore, the claim for set off of loss would in such a case stand to be disallowed - whether for the current or a subsequent year, on account of violation of s. 72A, no such debility shall presumably get attracted qua depreciation for the violation of very same section, as the ld. CIT(A) has ‘allowed’ the same unconditionally, i.e., de hors s. 72A. There being no estopple against law, and a position contrary to law cannot be allowed to obtain, particularly which is dichotomous in the context of the case and has implications both for the current as well as the subsequent years. The allowance of the claim of depreciation by the ld. CIT(A) must therefore necessarily be regarded as subject to the satisfaction of the conditions of s. 72A, i.e., in-so-far

14 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT as it relates to the unabsorbed depreciation of the amalgamating companies, which only is hit by s. 72A; that of the amalgamated company being continuing to be governed by s. 32(1) r/w s. 32(2). It may be that the said conditions are satisfied, even as contended by the assessee, so that this reading or modification by us may be to no effect. But then it may well not be. Our order, in any case, has to be comprehensive, valid and applicable under all conditions. Further, even where met, the issue of maintaining status quo for five years after amalgamation shall in any case obtain (s.72A(2)(b)).

5.5 In the facts of the case, without doubt, the voting power in all the subsidiary companies of Agile EDTHPL are now, i.e., post 11.11.2010, controlled by HBL Power Systems and P. Mukund, who together account for 82 per cent holding therein as on 31.03.2011. Though their holding as on 31.03.2010 is not stated, it is clear that the same could not exceed 3 per cent in-as-much as the identity of 97 per cent shareholding therein is specified (refer para 3 of this order). And, therefore, the voting power in the holding company of the three wholly owned subsidiary companies, carry forward of loss of which is under reference, has changed during the relevant previous year in excess of fifty-one per cent. Clearly, the controlling interest in the assessee-company, post 11.11.2010, lies with another set of persons other than who held it prior thereto, i.e., as on 31/3/2010. Section 79 would thus clearly apply in the facts and circumstances of the case.

5.6 Finally, we may dilate on the aspect of remission to the AO for the verification of the satisfaction of the conditions of sections 2(1B) and 72A. We are conscious that the same may not be of much consequence in relation to loss in-as- much as we have upheld the application of s. 79 in the instant case, so that the claim for carry forward and set off of unabsorbed loss would in any case stand to be disallowed. So, however, our order is appealable, and the issue involved is a question of law, which may well not find approval by the higher courts of law, i.e., as regards the scope and/or application of section 79 in the facts and circumstances

15 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT of the case. In any case, we cannot be oblivious to that eventuality, or base our order on the presumption of its confirmation by both the higher appellate forums. And in which case, i.e., it being not approved on that aspect, the satisfaction of (the conditions of) s. 72A shall assume critical significance, i.e., in-so-far as the claim of brought forward loss of the amalgamating companies is concerned. Further, the said conditions being in any case applicable, i.e., notwithstanding the applicability or otherwise of s. 79, may get violated for the subsequent years, with the consequence of the claim for carry forward and set off of loss of the amalgamating companies being withdrawn. We have already emphasized the need for our order being composite, having regard to all possible scenarios in-as-much as the rule of law must obtain in any case. We may at this stage clarify that we are, in arriving at our direction qua the claim of unabsorbed depreciation (of the amalgamating companies) being subject to s. 72A, besides by the fact that the ld. CIT(A), in presuming that the conditions of s. 72A are met, committed a serious error in-as- much as no relief could be allowed on the basis of a presumption, i.e., without meeting the requirements of the Act, so that it is incumbent on us to correct the same, and for which there is ample authority (refer: Kapurchand Shrimal v. CIT [1981] 131 ITR 451, (460, 461) (SC); CIT v. C.C.C. Holdings [2003] 260 ITR 433 (Mad)), also moved by the fact that the issue of loss and depreciation are inter- connected, if not intertwined, in-as-much as the provision of s. 72A is equally applicable and required to be met for both, and on a continuing basis. An anomalous situation on the non-satisfaction of the conditions of s. 72A - which applies to both, the claim of loss and depreciation, operating only qua loss, cannot be allowed to obtain. It needs to be appreciated that tax proceeding are not adversarial in nature and the appellate authorities do not decide a lis (between two parties); the prime objective thereof being the correct assessment of tax liability. Appellate proceedings, it is again trite law, are only a continuation of the assessment proceedings. Reference in this regard may be made to the decision by the Hon'ble jurisdictional High Court in CIT v. Indian Express (Madurai) Pvt. Ltd.

16 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT [1983] 140 ITR 705 (Mad), rendered relying on and discussing three decisions by the Apex Court as also the precedents under the English law as well as a full bench decision by it (in State of Tamil Nadu v. Arulmurugan & Co., reported at [1982] 51 STC 381), reproducing there-from (at pages 724-725), which is elucidative, even as the entire discussion (at pg. 711-725) is extremely relevant. It stands explained that it would not be in accord with the scheme of the Act to impose restrictions on the ambit of the tribunal by notions such as finality, subject matter of the appeal, etc. (pg. 722). That, in tax appeal, the appellate authority is committed to the assessment process. It could pursue further investigation or cause the same, and on its own, without being prodded by the parties. It goes on to say that an appellate authority is functionally and substantially no different from the assessing authority; and an appeal, though mooted with a view to a reduction in assessment, could result in its’ enhancement (pgs. 724-725). The same accords with its’ earlier decisions in N.P. Saraswathi Ammal & Othrs. v. CIT [1982] 138 ITR 19 (Mad) and CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454 (Mad). To the same effect and congruent in substance are the subsequent decisions, so that the law in the matter is well-settled, viz. CIT v. Assam Travels Shipping Service [1993] 199 ITR 1 (SC); Thanthi Trust v. Asst. CIT [1999] 238 ITR 117 (Mad); Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351 (Bom-FB); Controller of Estate Duty v. R.Brahadeeswaran [1987] 163 ITR 680 (Mad); CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj-FB), considering the issue in its different aspects. That rules 11 & 27 of the Income Tax (Appellate Tribunal) Rules, 1963 are not exhaustive of the powers of the tribunal stands clarified as far back as in Hukumchand Mills Ltd v. CIT [1967] 63 ITR 232 (SC). Indeed in that case, the Revenue, though not in appeal, raised a contention not in support of the order appealed against, even as noted by the Hon’ble Court in Indian Express (Madurai) Pvt. Ltd. (page 718). We are, considered in perspective, in fact not withdrawing any relief as such, but only ensuring that there is no disregard of the express provision of law,

