JUST LIFESTYLE P.LTD,MUMBAI vs. DCIT 8(2), MUMBAI

During the course of hearing, arguments were made by Shri K. Gopal, Authorised Representative (AR) on behalf of the Assessee and by Shri Ashish Heliwal, Departmental Representative (DR) on behalf of the Revenue.

The brief facts are that during the assessment proceedings the AO observed that assessee had filed its return after claiming set off of brought forward losses of earlier years amounting to Rs.1,65,21,117/-. The AO rejected the claim of set off of the losses by invoking provisions of section 79 on the ground that there was a change in majority shareholding pattern and provisions of section 79 were violated.

Being aggrieved, the assessee had filed an appeal in the quantum proceedings before the Ld. CIT(A) but no relief was given. Accordingly, the assessee had filed second appeal before the Tribunal and the Tribunal also confirmed the action of the AO vide its order dated 23.10.2013 in ITA No.2638/Mum/2012. Subsequently, the AO initiated penalty proceedings and gave show cause to the assessee. The assessee submitted that there was no concealment of income and no inaccurate particulars of income were filed. The assessee was under bona fide belief that control is exercised by at least 51% shareholders belonging to the same group, even

Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein detailed submissions were made. There also, assessee could not get any relief and penalty was confirmed.

During the course of hearing before us, Ld. Counsel of the assessee has made submissions in detail and made an attempt to demonstrate that even after the change in shareholding pattern at least 65% of the holding is still with the same group which was appearing in earlier year. Thus, in fact provisions of section 79 are not attracted. Although, the assessee had lost in quantum proceedings but it was not a case of concealment of income or furnishing of inaccurate particulars of income. He submitted that under such circumstances penalty is not leviable merely because the claim of set off of brought forward loss was rejected by invoking provisions of section 79, and in support of his proposition he relied upon the judgment of Delhi Bench of ITAT in the case of Century Metal recycling (P.) Ltd. vs DCIT 53 taxmann.com 309 (Delhi-Trib).

On the other hand, Ld. DR submitted that the claim of the assessee in the quantum proceedings has been rejected at three stages and it has been clearly established that there was violation of section 79. Under such circumstances the penalty has been correctly levied by the AO and rightly confirmed by the Ld. CIT(A), and he relied upon the orders of the lower authorities.

We have gone through the facts of the case. The assessee has submitted a chart during the course of hearing wherein it had made a claim that the earlier group of shareholders is still holding at least 65% of the total paid of share capital. Thus, at least 51% of the share capital is still retained by the earlier shareholders. The stand of the ld. Counsel is that while computing 65%, he has also considered the claim of Ms. Manisha Sangavi who is shareholder of the company, M/s Priority Marketing Pvt. Ltd., which was shareholder of the assessee company in earlier years with 80% of the shareholding. According to Ld. Counsel Ms. Sangavi is beneficial shareholder and falls in the same group and therefore, the view of the assessee is one of the plausible views. It was contended that though the claim of the assessee was rejected even by the tribunal in the quantum proceedings, but stand taken by the assessee was not wholly unfounded. We find force in the argument of Ld. Counsel that there were basis to have a bona fide belief that majority control still remained with the same group. The provisions of section 79 are complex and highly technical. Though, technically speaking there was violation of section 79, but it is not a case of concealment of income or filing of inaccurate particulars on the part of the assessee. The benefit of set off of losses was claimed by the assessee in the return as per its understanding of section 79. The claim was refused by the AO because of his understanding of section 79. The appellate authorities upheld the stand of the AO. But, that itself would not attract levy of penalty, as was also held in the similar facts by Hon’ble Delhi Bench of the Tribunal in the case of Century Metal recycling (Pvt) Ltd.(supra) wherein it was observed that where disallowance of carry forward of long term losses was made on technical ground and not on account of concealment of particulars of income, penalty u/s 271(1)(c) would not be levied. We find that making of disallowance and levy of penalty are two different events under the Income Tax Law, and happening of one event does not automatically leads to the other.

We find that in the given facts of the case and in view of the above said judgment of the Tribunal penalty is not leviable in this case, and therefore, the same is directed to be deleted.

In the result, the appeal filed by the assessee is allowed.

""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai. 4. आयकर आयु"त / CIT(A)- , Mumbai

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.