Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad V. Sembmarine Kakinanda Limited , Hyderabad

ITA 123/Hyd/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8434 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 06-11-2022
• Assessment Year: misc
• Appeal Filed On: 30-06-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ABHIROOP BHARGAV
• Keywords: Carry forward of business losses
• Section: 69

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 123/Hyd/2019 (निर्धारण वर्ा / Assessment Year: 2013-14) Dy. Commissioner of Income Tax, Circle-3(1), Hyderabad Vs. Mr. Vedagiri Venkata Krishnamurthy (Liquidator) Sembmarine Kakinada Limited, Hyderabad [PAN No. AANCS5863P] अपीलधर्थी / Appellant प्रत् यर्थी / Respondent निर्धाररती द्वधरध/Assessee by: Shri Abhiroop Bhargav, AR रधजस् व द्वधरध/Revenue by: Shri P.V.Subba Raju, DR स ु िवधई की तधरीख/Date of hearing: 07/11/2022 घोर्णध की तधरीख/Pronouncement on: 16/11/2022 आदेश / ORDER PER K. NARASIMHA CHARY, JM: Challenging the order dated 14/11/2018 passed by the learned Commissioner of Income Tax (Appeals)-3, Hyderabad (“Ld. CIT(A)”) in the case of Sembmarine Kakinada Limited (“the assessee”) for the assessment year 2013-14, Revenue preferred this appeal. ITA No. 123/Hyd/2019 Page 2 of 7 2. Brief facts of the case are that the assessee is engaged in the business of ship repair and conversion activities. For the assessment year 2013-14, they have filed their return of income on 30/11/2013 declaring a loss of Rs. 39,97,71,528/-. The assessee also claimed carry forward of business loss for the assessment year 2011-12 to the tune of Rs. 2,75,18,069/- and for the assessment year 2012-13 at Rs. 53,27,466/-. 3. During the course of assessment proceedings for the assessment year 2013-14, learned Assessing Officer observed that there is a change in the shareholding pattern in the Financial Year 2010-11 relevant to the assessment year 2011-12 inasmuch as the shareholders, namely, Kakinada Infrastructure Holding Pvt. Ltd, Sembawang Shipyard Pte Ltd and India Infrastructure Pte Ltd were holding shares to the extent of 26.06%, 19.95% and 53.87% respectively as on 31/3/2011 whereas it was 38.65%, 39.67% and 21.66% respectively as on 31/3/2012. 4. From these figures, learned Assessing Officer inferred that equity shareholding of M/s India Infrastructure Pte Ltd the shares with voting rights have gone down from 53.87% as on 31/3/2011 to 21.66% as on 31/3/2012 and therefore, in terms of section 69 of the Income Tax Act, 1961 (for short “the Act”), a closely held company is not eligible to carry forward and set off its business loss unless the shares of the company carrying not less than 51.1% of the voting power were beneficially held by the same person both on the last day of the previous year in which such loss was incurred and on the last day of the previous year in which such brought forward losses is sought to be set off. 5. According to the learned Assessing Officer there has been a change in the shareholding pattern of the assessee company where none of the shareholders who were beneficially holding 51% or more voting power as on 31/3/2012 were holding the same as on 31/3/2013, namely, India Infrastructure Pte Ltd was the only shareholder who was beneficially holding more than 51% of the voting power as on 31/3/2011, but such ITA No. 123/Hyd/2019 Page 3 of 7 shareholding was diluted to 21.66% as on 31/3/2012. On this premise, learned Assessing Officer disallowed the claim of the assessee to set off or carry forward the business losses of earlier years. Accordingly the learned Assessing Officer assessed the loss of the assessee at Rs. 39,97,71,528/-. 6. Aggrieved by such an act of the learned Assessing Officer, assessee preferred an appeal before the learned CIT(A) and submitted that the assessee is a joint venture company promoted by three companies, namely, M/s Sembawang Shipyard Pte Ltd, Singapore, M/s India Infrastructure Pte Ltd, Singapore and M/s Kakinada Industrial Infrastructure Holdings Pvt. Ltd, Hyderabad and as per the shareholders agreement the three promoter companies shall contribute 40.10%, 20.00% and 39.90% respectively. Assessee further submitted that to comply with the RBI regulations to the effect that any money received from foreign companies, the shares are to be allotted within 180 days and returns are required to be filed with the Reserve Bank of India in the stipulated time, the shares were allotted to the respective shareholders as and when the money was brought and therefore there is a difference in shareholding pattern in a particular time of financial year 2012-13 relevant to the assessment year 2013-14. According to the assessee, the provisions of section 79 of the Act are very clear that the shareholders having voting power not less than 51% shall continue as shareholders to claim set off of carry forward losses and therefore, there is no change in the compliance with the said requirement in this case inasmuch as such shareholders who were holding 51% of the voting power are still continuing so. 7. Learned CIT(A)accepted the contention of the assessee and held that Kakinada Infrastructure Holding Pvt. Ltd and India Infrastructure held more than 51% shares as on 31/3/2012 and they continue to hold more than 51% of the shares as on 31/3/2013. So also in the case of Sembawang Shipyard Pte Ltd and India Infrastructure Pte Ltd. Learned CIT(A) accordingly allowed the appeal. ITA No. 123/Hyd/2019 Page 4 of 7 8. Aggrieved by such findings of the Ld. CIT(A), Revenue preferred this appeal stating that the provisions under section 79 of the Act are applicable to the business loss for the assessment year 2011-12 to the tune of Rs. 2,75,18,069/- and the business loss of Rs. 53,27,466/- for the assessment year 2012-13 and the learned Assessing Officer was right in rejecting the carry forward of these business losses for the assessment years 2011-12 and 2012-13. 9. It is the submission on behalf of the Revenue that the Learned CIT(A)took the cumulative shareholding of the Kakinada Infrastructure Holdings Pvt. Ltd and India Infrastructure Pte and also the cumulative shareholding of Sembawang Shipyard Pte Ltd and India Infrastructure, to determine the extent of voting powers and such a course is not permissible under section 79 of the Act. 10. Per contra, Ld. AR while placing reliance on the decision of a Co-ordinate Bench of this Tribunal in the case of Sunanda Capital Services Ltd vs. JCIT (2009) 28 SOT 484 (Mumbai), submitted that 51% of the shareholding of the assessee company was always held by the same shareholders for the financial year ending on 31/3/2012 and 31/3/2013 and, therefore, the provisions under section 79 of the Act are not applicable. 11. We have gone through the record in the light of the submissions made on either side. It is not in dispute that the shareholders of the assessee company remain the very same entities, namely, Kakinada Infrastructure Holdings Pvt. Ltd, Sembawang Shipyard Pte Ltd. and India Infrastructure Pte As on 31/03/2011, the extent of shareholding was 26.6%, 19.95% and 53.87% respectively, whereas as on 31/03/2012 it was 38.65%, 39.67% and 21.66% respectively. On either of the days, none of the shareholders held more than 51% of shares. ITA No. 123/Hyd/2019 Page 5 of 7 12. In the case of Sunanda Capital Services Ltd. (supra), a particular entity, beneficial owner of 40% of equity capital of the assessee continued to maintain such 40% even though there was certain issue of additional capital. Learned Assessing Officer, however, observed that during the relevant financial year, such entity increased its shareholding to 75%, and denied the benefit of carry forward of business losses under section 79 of the Act. A Co-ordinate Bench of this Tribunal, on verification of the shareholding pattern noticed that three entities put together constituted 55% of the total equity share capital and the same remained even after the entity with 40% of shareholding increased it to 70% and it does not mean that 51% of the shareholding pattern has undergone a change. 13. The Co-ordinate Bench placed reliance on the decision of the Hon'ble Apex Court in the case of CIT Vs. Italindia Cotton Co. (P) Ltd (1988) 174 ITR 160 (SC) wherein it was held that if the change in the shareholding did not result in holding voting power of 51 per cent or it was established that the shares of the company carrying not less than 51 per cent 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 shareholding would stand removed. Further, the Hon'ble Apex Court noticed that in the case of CIT Vs. Subhlaxmi Mills Ltd (1983) 143 ITR 863 and CIT Vs. Saravanabhava Mills (P) Ltd (1983) 143 ITR 856, the Hon'ble Gujarat and Madras High Courts quoted from the text authored by Chaturvedi Pithisaria and observed that clause (a) refers to 51 per cent of the voting power beneficially held by a person or group of persons meaning thereby that such persons or persons may or may not be registered shareholders. 14. In the case on hand, learned CIT(A) noticed that even after the change in the shareholding pattern, more than 51 per cent of the voting power is held by the very same group of entities. There cannot be any ITA No. 123/Hyd/2019 Page 6 of 7 dispute on this factual position. We are unable to subscribe to the argument of the Learned DR that for the purpose of calculating 51% of the shareholding, the shareholding of no two entities could be clubbed because such entities are independent and their business activities are completely different from each other. Whatever may be the business activities of the entities which held a share in the assessee, the fact remains that cumulatively, they hold more than 51% of the shareholding after the change in the shareholding pattern and what the law refers under section 79 of the Act is about the 51% of the voting power beneficially held by a person or group of persons. The Co-ordinate Bench in the case of Sunanda Capital (supra) also held that so far as the group of entities which held 55% of the shareholding remain the same, merely because another entity increased its shareholding from 40% to 70% it does not mean that 51% of the shareholding pattern had undergone a change. 15. Viewing the facts from the lens of the above case law, we do not find anything illegality or irregularity in the findings of the learned CIT(A) and consequently find the grounds of appeal as devoid of merits. 16. In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on this the 16 th day of November, 2022. Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 16/11/2022 TNMM ITA No. 123/Hyd/2019 Page 7 of 7 Copy forwarded to: 1. The Dy. Commissioner of Income Tax, Circle-3(1), Hyderabad. 2. Mr. Vedagiri Venkata Krishnamurthy (Liquidator), M/s. Sembmarine Kakinada Limited, 8-2-418, 3 rd Floor, Meenakshi House, Road No. 7, Banjara Hills, Hyderabad. 3. CIT(A)-3, Hyderabad. 4. Pr.CIT-3, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD