M/s. Daikin Industries Ltd., Gurgaon V. DDIT, New Delhi

CO 155/DEL/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 1881 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 26-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Keywords: Capital asset; Cost of acquisition; Wrong claim; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE : JUDICIAL MEMBER ITA NO. 1215/DEL/2012 ASSTT. YR: 2005-06 DCIT, CIRCLE-1(1), VS. M/S DAIKIN INDUSTRIES LTD. , INTERNATIONAL TAXATION, UMEDA CENTER BUILDING NEW DELHI. 4-12, NAKAZAKI, NISHI 2, CHOME, KITA KU, OSAKA, JAPAN. PAN: AACCD 2498 N C.O. 155/DEL/2012 ( IN ITA NO. 1215/DEL/2012) ASSTT. YR: 2005-06 M/S DAIKIN INDUSTRIES LTD., VS. DCIT, CIRCLE-1(1), UMEDA CENTER BUILDING INTERNATIONAL TAXATION, 4-12, NAKAZAKI, NISHI 2, CHOME, NEW DELHI. KITA KU, OSAKA, JAPAN. ( APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI ANUJ ARORA CIT(DR) ASSESSEE BY : SHRI VISHAL KALRA ADV. DATE OF HEARING : 03/12/2015. DATE OF ORDER : 18/01/2016. O R D E R PER S.V. MEHROTRA, A.M: THE CAPTIONED APPEAL BY THE REVENUE AND THE CROSS O BJECTION BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST CIT(A)S ORDER DATED 23.11.2011 RELATING TO AY 2005-06. 2 ITA NO. 1215/DEL/2012 ( REVENUES APPEAL): 2. THE ASSESSEE, A FOREIGN COMPANY, HAD FILED ITS R ETURN OF INCOME ON 30.10.1985, SHOWING LOSS OF RS. 5,44,087,500/-. NOT ICE U/S 148 WAS ISSUED ON 13.02.2007, AFTER RECORDING REASONS, PRIMARILY F OR DENYING THE ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS OF RS. 15,60,00,000 /- AND SHORT TERM CAPITAL LOSS OF RS. 388,087,500/-, WHICH WAS CLAIMED TO BE CARRIED FORWARD TO AY 2006-07. BRIEF FACTS APROPOS THIS ISSUE ARE THAT DU RING THE PREVIOUS YEAR 2004-05, 5,480,000 EQUITY SHARES HELD BY ASSESSEE I N DAIKIN AIRCONDITIONING INDIA PVT. LTD. WERE CANCELLED UNDER THE CAPITAL RE DUCTION SCHEME, WHICH WAS APPROVED ON 10.3.2005 BY THE HONBLE DELHI HIGH COURT U/S 102 OF THE COMPANIES ACT, 1956 AND THE ORDER OF THE HIGH COURT WAS REGISTERED BY REGISTRAR OF COMPANIES DURING THE YEAR ENDING MARCH 31, 2005. THE ASSESSEE HAD CLAIMED THAT AS PER THE DEFINITION OF TRANSFER U/S 2(47), SINCE THERE WAS RELINQUISHMENT OF AN ASSET/ EXTINGUISHMEN T OF RIGHT IN SHARES, THEREFORE, IT AMOUNTED TO TRANSFER OF A CAPITAL ASS ET. THE ASSESSEES CLAIM WAS THAT THE REDUCTION IN CAPITAL RESULTED IN RELINQUIS HMENT OF ASSET/ EXTINGUISHMENT OF RIGHT IN THE SHARES HELD BY THE A SSESSEE IN DAIKIN AIRCONDITIONING INDIA PVT. LTD. 3. THE AO, AFTER CONSIDERING THE ENTIRE COURSE OF E VENTS, INCLUDING THE RESOLUTIONS PASSED FOR CANCELLATION OF SHARES AND A FTER TAKING INTO 3 CONSIDERATION VARIOUS DECISIONS CONCLUDED THAT THE PORTION OF RIGHT WHICH GETS EXTINGUISHED ON CANCELLATION IN CASE OF EQUITY SHAREHOLDER CAN BE SUMMARIZED AS BELOW: RIGHTS IN THE COMPANY BEFORE CANCELLATION OR REDUC TION VIS--VIS RIGHTS IN THE COMPANY AFTER CANCELLATION OR REDUCTI ON. 4. HE OBSERVED THAT IN THE PRESENT CASE THERE WAS N EITHER RELINQUISHMENT OF THE CAPITAL ASSET NOR ANY RIGHTS IN THE CAPITAL ASSET. HE, ACCORDINGLY, HELD THAT IT WAS NOT A TRANSFER U/S 2(47) OF THE ACT AND REJECTED THE ASSESSEES CLAIM REGARDING CARRY FORWARD OF CAPITAL LOSS. 5. BEFORE LD. CIT(A), THE ASSESSEE HAD CHALLENGED T HE INITIATION OF PROCEEDINGS U/S 147 AS WELL AS ON MERITS. LD. CIT(A ) REJECTED THE ASSESSEES CLAIM IN REGARD TO INITIATION OF PROCEEDINGS, HOWEV ER, ALLOWED THE ASSESSEES CLAIM ON MERITS. 6. LD. CIT(A) RELIED ON THE DECISION IN THE CASE OF ZYMA LABORATORIES LTD. VS. ACIT 7 SOT 164. BEING AGGRIEVED WITH THE O RDER OF LD. CIT(A), THE DEPARTMENT HAS FILED APPEAL ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 5 44087500/- MADE BY THE AO ON ACCOUNT OF WRONG CLAIM OF CAPITAL LOSS, HOLDING THAT THE CANCELLATION OF SHARES RESULTED IN EXTINGUISHMENT OF CAPITAL ASSET HELD BY THE ASSESSE E THE 4 THEREFORE IS A 'TRANSFER' WITHIN THE MEANING OF PRO VISION OF SECTION 2(47) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT(APPEAL) HAS ERRED IN NOT APPRECIATING THE FINDI NGS OF THE AO THAT THE CANCELLATION OF SHARES WAS DONE FOR ACC OUNTING AND LEGAL PURPOSE ONLY AND IN SUBSTANCE WAS AN ACCOUNTI NG TRANSACTION ONLY AND THEREFORE CANCELLATION OF SHAR ES WAS NOT TRANSFER WITHIN THE MEANING OF SUB SECTION 47 OF SE CTION 2 OF ACT. 3. THE APPELLANT CRAVES TO ADD, AMEND, MODIFY OR AL TER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 7. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED BY ITAT SPECIAL BE NCH MUMBAI IN THE CASE OF BENNETT COLEMAN & CO. LTD. VS. ADDL. CIT(2011) 1 4 TAXMANN.COM 1 (MUM.), WHEREIN IN PARAS 28 & 29 IT HAS BEEN HELD A S UNDER: 28. WE ALSO FIND FORCE IN THE SUBMISSIONS OF THE L D. DR THAT AS PER SEC.55(V) THE COST THE COST OF ACQUISITION OF S HARES EVEN AFTER CONVERSION ETC. HAS TO BE TAKEN WITH REFERENC E TO THE COST OF ORIGINAL SHARES. THEREFORE, AFTER REDUCTION OF S HARE CAPITAL THE COST OF ACQUISITION OF THE REMAINING SHARES WOU LD BE RECKONED WITH REFERENCES TO THE ORIGINAL COST. THOU GH AT THIS STAGE ASSESSEE HAS NOT OBTAINED ANY BENEFIT BECAUSE LOSS HAS BEEN COMPUTED WITH REFERENCE TO THE ACTUAL COST, BU T, IN FUTURE, IF ASSESSEE DECIDES TO SELL ITS SHAREHOLDING IN TGL THEN ASSESSEE HAS THE RIGHT, U/S 55(V), TO SUBSTITUTE THE COST OF ACQUISITION WITH REFERENCE TO THE ORIGINAL SHAREHOLDING AND IN THAT CASE IT MAY AMOUNT TO DOUBLE BENEFIT LATER ON WHICH IS NOT PERM ISSIBLE UNDER THE LAW. 5 29. THEREFORE, IN THE LIGHT OF THE ABOVE DISCUSSION , WE ARE OF THE OPINION, THAT THE LOSS ARISING ON ACCOUNT OF RE DUCTION IN SHARE CAPITAL CANNOT BE SUBJECTED TO PROVISIONS OF SEC.45 R.W.S. 48 AND, ACCORDINGLY, SUCH LOSS IS NOT ALLOWABLE AS CAPITAL LOSS. AT BEST SUCH LOSS CAN BE DESCRIBED AS NOTIONAL LOSS AND IT IS SETTLED PRINCIPLE THAT NO NOTIONAL LOSS OR INCOME C AN BE SUBJECTED TO THE PROVISIONS OF THE I.T. ACT. WE HOL D ACCORDINGLY. 8. RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL B ENCH OF THE ITAT IN THE CASE OF BENNETT COLEMAN & CO. LTD. (SUPRA), REV ENUES APPEAL IS ALLOWED. C.O. NO. 155/DEL/2012 (ASSESSEES CROSS OBJECTION): 9. SOLE EFFECTIVE GROUND TAKEN BY THE ASSESSEE IN I TS CROSS-OBJECTION IS AS UNDER: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) - XXIX HAS ERR ED IN HOLDING THAT THE ASSESSING OFFICER HAD VALIDLY ASSU MED JURISDICTION TO INVOKE THE POWERS CONTAINED IN SECT ION 147 OF THE ACT TO INITIATE REASSESSMENT PROCEEDINGS AGAINST TH E RESPONDENT AND IN NOT HOLDING THAT THE ORDER DATED DECEMBER 24 , 2007 ISSUED PURSUANT TO SUCH INVOCATION WAS WITHOUT JURI SDICTION, BAD IN LAW AND VOID AB INITIO. 10. IN REGARD TO ASSESSEES CROSS OBJECTION WE ARE IN AGREEMENT WITH THE FINDINGS OF LD. CIT(A) THAT THE ISSUE UNDER CONSIDE RATION WAS SUCH THAT PRIMA FACIE IT WAS POSSIBLE TO ENTERTAIN A VIEW THAT THE ASSESSEE HAD WRONGLY CLAIMED CAPITAL LOSS OF RS. 54,40,87,500/- ON ACCOU NT OF CALCULATION OF SHARES AND THEREBY RESULTING INTO ESCAPEMENT OF INCOME. TH EREFORE, WE ENDORSE THE 6 FINDING OF LD. CIT(A) IN HOLDING THAT THE AO HAD RE ASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND HE WAS WITHIN HIS COMPETENCE TO INVOKE THE POWERS CONTAINED IN SECTION 147 TO INITIATE REA SSESSMENT OF THE INCOME OF THE ASSESSEE. IN THE RESULT, CROSS OBJECTION IS DIS MISSED. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS ALLOWED A ND THE CROSS-OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 18/01/2016. SD/- SD/- (SUCHITRA KAMBLE ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18/01/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.