M/s. CLP Power Pvt. Ltd., Ahmedabad V. The Dy.CIT.,(OSD), Range-1, Ahmedabad

ITA 1123/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8414 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA ARS
• Keywords: Depreciation; Carry forward of business losses; Unabsorbed depreciation
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1123/AHD/2016 ( / ASSESSMENT YEAR : 2011-12 ) CLP POWER INDIA PVT.LTD. 6 TH FLOOR, CHANAKYA BUILDING OFF ASHRAM ROAD AHMEDABAD-380 009 / VS. THE DY.CIT(OSD) RANGE-1 AHMEDBAD-380 015 $ ./ ./ PAN/GIR NO. : AAACP 6900 B ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : S/SHRI S.N. SOPARKAR & P.M. MEHTA, ARS ($'*) / RESPONDENT BY : SHRI PRASOON KABRA, SR.DR +,*- / DATE OF HEARING 19/02/2018 ./0*- / DATE OF PRONOUNCEMENT 23/04 /2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE ORDER DATED 02/03/2016 OF THE COMMISSIO NER OF INCOME TAX-I, AHMEDABAD [PR.CIT IN SHORT] UNDER S.263 OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') CONCERN ING ASSESSMENT YEAR (AY) 2011-12. ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 2 - 2. IN THIS APPEAL, THE ASSESSEE SEEKS TO ASSAIL THE ACTION OF THE PR.CIT IN INVOKING SECTION 263 OF THE ACT AND CONTENDS THAT T HE SUBJECT ASSESSMENT ORDERS FRAMED UNDER S.143(3) OF THE ACT PASSED BY THE ASSESSING OFFICER (AO) CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 3. THE RELEVANT FACTS IN BRIEF ARE THAT THE ASSESS MENT UNDER S.143(3) OF THE ACT FOR AY 2011-12 WAS COMPLETED BY THE AO V IDE ITS ORDER DATED 21/03/2014 DETERMINING THE TOTAL LOSS AT RS.6,69,65 ,830/- AFTER MAKING CERTAIN ADJUSTMENTS TO THE LOSS DECLARED BY THE ASS ESSEE. THEREAFTER, THE PR.CIT IN EXERCISE OF HIS REVISIONARY POWER, ISSUED NOTICE UNDER S.263 OF THE ACT CALLING UPON THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE ASSESSMENT ORDER PASSED UNDER S.143(3) REFERRED ABOVE SHOULD N OT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THE CONTENTS OF SHOW-CAUSE NOTICE IS REPRODUCED HEREUNDER. 'IN THIS CASE, ASSESSEE WAS ALLOWED TO CARRY FORWAR D THE BUSINESS LOSSES AND UNABSORBED DEPRECIATION ALLOWANCE FOR SET OFF A GAINST THE FUTURE INCOME. DURING THE YEAR, THE ASSESSEE COMPANY TRANS FERRED ITS HOLDING OF SHARES, IN FAVOUR OF GPEC LTD., A FELLOW SUBSIDIARY OF ULTIMATE HOLDING COMPANY CLP HOLDING LTD., HONG KONG ON 31-3-2011. A S PER THE PROVISIONS OF SECTION 79 OF THE ACT, WHERE A CHANGE IN SHAREHOLDING OF MORE THAN 51 PERCENT OF THE VOTING POWER ON THE LAS T DAY OF THE YEAR OR YEARS IN WHICH THE LOSS WAS INCURRED HAS TAKEN PLAC E IN A PREVIOUS YEAR, NO LOSS INCURRED IN ANY YEAR PRIOR TO THE PREVIOUS YEA R SHALL BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE PREVI OUS YEAR. IN THE CASE OF THE ASSESSEE, THERE IS A CHANGE OF SHARE HOLDING PA TTERN TOOK PLACE IN THE A.Y. 2011-12 AND SUCH CHANGE IN SHARE HOLDING PATTE RN IS MORE THAN 51%. ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 3 - THEREFORE, THE LOSS INCURRED PRIOR TO SUCH CHANGE T OOK PLACE IS NOT ALLOWED TO BE CARRIED FORWARD IN VIEW OF THE PROVISIONS OF SECTION 79 OF THE ACT. THIS BEING NOT DONE RESULTED INTO IRREGULAR ALLOWAN CE OF CARRY FORWARD OF BUSINESS LOSSES FOR SET OFF TO THE EXTENT OF RS. 9, 24,43,289 AND CONSEQUENT SHORT LEVY OF TAX OF RS.2,77,35,986.' 