17 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT saving a quixotic situation that could arise. The principles of the Act and the Rules framed there-under cannot be allowed to be by-passed or overlooked (Bharat Hari Singhania v. CWT [1994] 207 ITR 01, 25-26 (SC)). The Tribunal in our view is duty bound to do so, and for which there is ample authority, and toward which reference is made to some decisions, viz. Kapurchand Shrimal (supra); C.C.C. Holdings (supra); CIT vs. Ramnath Goenka (Decd.) & Othrs.[2001] 252 ITR 653, 654 (Mad); CIT vs. Rayala Corporation (P.) Ltd. [1995] 215 ITR 883 (Mad); Ramilaben Ratilal Shah vs. CIT [2006] 282 ITR 176 (Guj); CIT vs. P.B. Corporation [2004] 266 ITR 548 (Guj). The decisions, rendered in different fact situations, signify that no restrictions are placed by the statute on the powers of the Appellate Tribunal in the matter of disposing an appeal before it, with a view to deliver justice and in accord with the scheme of the Act. The assessee had in fact specifically invoked the provision of s. 72A before the ld. CIT(A), which was not considered by him. The same itself raises a question of law arising out of his order, as explained by the Hon'ble High Court in CIT v. Anaimugam Transports (P.) Ltd. [1995] 215 ITR 553 (Mad), stating that where a question of law is raised before the Tribunal which has not been dealt with by it, it must be deemed to have been dealt with by it and is, therefore, one arising out of its order (pg. 557D, E). Also, there is no law that where the tribunal remits a matter back to the file of the AO for his consideration, his jurisdiction can be restricted by the tribunal, as explained in CIT v. D.Veerappan [1995] 215 ITR 533 (Mad). The premise, all through, as already expressed, is that there is no estopple against law, and toward which reference may, once again, be made, inter alia, to Assam Travels Shipping Service (supra); Hukumchand Mills Ltd. (supra); C.C.C. Holdings (supra); and Ramnath Goenka (Decd.)(supra).

In conclusion 6. The two wholly-owned subsidiary companies of the assessee’s holding company (Agile EDTHPL) amalgamating with it, as well as there being a change in the majority shareholding in the said holding company, during the relevant year,

18 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT the AO, invoking section 79, denied the claim for carry forward of both, the unabsorbed loss and unabsorbed deposition, of all the three subsidiary companies. The ld. CIT(A) concurred with the AO in that s. 79 is applicable, though restricted its’ application to unabsorbed loss, accepting the assessee’s contention in that regard based on judicial pronouncements. He did not examine the assessee’s contention with respect to section 72A, the conditions of which were stated as met. The said provision being pressed again before us, we find it as applicable only qua the amalgamating companies and, further, to both the accumulated loss and unabsorbed depreciation, subject of course to its conditions being met. Not meeting the same would oust the assessee’s claims at the threshold. The same having not been examined at any stage, we direct so. Further, section 79 is applicable in-as- much as its applicability is necessarily to be with reference to the exercise of (the majority of) the voting power therein – as also explained in case law, and which stands vested in a different set of persons. The unabsorbed deprecation allowance of the assessee company (itself) would continue to be governed by the regular provisions (s.32) of the Act. The decision relied upon stands explained and met, while at the same time relying on and drawing support from, i.e., for the view/s adopted, several binding precedents. It is accordingly held as under: (a). The question as regards the satisfaction of the conditions of section 2(1B) and section 72A is indeterminate. The AO shall examine the same and record his findings in the matter after giving due opportunity to the assessee to state its’ case in this regard before him. The assessee’s claim for carry forward and set off of accumulated loss and unabsorbed depreciation allowance (of the amalgamating companies) shall be subject to a positive satisfaction of the said conditions;

(b) the claim of unabsorbed the decision of the assessee-company (AESPL) shall continue to be governed by section 32(1) r/w s.32(2); and

(c) Section 79 is applicable in the given facts and circumstances and, accordingly, no part of the brought forward loss of the three subsidiary companies of Agile EDTHPL, including the assessee-company, shall be carry forward (to the current year) or set off.

19 ITA No.2497/Mds/2016 (AY 2011-12) Agile Electric Sub Assembly Pvt. Ltd. v. Dy. CIT 7. In the result, the assessee’s appeal is disposed of in the aforesaid terms. Order pronounced on December 29, 2016 at Chennai.

Sd/- Sd/- (जी. पवन कुमार) (संजय अरोड़ा) (G. Pavan Kumar) (Sanjay Arora) �या�यक सद�य/Judicial Member लेखा सद�य/Accountant Member चे�नई/Chennai, �दनांक/Dated, December 29, 2016. Edn.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF