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TMI Blog2019 (12) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble PCIT has erred in holding that the Order dated 21 February 2018 passed by the Deputy Commissioner of Income Tax - 15(1}(2) (Ld DCIT') u/s. 154 of the Act was erroneous and prejudicial to the interests of revenue and in thereby revising the same. 1.3 On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the Ld DCIT was neither erroneous nor prejudicial to the interest of the revenue and hence the revision of the same by the Hon'ble PCIT u/s. 263 of the Act is erroneous and bad in law. 1.4 On the facts and circumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the Learned PCIT is to be struck down. Without prejudice to the aforesaid: 2. Re: Denial of carry forward and set off of losses and unabsorbed depreciation of INR 18,11.68.666 pursuant to the provisions of section 79 of the Act: 2.1 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Appellant is not entitled to carry forward and set off of the losses pertaining to earlier years in the current assessment year by applying the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. AO be directed to dispose off the 154 petition pending before him so that there would be no tax payable by the assessee. The ld. AR stated that this Tribunal directed the ld. AO accordingly. We would like to point out that even though this was stated by the ld AR before us but no order passed by this Tribunal was placed on record for our perusal. Later, the ld. AO vide its order dated 21/02/2018 passed an order u/s.154 of the Act accepting the plea of the assessee and determined the total income for the A.Y.2012-13 at Rs. Nil and determined the refund due to assessee including interest u/s.244A of the Act thereon. In the said order, the ld. AO had recorded as under:- "It has been brought to my notice by application dated 25/01/2018 that the following mistake has occurred in the intimation dated 31/01/2017 u/s.143(3) of the Income Tax Act, 1961 which is apparent from record. B/fd losses not given By considering the statement and examining the records, total income and demand are rectified as under:" (Underlining provided by us) 3.2 We find that the ld. Administrative CIT had sought to revise this order passed u/s.154 of the Act dated 21/02/2018 by invoking his re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company carrying not less than fifty-one per cent of the voting power on the Vast day of the year or years in which the loss was incurred : Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift: Provided further that nothing contained in this section shall apply to any change in - the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating or demerged foreign company "continue to be the shareholders of the amalgamated or the resulting foreign company. (b)[***] Provided that nothing contained in this section shall apply to a case where a change in the said voting power and shareholding takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift: Provided furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 8,873,920 887,392,000 3,743,920 374,392,000 Total 8,873,920 887,392,000 3,743,920 374,392,000 Details of shares held by each shareholder holding more than 5% shares: Particulars As at 31 March. 2012 As at 31 March, 2011 Number of share % Number of shares % TracHoldings, LLC Rustic Canyon, LLC 5,130,000 3,743,919 57.81 42.19 3,743,919 100.00 d) During 2010-11, the Company had given 5,130,000 shares to Tracholdings, LLC being consideration in the scheme of amalgamation. The allotment, however was made in the current Year, [Also refer note no. 2.21 (b) Apart from above, during the previous five years, the Company has not issued bonus shares/brought back shares/issued shares for consideration other than cash. (B) It would also be relevant to refer to note No.2.21 of the notes to Financial Accounts for the year ended 31/03/2012 which is as under:- 2..21 a) Pursuant to approval of the 'Scheme of Amalgamation' by the Honorable High Court of Bombay vide Order dated 28th January, 2011; Tracmail AR Services Private limited (Trac AR) and HOV AR : Management Service Private Limited (HOV ARM) were merg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disclosures" are given below: A. Names of the related parties: i Parties where control exists: a. Ultimate holding company Rustic Canyon, LLC b. Holding Company: Tracholdings, LLC c. Fellow Subsidiaries: 1. Superior Asset Management Holdings, LLC 2. Superior Asset Management Inc. 3. RC GPM, LLC 4. Bay Area Credit Services, LLC 8. From the aforesaid disclosure made in the financial statements, it could be safely concluded that assessee had duly brought to the notice of the ld. AO about the scheme of amalgamation, about the scheme being approved by the Hon'ble High Court, about the shareholding pattern post amalgamation etc as detailed hereinabove. These facts were duly considered by the ld. AO both in the original assessment proceedings as well as in the proceedings u/s.154 of the Act. Hence, having considered those facts and the ld. AO have taking a view thereon, the logical conclusion that could be drawn is that the ld AO ad taken one of the possible views on the matter, which cannot be the subject matter of revisionary jurisdiction u/s. 263 of the Act by the ld. CIT. The law is very well settled in this regard by various decisions of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax of Rs. 2,77,35,986." 4. It was thus alleged by the Pr.CIT that examination of records revealed that the assessment order so passed is erroneous in so far as it is prejudicial to the interests of the revenue for the reason that the AO has failed to conduct requisite enquiry with respect to allowability of carry forward of loss incurred having regard to the provisions of section 79 of the Act owing to substantive change of shareholding pattern of assessee- company. It was observed by the Pr.CIT that the AO has wrongly accepted the claim of carry forward of business losses for set off to the extent of Rs. 924.43 lakhs and consequent short levy of tax in the vicinity of Rs. 277.35 lakhs. It was inter alia noted by the Pr.CIT that as per the tax audit report filed by assessee, it is manifest that there is a change in share holding of the assessee-company by more than 51% of the voting power during the previous year of change in shareholding pattern relevant to assessment year attracting the embargo placed in section 79 of the Act whereby loss incurred in any year prior to previous year shall not be allowed to be carried forward for set off in subsequent assessment year(s). The P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the interests of the revenue. The Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. & Another vs. ITO in SLP No.23976/2017 order dated 29/11/2017 to submit that setting aside the order of the AO by the designated authority for the purposes of conducting proper enquiry into vital issue by invoking section 263 of the Act cannot be interfered. The Ld. DR accordingly submitted that the action of the Pr.CIT vs. 263 is in sync with authority of law on both the premises namely applicability of section 79 to the facts as well as lack of enquiry in this regard. 8. We have carefully considered the rival submissions and perused the orders of the authorities below and material placed on record. The supervisory jurisdiction conferred upon the Pr.CIT under s.263 of the Act has been invoked in the present case and the assessment order passed by the AO under s.143(3) for AY 2011-12 has been set aside on the ground that the business loss occurred prior to the change of share holding is not permissible to be carried forward for set off against future losses in view of the restrictions placed under s.79 of the Act. Consequently, the Pr.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be triggered. Therefore, while the legal ownership might have changed, the ownership/control/voting power of the assessee-company continues to be beneficially held by the same owner. This inevitably means that the cause for issuance of notice under s.263 ceases to exist. 10. In view of the discussion noted above, we find considerable merits in the plea on behalf of the assessee that section 79 has not application in the absence of change in beneficial voting power. This being so, we see no error in the order of the AO on this score. This apart, once these facts were brought to the notice of Pr.CIT, the Pr.CIT ought to have appreciated the case of the assessee objectively in perspective and could not shrink his sacrosanct obligations and resort to simply set aside a completed assessment on non-existent ground. Thus, the prerequisites of section 263 are not satisfied. 11. We also do not visualize any merit in the plea on behalf of the Revenue about the lack of enquiry on the factual aspects. In the absence of any change in the beneficial ownership, we are unable to comprehend the nature of enquiry sought by the Pr.CIT in this regard. Hence, we are disposed to hold that the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BL as the change in shareholding did not result in reduction of its voting power to less than 51%. 11. The ld. DR vehemently argued that the ld. AO is not bound to look into ultimate ownership of shares held in the assessee company, in support of which, he relied on the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings reported in 341 ITR 1. We find that this aspect has already been addressed by us in the light of the provisions of Section 79 which only mentions shares to be "beneficially held". This has been duly complied with in the assessee's case. Hence, there cannot be any violation of provisions of Section 79 of the Act. Hence, the case laws relied upon by the ld. DR on certain Mumbai Tribunal decisions and the Hon'ble Delhi High Court decision in 66 Taxman.com 47 does not advance the case of the revenue. We also find that the ld. CIT had directed the ld. AO to directly disallow the benefit of set off of losses of earlier years against the income of current year on the ground that assessee had not complied with provisions of Section 79 of the Act, ignoring the various arguments made by the assessee before him, which are part of the paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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