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2017 (1) TMI 1328 - ITAT MUMBAI

2017 (1) TMI 1328 - ITAT MUMBAI - TMI - Carry-forward the losses of earlier years - Held that:- Section 79 was enacted with the object of preventing what may be shortly described as buying of losses by taking over controlling interest in the shareholding of a company which had carried forward losses.We find that the FAA has not passed a speaking order.From his order,it is not clear as what was the shareholding for the initial year and what changes took place during the year under consideration. .....

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ssee. Effective ground of appeal is decided in favour of the AO, in part. - ITA No.2788/Mum/2015 - Dated:- 25-1-2017 - Shri Rajendra, A.M. and Shri Pawan Singh,J.M. For The Revenue : Ms. Anu Krishna Aggarwal-DR For The Assessee : Shri K. Gopal Order u/s.254(1)of the Income- tax Act,1961(Act) PER Rajendra A.M.- Challenging the order dated 26/02/2015 of the CIT (A)-22, Mumbai the Assessing Officer (AO) has filed the present appeal.Assessee-company,engaged in the business of development of real est .....

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on the first day and the last day of the assessment year. He found that Altime Construction P. Ltd.was holding hundred percent shares of the assessee-company during the year 2009-10,that in the subsequent year it held only 50% shares and rest were held by another company.He observed that there was change in shareholding pattern of the assessee.He directed it to explain as to why brought forward losses should not be disallowed to be carried-forward in view of the provisions of section 79 of the A .....

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holder and companies were separate entities,that the Act did not provide direct shareholder/ indirect shareholder, that the shareholders holding 51% of voting rights as on 1/4/2009 were not holding 51% or more as on 31/03/2010, that as per the provisions of section 79 the assessee was not eligible to be set off/carried forward the losses. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it made elaborate submissions and re .....

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time Construction Private Ltd and Aim Sales Agencies Private Ltd. held 50- 50 percent shares, that examination of Alltime Construction Private Limited shareholding revealed that Crescent Engineering Private Ltd. and Crescent Properties Private Limited together controlled 66.66% shares of Aim Sales Agencies Private Limited, that Crescent Engineering Private Ltd. and Crescent Properties Private Limited were holding 83.34% shares of the assessee even after September 2009, that All-time Construction .....

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proceeding further,we would like to consider the background of the section and basic principles governing it.Section deals with carry forward and set-off of losses in the case of certain companies and its provisions are as under : "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, riot being a company in which the public are substantially interested, no loss incurred in any year prior to the p .....

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the shareholding was not effected with a view to avoiding or reducing any liability to tax." 5.1. Section 79 was not part of the Indian Income tax,Act,1922-it was brought on statute book for the first time by the present Act and it was at the stage of the Select Committee when the Act was enacted that several changes were made in the language of the section and the provisions of the section.At present the section contains two cluses.But,when the Income-tax Bill,1961,was moved in the Lok Sab .....

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is as a result of this report of the Select Committee that clause (b) had been introduced in section 79 before it was passed by Parliament. 5.2. Broad principles,governing the section,can be summarised as under: i. The provision,on its own language,shows that it applies to a company in which the public are not substantially interested. ii. The words, Notwithstanding anything contained in this Chapter have been used only for the purpose of showing that whatever may have been provided in the othe .....

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entirely independent of clause (a).It will apply in a case where benefit under clause (a) is not available to the assessee.In short,the two conditions contained in clauses (a) and (b) of section 79 are cumulative and are not alternative. iv. The word unless according to grammatical meaning is equivalent to if not and this word followed by the disjunctive or occurring between clause (a) and (b) clearly on a grammatical interpretation goes to show that clause (a) and (b) are to be applied disjunct .....

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f a company is to treat the company as if it was newly incorporated and had not incurred any losses prior to the previous year, unless it came within the exception provided in the statute.The object sought to be served by enacting section 79 is to be to discourage assessees claiming a reduction of their tax liability on the profits earned in companies which had sustained losses in earlier years. It was not unusual for a group of persons to acquire a company, which had suffered losses in the earl .....

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ange in the shareholding did not result in holding voting power of 51% or it was established that the shares of the company carrying not less than 51 % of the voting power were beneficially held by the same persons, both on the last day of the previous year as well as the last day of the year or years in which the loss was incurred, it could be presumed that there was no change in the control over the company and the disqualification imposed on the company because of the change in its shareholdi .....

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rought about only with a view to continue the same business conveniently. viii. Section 79 forms part of Chapter VI and is connected with the carry forward and set off of losses which are provided for in section 72 onwards.Section 32(2) pertains to depreciation allow -ances/carrying forward of unabsorbed depreciation allowance and section 33(2)is about carrying forward of development rebate which,has not been absorbed in the preceding AY.Both these section deal with certain allowances being made .....

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