4. IT WAS THUS ALLEGED BY THE PR.CIT THAT EXAMINAT ION 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 PROVI SIONS 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 LOS SES 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 SHAREHO LDING 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 SUB SEQUENT ASSESSMENT YEAR(S). THE PR.CIT ALLEGED THAT THE AO HAS FAILED TO APPLY THE CORRECT POSITION OF LAW ENJOINED BY SECTION 79 OF THE ACT AND HAS OVERLOOKED AND FAILED TO MAKE PROPER VERIFICATION AND ENQUIRY IN T HIS REGARD. THE PR.CIT ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 4 - ACCORDINGLY CANCELLED THE ASSESSMENT FRAMED UNDER S .143(3) OF THE ACT AND SET ASIDE THE ABOVE ISSUE TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION. 5. AGGRIEVED BY THE ACTION OF THE PR.CIT, THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL AGITATING THE JURISDICTION USUR PED BY THE PR.CIT UNDER S.263 OF THE ACT. 6. THE LD.AR FOR THE ASSESSEE AT THE OUTSET SUBMITT ED THAT THE ASSESSMENT ORDER SOUGHT TO BE IMPUGNED UNDER S.263 OF THE ACT HAS BEEN PASSED AFTER TAKING INTO ACCOUNT RELEVANT FACTS PLA CED ON RECORD. ON FACTS, THE LD.AR SUBMITTED THAT, IN THE PRESENT CAS E, 100% SHARES OF THE ASSESSEE-COMPANY WERE HELD BY CLP POWER (GPEC) LIMI TED, MAURITIUS. THUS, THE ASSESSEE-COMPANY WAS FULLY OWNED SUBSIDIA RY OF THE AFORESAID COMPANY. DURING THE YEAR, THE SHARES HELD BY GPEC WERE TRANSFERRED TO CLP POWER INDIA PVT.LTD. WHO IS AGAIN A FULLY OWNE D SUBSIDIARY OF THE SAME HOLDING COMPANY, NAMELY CLP POWER (GPEC) LIMI TED, MAURITIUS. THE LD.AR ACCORDINGLY SUBMITTED THAT ONE CAN SEE FR OM THE AFORESAID TRANSFER THAT THE BENEFICIAL OWNERSHIP CONTINUES WI TH THE SAME HOLDING COMPANY DESPITE TRANSFER OF SHARES OF THE ASSESSEE- COMPANY BY THE ULTIMATE PARENT COMPANY TO ANOTHER WHOLLY OWNED SUB SIDIARY COMPANY WHICH IN TURN NOW HOLDS SHARES OF THE ASSESSEE-COMP ANY. THE LD.AR ACCORDINGLY CONTENDED THAT IN THE ABSENCE OF CHANGE IN THE BENEFICIAL ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 5 - OWNERSHIP OF SHARES, SECTION 79 HAS NO APPLICATION ON FACTS. IT WAS THUS SUBMITTED THAT THE ASSESSMENT ORDER PASSED UNDER S. 143(3) IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THE LD.AR NEXT SUBMITTED THAT THE FACTS IN ISSUE ARE SQUARELY COVE RED BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. AMCO POWER SYSTEMS LTD. REPORTED AT 379 ITR 379 (KAR.). THE L D.AR CONSEQUENTLY SUBMITTED THAT THE AO HAS TAKEN A CORRECT VIEW IN A CCORDANCE WITH LAW AND THERE IS SCOPE FOR ANY ENQUIRY IN THIS REGARD. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE PR.CIT IN QUESTION AND CONTENDED THAT DESPITE THE CHANGE I N SHARE HOLD PATTERN, THE AO HAS OMITTED TO EXAMINE THE ISSUE IN THE BAC KDROP OF SECTION 79 OF THE ACT WHICH RENDERED ITS ORDER TO BE BOTH ERRONEO US AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE L D.DR REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DA NIEL MERCHANTS PVT.LTD. & ANOTHER VS. ITO IN SLP NO.23976/2017 ORD ER DATED 29/11/2017 TO SUBMIT THAT SETTING ASIDE THE ORDER O F THE AO BY THE DESIGNATED AUTHORITY FOR THE PURPOSES OF CONDUCTING PROPER ENQUIRY INTO VITAL ISSUE BY INVOKING SECTION 263 OF THE ACT CANN OT 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 NAM ELY APPLICABILITY OF SECTION 79 TO THE FACTS AS WELL AS LACK OF ENQUIRY IN THIS REGARD. ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 6 - 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL PL ACED 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 ASSES SMENT ORDER PASSED BY THE AO UNDER S.143(3) FOR AY 2011-12 HAS BEEN SET ASIDE ON THE GROUND THAT THE BUSINESS LOSS OCCURED PRIOR TO THE CHANGE OF SHARE HOLDING IS NOT PERMISSIBLE TO BE CARRIED FORWARD FOR SET OFF AGAI NST FUTURE LOSSES IN VIEW OF THE RESTRICTIONS PLACED UNDER S.79 OF THE ACT. CONSEQUENTLY, THE PR.CIT QUANTIFIED THE IRREGULAR ALLOWANCE OF CARRY FORWARD BUSINESS LOSS AS WELL AS PURPORTED SHORT LEVY OF TAX THEREON. THE PR.CIT HAS ALSO ALLEGED THAT THE ASSESSMENT HAS BEEN COMPLETED IN A PERFUNCTORY MANNER ENDORSING THE CLAIM OF CARRY FORWARD OF BUSINESS LOSSES FOR S ET OFF IN FUTURE ASSESSMENT YEAR WITHOUT CONDUCTING ANY ENQUIRY NECE SSITATED IN THIS REGARD IN THE LIGHT OF SECTION 79 OF THE ACT. 9. TO BEGIN WITH, WE SHALL EXAMINE THE CENTRAL ISS UE AS TO WHETHER THE EMBARGO PLACED UNDER S.79 OF THE ACT IS APPLICABLE IN THE FACTS OF THE CASE OR NOT. AS POINTED OUT, THE 100% VOTING POWER WAS EARLIER HELD BY THE ULTIMATE HOLDING COMPANY GPEC MAURITIUS ITSELF. TH E VOTING POWER (SHAREHOLDING) OF THE ASSESSEE-COMPANY SO HELD BY T HE ULTIMATE HOLDING COMPANY WAS TRANSFERRED TO ANOTHER COMPANY (CLP IND IA PVT.LTD.) WHICH IS AGAIN A SUBSIDIARY OF GEPC. THUS, IN EFFECT, EV EN AFTER THE TRANSFER OF SHARES BY THE ULTIMATE HOLDING COMPANY TO ANOTHER S UBSIDIARY, THE ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 7 - BENEFICIAL OWNERSHIP OF THE ASSESSEE-COMPANY CONTIN UES TO VEST WITH THE SAME HOLDING COMPANY. THUS, THE ULTIMATE HOLDING C OMPANY CONTINUES TO ENJOY COMPLETE CONTROL OVER THE ASSESSEE-COMPANY AS BEFORE. 9.1. IN THE LIGHT OF THESE FACTS, WE HAVE PERUSED SECTION 79 OF THE ACT AND NOTICE THAT THE AFORESAID PROVISION ENVISAGES NOT LESS THAN 51% OF THE VOTING POWER WERE BENEFICIALLY HELD BY PERSONS WHO BENEFICIALLY HELD SHARES OF THE COMPANY CARRYING NOT LESS THAN 51% OF THE VOTING POWER . IT IS OSTENSIBLE FROM THE FACTS NOTED THAT THE ULTI MATE HOLDING-COMPANY (PREVIOUS SHAREHOLDER HOLDER) CONTINUES TO COMMAND CONTROL OVER THE ASSESSEE-COMPANY IN THE SAME MANNER AS BEFORE ALBEI T INDIRECTLY AND THROUGH ANOTHER SUBSIDIARY COMPANY. 9.2. THE PURPOSE OF SECTION 79 OF THE ACT IS IMPLI CIT. IT SEEKS TO CURTAIL MISUSE OF BENEFIT OF CARRY FORWARD AND SET OFF OF B USINESS LOSSES OF EARLIER YEARS OF A COMPANY AND PROHIBITS ITS AVAILABILITY I N THE HANDS OF ANY NEW OWNER. IN THE INSTANT CASE, IT IS MANIFEST THAT NO SUCH MISUSE CAN BE INFERRED SINCE THE BENEFICIAL OWNERSHIP DID NOT CHA NGE HANDS. 9.3. INTERESTINGLY, WE ALSO TAKE NOTE OF THE EXPRE SSION HELD USED IN SECTION IN DISTINCTION TO THE EXPRESSION OWNED. NEEDLESS TO SAY, THE EXPRESSION HELD IS FAR MORE ELASTIC TO COVER THE SI TUATION WHEREBY IF A PERSON IS FOUND CAPABLE OF INFLUENCING THE VOTING R IGHTS TO THE EXTENT OF ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 8 - SPECIFIED PERCENTAGE (51%), SECTION 79 WILL NOT BE TRIGGERED. THEREFORE, WHILE THE LEGAL OWNERSHIP MIGHT HAVE CHANGED, THE OWNERSHIP/CONTROL/VOTING POWER OF THE ASSESSEE-COMP ANY CONTINUES TO BE BENEFICIALLY HELD BY THE SAME OWNER. THIS INEVITA BLY 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. THI S APART, ONCE THESE FACTS WERE BROUGHT TO THE NOTICE OF PR.CIT, THE PR.CIT OU GHT TO HAVE APPRECIATED THE CASE OF THE ASSESSEE OBJECTIVELY IN PERSPECTIVE AND COULD NOT SHRINK HIS SACROSANCT OBLIGATIONS AND RESORT T O 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 A SPECTS. IN THE ABSENCE OF ANY CHANGE IN THE BENEFICIAL OWNERSHIP, WE ARE U NABLE TO COMPREHEND THE NATURE OF ENQUIRY SOUGHT BY THE PR.CITIN THIS R EGARD. HENCE, WE ARE DISPOSED TO HOLD THAT THE ACTION OF THE PR.CIT IS D EVOID OF SANCTION OF LAW. CONSEQUENTLY, THE ORDER PASSED UNDER S.263 OF THE ACT BY THE PR.CIT IS REQUIRED TO BE CANCELLED. WE DO SO ACCOR DINGLY. ITA NO.1123/AHD /2016 CLP POWER PVT.LTD. VS. DY.CIT (OSD) ASST.YEAR 2011-12 - 9 - 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 23 / 0 4 / 201 8 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23/ 04/2018 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT-I, AHMEDABAD 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..19.4.18(DICTATION-PAD 26-PAGE S ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19.4.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.23.4.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.4.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER