RCC Laboratories India Pvt. Ltd., Hyd, Hyderabad V. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 1259/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2579 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2016
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Gift; Depreciation; Difference of opinion; Unabsorbed depreciation; Change of opinion
• Section: 143(3); 115JB; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 459/HYD/16 2011-12 M/S. RCC LABORATORIES INDIA PVT. LTD., HYDERABAD [PAN: AADCR1813J] THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD 1259/HYD/16 2012-13 S.A. NO. 72/HYD/2016 (IN ITA NO. 459/HYD/2016) ASSESSMENT YEAR: 2011-12 M/S. RCC LABORATORIES INDIA PVT. LTD., HYDERABAD [PAN: AADCR1813J] VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD (APPLICANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SHRI G. APARNA RAO, CIT-DR DATE OF HEARING : 0 1 - 0 3 - 201 7 DATE OF PRONOUNC EMENT : 28 - 0 4 - 201 7 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE APPEALS BY ASSESSEE AGAINST THE ORDERS OF TH E PR. COMMISSIONER OF INCOME TAX-3, HYDERABAD FOR THE AYS. 2011-12 AND 2012-13 VIDE ORDERS DATED 29-02-2016 U/S. 263 O F THE INCOME TAX ACT [ACT]. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE M/S. RCC LABORATORIES INDIA PVT. LTD., :- 2 - : ASSESSMENT YEARS, THESE ARE HEARD TOGETHER AND DECIDED BY THIS COMMON ORDER. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TOXICOLOGY TESTING OF MOLECULES. ASSESSE E-COMPANY FILED ITS RETURN OF INCOME FOR AYS. 2011-12 ON 30-09- 2011 DECLARING NIL INCOME AFTER SETTING-OFF OF CARRIED FORWARD BUSIN ESS LOSS. THE RETURN WAS ORIGINALLY PROCESSED U/S. 143(1) OF THE AC T AND SUBSEQUENTLY, AN ORDER U/S. 143(3) WAS PASSED ON 11- 11-2013 DETERMINING THE TOTAL INCOME AT NIL AFTER ALLOWING SET -OFF OF CARRIED FORWARD LOSSES OF RS. 4,26,04,944/- PERTAINING TO AY. 2007-08 AND RS. 1,48,56,109/- PERTAINING TO AY. 2008-09 PARTLY. 2.1. LIKE-WISE, ASSESSEE FILED RETURN OF INCOME FOR AY.2012- 13 ON 21-09-2012 ADMITTING TOTAL INCOME NIL AFTER SETTI NG-OFF BROUGHT FORWARD BUSINESS LOSSES AND UN-ABSORBED DEPR ECIATION. AGAIN IN THIS YEAR ALSO THE RETURN WAS PROCESSED U/S. 143(1) AND AN ASSESSMENT WAS COMPLETED U/S. 143(3) VIDE ORDER DT. 30-12- 2014 DETERMINING THE TOTAL INCOME NIL AFTER SETTING-OFF OF CARRIED FORWARD BUSINESS LOSSES OF RS. 2,96,73,241/- FROM A Y. 2008-09 AND RS. 2,03,43,839/- FROM AYS. 2009-10 AND SET-OFF OF UN- ABSORBED DEPRECIATION OF RS. 73,57,410/- FROM AY. 20 08-09 RESPECTIVELY. 2.2. LD.PR.CIT ON EXAMINATION OF RECORDS NOTICED THA T THERE WAS A CHANGE OF SHAREHOLDING PATTERN IN AY. 2009-10 A ND ACCORDINGLY, AO HAS WRONGLY SET-OFF THE LOSSES PERTAI NING TO THE AYS. 2007-08 AND 2008-09. FURTHER, HE WAS OF THE OP INION THAT AO HAS NOT APPLIED THE PROVISIONS OF SECTION 115JB FOR THE M/S. RCC LABORATORIES INDIA PVT. LTD., :- 3 - : IMPUGNED ASSESSMENT YEARS. ACCORDINGLY, SHOW CAUSE NOTICES WERE ISSUED ON 21-01-2016 AND 03-03-2016 RESPECTIVEL Y FOR THE IMPUGNED ASSESSMENT YEARS, PROPOSING TO DISALLOW THE L OSSES PERTAINING TO THE YEARS PRIOR TO CHANGE OF SHAREHOLDING AND ALSO COMPUTING THE 115JB INCOMES. 3. IN REPLY TO THE SHOW CAUSE NOTICE, ASSESSEE SUBMI TTED THAT THE PROVISIONS OF SECTION 79 ARE NOT APPLICABLE AND FURTHER, THE SHAREHOLDING HAS CHANGED ON 30-03-2009 PERTAINING TO AY. 2009-10 AND AO HAS QUANTIFIED THE LOSSES EVEN IN AY. 2010-11 AFTER DUE EXAMINATION AND ONCE THE QUANTIFIED LOSSES W ERE AVAILABLE FROM EARLIER PREVIOUS YEAR, THE SAME WERE CORRECTLY SET-OFF IN THE IMPUGNED ASSESSMENT YEARS. IT WAS FURTHER SUB MITTED THAT THE SHAREHOLDING PATTERN HAS NOT CHANGED IN THE IMPUGNED YEARS, THEREFORE, LD.PR.CIT CANNOT EXERCISE JURISDICTION U/S . 263. WITH REFERENCE TO THE PROVISIONS OF SECTION 115JB ALSO, IT WAS SUBMITTED THAT ASSESSEE HAS FURNISHED COMPUTATION OF 115JB TO THE AO IN THE ASSESSMENT PROCEEDINGS AND SINCE THERE IS NO INCOME TO BE COMPUTED, THE AO HAS ACCEPTED. IT WAS FURTHER CONTENDED THAT THE OPINION OF THE PR.CIT WOULD BE COMING WITHIN THE PURV IEW OF CHANGE OF OPINION AND WHEN TWO VIEWS ARE POSSIBLE AND AO HAS TAKEN ONE VIEW, THE CIT CANNOT TAKE ANOTHER VIEW SO AS TO EXERCISE JURISDICTION U/S. 263. IT WAS FURTHER SUBMITTED THAT THE I MPUGNED ORDERS ARE NEITHER ERRONEOUS NOR PREJUDICIAL TO THE IN TEREST OF THE REVENUE AND THE VIEW TAKEN BY THE AO IS NOT UN-SUSTAINA BLE. IN SUPPORT OF THE CONTENTIONS, ASSESSEE-COMPANY RELIED UPO N THE FOLLOWING DECISIONS: M/S. RCC LABORATORIES INDIA PVT. LTD., :- 4 - : I. MALABAR INDUSTRIAL CO. LTD., VS. CIT (2000-(243)-ITR- 0083- SC); II. SPECTRA SHARES & SCRIPS PVT. LTD., VS. CIT [36 TAXMANN 348]; III. SRINIVASA HATCHERIES PVT. LTD., VS. DCIT [81 ITD 36(H YD)]; IV. INVENTAAA CHEMICAL LTD., VS. ACIT [42 SOT 249 (HYD)]; V. NEW CYBERABAD CITY PROJECTS PVT. LTD., VS. ITO [33 TAX MANN 280]; VI. CIT VS. MEHROTRA BROTHERS [270 ITR 157] (MP); VII. CIT VS. PARAMESHWAR BOHRA [267 ITR 698] (RAJ); VIII. PAUL MATHEWS AND SONS VS. CIT [263 ITR 101] (KER); 3.1. LD.CIT, HOWEVER, DID NOT AGREE. HE HAS RE-WOR KED OUT THE COMPUTATION BY GIVING VARIOUS REASONS AS UNDER: 6.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER, REC ORD, GROUNDS OF REVISION AND SUBMISSIONS MADE BY THE ASSESSEE COMPA NY. 6.2 THE ASSESSING OFFICER COMPUTED THE INCOME/LOSS, AS SEEN FROM THE ASSESSMENT ORDER, AS UNDER:- RS. GROSS TOTAL INCOME 5,74,61,053 LESS: SET OFF OF CARRIED FORWARD BUSINESS LOSSES 2007-08 4,26,04,944 2008-09 1,48,56,109 5,74,61,053 NET INCOME/INCOME RETURNED NIL 6.3 THE ASSESSEE COMPANY, AS PER THE COMPUTATIONS O F INCOME FILED, HAS SHOWN LOSSES AND BROUGHT FORWARD AS UNDER: AY BUSINESS LOSS (IN RS) ADJUSTED AMT. IN THE AY BALANCE (IN RS) DEPRECIATION LOSS (IN RS) ADJUSTED (IN RS) 2006-07 1,14,74,194 1,14,74,194 IN AY. 2010-11 0 0 0 2007-08 4,70,57,044 44,52,100 4,26,04,944 0 0 M/S. RCC LABORATORIES INDIA PVT. LTD., :- 5 - : IN AY 2010-11 2008-09 4,45,29,350 1,48,56,109 IN AY 2011-12 2,96,73,241 74,79,926 0 2009-10 2,03,43,839 0 2,03,43,839 95,16,934 0 6.4 IN THE COMPUTATION OF INCOME FILED FOR AY 2011- 12, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER WITHOUT ANY OBJEC TION, IT IS SEEN THAT BUSINESS LOSSES OF RS. 4,26,04,944/_ FROM AY 2007-0 8 AND RS.1,48,56,109 FROM AY 2008-09 WERE ADJUSTED. THE V ITAL ISSUE IS WHETHER THE LOSSES OF EARLIER YEARS ARE ELIGIBLE TO BE CARRIED FORWARD TO BE ADJUSTED AGAINST THE CURRENT YEAR INCOME I.E. INCOM E OF AY 2011-12. 6.5 IN THIS REGARD, IT IS TO BE MENTIONED HERE THAT ON VERIFICATION OF RECORD, THERE WAS CHANGE IN SHAREHOLDING PATTERN DURING FY 2008-09 RELEVANT FOR AY 2009-10. THE DETAILS AS SEEN FROM THE RECORD ARE AS UNDER: SHAREHOLDING PATTERN AS ON 31.3.08 SHAREHOLDING PAT TERN AS ON 31.3.09 RCC SWITZERLAND WAS HAVING CONTROL OVER THE ASSESSEE COMPANY BEING SUBSIDIARY OF IT ON ACQUISITION OF RCC SWITZERLAND BY HARLAN THE CONTROL OVER THE ASSESSEE COMPANY HAS GONE INTO THE HANDS OF HARLAN (CONRESS LABS). (THE CHANGE OF SHAREHOLDING PATTERN IS CONFIRMED FROM BALANCE SHEET ALSO) 6.6 IN SUCH A CHANGE IN SHAREHOLDING AS DETAILED AB OVE, THE CARRY FORWARD AND SET OFF OF LOSSES ARE TO BE EXAMINED IN THE LIG HT OF APPLICABLE PROVISIONS I.E. SECTION 79. IN THE LIGHT OF DECISIO N IN THE CASE OF CIT VS. SHRI SUBHULAXMI MILLS LTD., 249 ITR 795 (SC), THE BUSINE SS LOSSES RELATED TO/DETERMINED FOR THE ASSESSMENT YEAR/S PRIOR TO AY 2009-10 ARE NOT ELIGIBLE TO BE CARRIED FORWARD. AS ALREADY MENTIONE D, BUSINESS LOSSES OF RS. 4,26,04,944/- FROM AY 2007-08 AND RS.1,48,56,10 9/- FROM AY 2008- 09 TOTALLING TO RS.5,74,61,053/- WERE CARRIED FORWA RD AND ALLOWED AGAINST THE INCOME OF RS.5,74,61,053/- DECLARED FOR AY 2011 -12. 6.7 SINCE THERE IS A GLARING ERROR IN SETTING OF BR OUGHT FORWARD LOSSES AS DETAILED HEREINABOVE, THERE IS A STRONG CASE FOR IN VOKING PROVISIONS OF SECTION 263 IN THIS CASE AND ACCORDINGLY A SHOW CAU SE NOTICE DATED 21.01.2016 WAS ISSUED TO CURE THE ERROR COMMITTED B Y THE ASSESSING M/S. RCC LABORATORIES INDIA PVT. LTD., :- 6 - : OFFICER WHILE COMPUTING THE INCOME FOR THE ASSESSME NT YEAR UNDER CONSIDERATION. AFTER CAREFUL CONSIDERATION OF THE FACTS, THE ASSES SEE COMPANY IS NOT ELIGIBLE TO CARRY FORWARD BUSINESS LOSSES OF RS.1,1 4,74,194/- FROM AY 2006-07, RS.4,70,57,044/- FROM AY 2007-08 AND RS. 4 ,45,29,350/- FROM AY 2008-09 BEYOND AY 2009-10. 6.8 IN MY CONSIDERED VIEW, THE PROPER COMPUTATION O F INCOME FOR AY 2010- 11 & 2011-12 UNDER NORMAL PROVISIONS AS WELL AS BUS INESS PROFITS U/S. 115JB IS AS UNDER: AY 2010-11 RS. UNDER NORMAL PROVISIONS: GROSS TOTAL INCOME 1,59,26,294 LESS: SET OFF OF BUSINESS LOSS OF AY 2009-10 1,59,26,294 TAXABLE INCOME NIL BALANCE BUSINESS LOSS OF AY 2009- 10 TO BE CARRIED FORWARD RS. 2,03,43,839 RS. 1,59,26,294 44,17,545 UNDER 115JB PROVISIONS PROFIT AS PER P&L A/C 1,15,32,195 LESS: DEPRECIATION LOSS OF AY2008-09 74,79,926 DEPRECIATION LOSS OF AY2009-10 40,52,269 1,15,32,195* BOOK PROFIT NIL *UNABSORBED DEPRECIATION OF RS. 74,79,926 OF AY 200 8-09 AND RS. 95,16,934 OF AY 2009-10 TOTALLING TO RS. 1, 69,96,960 IS LESSER THAN THE BUSINESS LOSS OF RS. 2,03,43,839 OF AY. 2009-10 M/S. RCC LABORATORIES INDIA PVT. LTD., :- 7 - : AY 2011-12 RS. UNDER NORMAL PROVISIONS: GROSS TOTAL INCOME 5,74,61,053 LESS: SET OFF OF BUSINESS LOSS OF AY 2009-10 44,17,545 (A) 1,59,26,294 UNABSORBED DEPN: AY 2008-09 RS. 74,79,926 AY 2009-10 RS. 95,16,934 1,69,96,860(B) A+B TAXABLE INCOME 2,14,14,405 3,60,46,648 UNDER 115JB PROVISIONS PROFIT AS PER P&L A/C 5,21,48,096 LESS: B/F OF LOSS OF 2009-10 BOOK PROFIT 44,17,545* 4,77,31,361 *BUSINESS LOSS OF RS. 44,17,545 IS LESSER THAN THE UNABSORBED DEPRECIATION OF RS. 74,79,926 AND RS. 95,16,934 TOT ALLING TO RS. 1,69,96,960 THE INCOME FOR AY. 2010-11 IS COMPUTED FOR LIMITED PURPOSE OF DEPICTING LOSSES TO BE CARRIED FORWARD. 3.2. THEREAFTER, LD.CIT CONSIDERED THE OBJECTIONS RA ISED BY ASSESSEE IN PARA 6.9 AND REJECTED THEM IN PARAS 6.11 TO 6.14 DISCUSSING THE VARIOUS CASE LAW IN PARA 8 (PARA 7 I S MISSING). ULTIMATELY, HE CONCLUDED IN PARA 9 AS UNDER: 9. IT IS THE BOUNDEN DUTY OF THE ASSESSING OFFICER TO COLLECT AND APPRECIATE THE FACTS COLLECTED AND PROPER APPLICATION OF LAW I S TO BE MADE WHILE MAKING THE ASSESSMENT. THERE IS INCORRECT APPLICAT ION OF LAW TO THE FACTS AVAILABLE BY ALLOWING LOSSES OVER AND ABOVE THE LOS SES ACTUALLY ALLOWABLE TO THE ASSESSEE. IN THE INTEREST OF JUSTICE AND SI NCE THE TWIN CONDITIONS, NAMELY (I) THE ORDER OF THE ASSESSING OFFICER SOUGH T TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE, ARE M/S. RCC LABORATORIES INDIA PVT. LTD., :- 8 - : SATISFIED, THE ASSESSMENT ORDER PASSED U/S. 143(3) ON 11.11.2013 NEEDS TO BE SET ASIDE FOR THE DISCUSSION MADE IN RESPECT OF THE FOLLOWING ISSUES: A) CARRY FORWARD AND SET OFF OF BROUGHT FORWARD BUSINE SS LOSSES AND UNABSORBED DEPRECIATION B) COMPUTATION OF BOOK PROFITS U/S. 115JB. 4. CONTESTING THE ABOVE, ASSESSEE HAS RAISED GROUNDS WHICH ARE MORE OR LESS COMMON IN BOTH THE YEARS. FOR THE SAKE OF RECORD, GROUNDS RAISED IN AY. 2011-12 ARE EXTRACTED AS UNDER: 1. THE LD. PR. CIT, HAS ERRED IN PASSING THE ORDER U/S. 263 BY HOLDING THAT THE ASSESSMENT ORDER PASSED U/S.143(3) BY THE DCIT, CIRCLE-3(1), HYDERABAD FOR THE A.Y 2011-12 IS ERRONEOUS IN SO FA R AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 2. THE LD. PR. CIT, ERRED IN PASSING THE ORDER U/S. 263 BY MERE CHANGE OF OPINION AND WITHOUT CONSIDERING THE FACT THAT THE O RIGINAL ASSESSMENT HAD BEEN COMPLETED U/S 143(3) OF THE IT ACT, 1961 AFTER CAREFUL VERIFICATION OF BOTH THE ISSUES IN QUESTION. 3. THE LD. PR. CIT ERRED IN NOT APPRECIATING THE FA CT THAT ONCE THE AO HAS APPLIED HIS MIND AND COMPLETED AN ASSESSMENT U/ S 1 43(3) OF THE ACT, SECTION 263 CANNOT BE INVOKED ON MERE CHANGE OF OPI NION IN REGARD TO CERTAIN ISSUES. CASE LAW: SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME TAX (2000)-243-ITR -0083 -(S C). 4. THE LD. PR. CIT, ERRED IN NOT POINTING OUT AN SP ECIFIC ERROR IN THE ASSESSMENT CARRIED OUT FOR THE YEAR UNDER CONSIDERA TION WHILE PASSING THE ORDER U/ S 263 OF THE ACT. CASE LAW: ITO VS D G HOUSING PROJECT LIMITED, IT APPEAL NO. 179 OF 2011 5. THE LD. PR.CIT, ERRED IN DISALLOWING THE CLAIM O F SET OFF OF BROUGHT FORWARD LOSSES OF RS. 5,74,61,053/- PERTAINING TO A Y 2007-08 AND 2008- 09 WITHOUT APPRECIATING THE SUBMISSIONS MADE BY THE ASSESSEE. 6. THE LD. PR.CIT ERRED IN NOT APPRECIATING THE FAC T THAT THERE IS NO CHANGE IN THE SHAREHOLDING OF THE ASSESSEE COMPANY IN THE PREVIOUS YEAR RELEVANT M/S. RCC LABORATORIES INDIA PVT. LTD., :- 9 - : TO AY 2011-12 AND AS PER SECTION 79 OF THE ACT NO D ISALLOWANCE CAN BE MADE FOR THE YEAR UNDER CONSIDERATION. 7. THE LD. PR.CIT OUGHT TO HAVE APPRECIATED THAT ON CE THE LOSS WAS QUANTIFIED IN ALLOWED TO BE CARRY FORWARD IN PREVIO US YEAR (I.E. AY 2010- 11) SAME CANNOT BE RECTIFIED IN AY 2011-12 WHEREIN THE BROUGHT FORWARD LOSS HAS ONLY BEEN SET OFF. CASE LAW: ACIT VS ASIAN ENTERTAINMENTS, ITA NO 76 8/HYD/2011. 8. THE LD. PR.CIT HAS ERRED IN NOT ADJUDICATING THE MATTER ON SECTION 79 OF THE ACT, WHICH IS EXPLAINED AND ARGUED IN THE REPLY TO THE SHOW CAUSE NOTICE U/S 263 OF THE ACT. 9. THE LD. PR.CIT, ERRED IN CALCULATING THE BROUGHT FORWARD LOSS FOR PREVIOUS YEAR WITHOUT MENTIONING THE SAME IN ITS SH OW CAUSE NOTICE DATED 21.01.2016. 10. THE LD. PRO CIT, OUGHT TO HAVE APPRECIATED THAT ORDER U/S 263 OF THE ACT CANNOT TRAVEL BEYOND THE MATTER DEALT IN THE SH OW CAUSE NOTICE. CASE LAW: SUPREME COURT IN THE CASE OF COMMISSION ER OF CUSTOMS, MUMBAI VS. M/S. TOYO ENGINEERING INDIA [APPEAL (CIV IL) 2532 OF 2001]. 11. THE LD PR.CIT ERRED IN RE-COMPUTING THE TOTAL I NCOME AS PER NORMAL PROVISIONS AND BOOKS PROFIT U/S 115JB OF THE ACT AT RS. 3,60,46,648/- AND RS. 4,77,31,361/- RESPECTIVELY FOR THE ASSESSMENT Y EAR UNDER CONSIDERATION. 12. THE LD. PR.CIT, HAS ERRED IN DISALLOWING THE CL AIM U/ S 115JB OF THE ACT WITHOUT APPRECIATING THE SUBMISSIONS MADE BY TH E ASSESSEE. 13. THE LD. PR.CIT, OUGHT TO HAVE APPRECIATED THE F ACT THAT AO HAS EXAMINED ALL THE DETAILS VIGILANTLY INCLUDING ROI O F THE ASSESSEE AT THE TIME OF ASSESSMENT U/S 143(3) OF THE ACT FOR THE A Y 2011-12. 14. THE ASSESSEE MAY ADD, ALTER, OR MODIFY OR SUBST ITUTE ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. 4.1. EXCEPT THE AMOUNTS INVOLVED AND THE YEAR, THE GRO UNDS ARE SIMILAR IN BOTH THE YEARS. M/S. RCC LABORATORIES INDIA PVT. LTD., :- 10 -: 5. LD. COUNSEL REFERRING TO THE ORDER OF CIT, SUBMI TTED THAT THERE IS NO CHANGE IN SHAREHOLDING PATTERN AS FAR AS A SSESSEE IS CONCERNED, WHEREAS THERE IS A CHANGE OF OWNERSHIP OF THE HOLDING COMPANY. THE HOLDING COMPANY EARLIER WAS RCC SWITZE RLAND AND SUBSEQUENTLY, HARLAN/CONRESS LABS HAS BECOME OWNER O F ASSESSEE. IT WAS SUBMITTED THAT THERE WAS NO CHANGE IN SHAREHOLDING PATTERN OF ASSESSEE-COMPANY AS SUCH SO A S TO ATTRACT THE PROVISIONS OF SECTION 79. FURTHER, IT WAS SUBMITTED THAT IF AT ALL THERE IS A CHANGE OF SHAREHOLDING PATTERN, THE SAME HAS OCCURRED IN AY. 2009-10 AND AO EVEN IN ASSESSMENT OR DER PERTAINING TO AY. 2010-11 HAS QUANTIFIED THE LOSSES AN D THE PRESENT AO IN THE IMPUGNED ASSESSMENT YEARS IN THE SC RUTINY ASSESSMENTS HAS ALLOWED THE SET-OFF, AS QUANTIFIED IN AY. 2010-11. THEREFORE, THERE IS NO ERROR IN SETTING-OFF THE CARRIED FORWARD LOSSES FOR THE IMPUGNED ASSESSMENT YEAR. IT WAS FURTHER CONTEN DED THAT NO PROCEEDINGS U/S. 263 WERE INITIATED EITHER FOR AY. 2009-10 OR FOR AY. 2010-11. THEREFORE, THE QUANTIFIED LOSSES FROM AY . 2010-11 HAS TO BE ALLOWED AND SET OFF IN AYS. 2011-12 AND 201 2-13. SINCE THE ORDERS OF AO ARE NEITHER ERRONEOUS NOR PREJUDICIA L TO THE INTEREST OF REVENUE, THE ORDERS OF THE PR.CIT CANNOT BE SUSTAINED. IT WAS FURTHER CONTENDED THAT THE WORKING GIVEN BY THE C IT IS NOT CORRECT IN THE SENSE THAT HE HAS NOT GIVEN ANY FINDING WHETHER THE PROVISIONS OF SECTION 79 WOULD APPLY. THIS SHOULD H AVE BEEN EXAMINED, IF AT ALL APPLICABLE, IN AY. 2009-10 BUT C ANNOT BE DETERMINED IN THE ORDER U/S. 263 BY THE CIT, AS WAS D ONE IN THE ORDER, WITHOUT A FINDING ON APPLICATION OF SEC.79. 5.1. COMING TO THE ISSUE OF 115JB, IT WAS SUBMITTED TH AT LD.CIT HEREIN ALSO HAS ERRED IN COMPUTING THE PROVIS IONS U/S. M/S. RCC LABORATORIES INDIA PVT. LTD., :- 11 -: 115JB BY ADOPTING THE LOSSES AND DEPRECIATION AS QUAN TIFIED IN THE NORMAL PROVISIONS OF THE ACT. IT WAS SUBMITTED THAT FOR THE PURPOSE OF BOOK PROFITS, THE BOOK LOSSES AND BOOK DEPRECIATION ARE ONLY TO BE CONSIDERED AND PROVISIONS OF SECTION 79 HAS NO RO LE TO PLAY IN THE COMPUTATION U/S. 115JB. IT WAS FURTHER CONTENDED THAT AO IN THE COURSE OF ASSESSMENT PROCEEDINGS HAS ASKED SPECIF ICALLY ABOUT THE COMPUTATION U/S. 115JB WHICH ASSESSEE HAS FURNISH ED AND AFTER DUE EXAMINATION OF THE COMPUTATION FURNISHED BY A SSESSEE, AO HAS ACCEPTED THE SAME. THEREFORE, ANY OPINION TAK EN BY THE CIT WOULD COME WITHIN THE PURVIEW OF CHANGE OF OPIN ION WHICH IS NOT PERMITTED IN THE PROCEEDINGS U/S. 263. REFERRING TH E COMPUTATION AND SHOW CAUSE NOTICE ISSUED BY AO PLACED IN THE PAPER BOOK, LD. COUNSEL SUBMITTED THAT THE ISSUE OF COM PUTATION U/S. 115JB HAS BEEN EXAMINED BY THE AO IN THE ASSESSM ENT PROCEEDINGS. THEREFORE, FOLLOWING THE PRINCIPLES A S LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SPECTRA SH ARES & SCRIPS (P.) LTD., VS. CIT [354 ITR 35] (ANDHRA PRADE SH), THE CIT WAS PREVENTED IN EXERCISING THE JURISDICTION AS THE SAME ISSUE WAS EXAMINED BY THE AO. LD. COUNSEL REITERATED THE PRINC IPLES LAID DOWN BY VARIOUS DECISIONS AS RELIED BEFORE THE PR.CI T IN THE PROCEEDINGS U/S. 263. 6. IN REPLY, LD.CIT-DR, HOWEVER, SUBMITTED THAT THE ORD ER OF THE AO IN SETTING-OFF THE LOSSES WAS CONSIDERED ERRO NEOUS AND RELIED ON THE DECISION OF ITAT, CHANDIGARH BENCH IN THE CASE RAJIV GUPTA VS. ITO [297 ITR 1] TO SUBMIT THAT AO SHOULD HAVE EXAMINED THE ISSUE OF APPLICABILITY OF SECTION 79 AND THEREFORE, CIT HAS CORRECTLY EXERCISED THE POWERS U/S. 263. M/S. RCC LABORATORIES INDIA PVT. LTD., :- 12 -: 6.1. COMING TO THE ISSUE OF 115JB, LD.CIT-DR, HOWEV ER, FAIRLY ADMITTED THAT THE RECORD INDICATES THAT AO HAS ASKE D FOR THE COMPUTATION OF 115JB, HOWEVER, HE HAS NOT GIVEN ANY FI NDING ON THAT. THEREFORE, CIT HAS CORRECTLY COME TO A CONCLUSI ON THAT AO HAS NOT EXAMINED THE ISSUE OF PROVISIONS OF SECTION 1 15JB. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS OF LD.CIT U/S. 263. AS CAN BE SEEN FROM THE ORDERS, IT CAN BE NOTICED THAT LD.CIT HAS RELIED ON THE SO CALLED CHANGE OF SHAREHOLDING SAID TO HAVE HAPPENED ON 31-03-2009, WH ICH PERTAINS TO AY. 2009-10. IT IS ALSO TO BE NOTICED THAT THE AO WHILE COMPLETING THE ASSESSMENT FOR THE AY. 2010-11 HAS COMPL ETED THE ASSESSMENT U/S. 143(3) AND QUANTIFIED THE LOSSES AS U NDER: AMOUNTS TO BE CARRIED FORWARD UNABSORBED DEPRECIATION ASSESSMENT YEAR 2008-09 : RS. 74,79,926/- TOTAL : RS. 74,79,926/- UNABSORBED LOSS ASSESSMENT YEAR 2007-08 : RS. 4,26,04,944 ASSESSMENT YEAR 2008-09 : RS. 4,56,70,086 RS. 8,82,75,030 7.1. THUS, AS CAN BE SEEN FROM THE ABOVE ORDER, THE AO HAS QUANTIFIED UN-ABSORBED LOSSES PERTAINING TO AYS. 20 07-08 AND 2008-09 AND ALSO DEPRECIATION FOR AY. 2008-09 WHICH WERE ALLOWED TO BE CARRIED FORWARD. THE PRESENT AO IN THE IMPUGNED ASSESSMENT YEARS HAS ALLOWED THE SET-OFF TO THE INCOME COMPUTED. T HUS, SINCE HE HAS FOLLOWED THE QUANTIFICATION AS MADE BY HIS PRED ECESSOR IN EARLIER ASSESSMENT YEAR, THERE WAS NO ERROR IN HIS OR DER SO AS TO M/S. RCC LABORATORIES INDIA PVT. LTD., :- 13 -: CONSIDER IT AS ERRONEOUS. MOREOVER, THE PROVISIONS O F SECTION 79, AS APPLICABLE TO THE YEARS UNDER CONSIDERATION, ARE AS UNDER: CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN COMPANIES. 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, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, NO L OSS INCURRED IN ANY YEAR PRIOR TO THE PREVIOUS YEAR SHALL BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR UNLESS (A) ON THE LAST DAY OF THE PREVIOUS YEAR THE SHARE S OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER WERE BE NEFICIALLY HELD BY PERSONS WHO BENEFICIALLY HELD SHARES OF THE COMPANY CARRYING NO T LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEAR OR YEA RS 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 PR EVIOUS YEAR CONSEQUENT UPON THE DEATH OF A SHAREHOLDER OR ON ACCOUNT OF TRANSFE R 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 SHAREHO LDERS OF THE AMALGAMATED OR THE RESULTING FOREIGN COMPANY. ( B ) [ OMITTED BY THE FINANCE ACT, 1988, W.E.F. 1-4-1989. ] 7.2. EVEN THOUGH THE ABOVE PROVISIONS RESTRICTS THE CA RRIED FORWARD AND SET-OFF OF THE AMOUNTS, THE PROVISIONS AR E TO BE APPLIED/ EXAMINED IN THE YEAR, IN WHICH THERE IS CHAN GE IN SHAREHOLDING. AS ALREADY STATED ABOVE, THE CHANGE IN S HAREHOLDING HAS NOT OCCURRED IN PREVIOUS YEAR PERTAINING TO AY. 20 11-12 OR 2012-13, BUT IN AY. 2009-10. NO PROCEEDINGS WERE IN ITIATED FOR THAT ASSESSMENT YEAR OR FOR AY. 2010-11 IN WHICH SUCH M/S. RCC LABORATORIES INDIA PVT. LTD., :- 14 -: QUANTIFICATION HAS TAKEN, EITHER TO EXAMINE WHETHER THE PROVISIONS OF SECTION 79 ARE APPLICABLE OR TO QUANTIFY THE CORRECT LOSSES TO BE ALLOWED TO BE DETERMINED AND CARRIED FORWARD. IT WAS THE CONTENTION THAT THE PROVISO TO SECTION 79 WILL APPLY AS THE OWNERSHIP OF THE HOLDING COMPANY HAS CHANGED AND NOT THE SHAREHOLDING OF ASSESSEE-COMPANY. BE THAT AS IT MAY, SINCE THE CHANGE IN SHAREHOLDING HAS OCCURRED IN AY. 2009-10, EXERCISING THE POWERS U/S. 263 IN AYS. 2011-12 AND 2012-13, HOL DING THE ORDERS AS ERRONEOUS AND PREJUDICIAL TO REVENUE IS N OT APPROPRIATE. MOREOVER, AS SEEN FROM THE ORDER FOR AY. 2010-11, THE AO HAS QUANTIFIED THE LOSSES, SO THE PRESENT AO HAS ALLOWED THE SET-OFF AS QUANTIFIED IN EARLIER YEAR. THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. M/S. ASIAN ENTERTAINMENTS, IN ITA NO. 768/HYD /2014 DT. 26-06-2015 HAS HELD THAT ONCE LOSS IS QUANTIFIED AND A LLOWED TO BE CARRIED FORWARD, THE SAME CANNOT BE DISALLOWED IN SU BSEQUENT ASSESSMENT YEAR. VIEWED IN THAT CONTEXT, THERE IS NO ERRO R IN THE ORDERS OF THE AO AS FAR AS THE SET-OFF OF LOSSES IS C ONCERNED. THE DECISIONS RELIED BY THE LD.DR IN THE CASE OF RAJIV GU PTA VS. ITO [297 ITR 1] PERTAINS TO THE ISSUE OF ADJUSTMENTS MADE U /S. 154 AND NOT IN AN ORDER U/S. 263. ACCORDINGLY, WE ARE O F THE OPINION THAT THE SAID JUDGMENT DOES NOT APPLY TO THE FACTS OF THE CA SE . 7.3. COMING TO THE ISSUE OF 115JB ALSO, IT IS ON RE CORD THAT THE AO HAS EXAMINED THE ISSUE IN THE COURSE OF ASSESSM ENT PROCEEDINGS AND HAS ACCEPTED THE COMPUTATION AS PROVID ED BY ASSESSEE, BASED ON THE BOOK LOSSES AND BOOK DEPRECIA TION. AS CAN BE SEEN FROM THE COMPUTATION MADE BY THE PR.CIT, THE COMPUTATION IS ITSELF NOT CORRECT, IN THE SENSE THAT HE HAS ADOPTED THE AMOUNTS AS QUANTIFIED BY HIM IN THE NORMAL COMPUTATI ON. THE M/S. RCC LABORATORIES INDIA PVT. LTD., :- 15 -: PROVISIONS OF SECTION 115JB ARE EXCLUSIVE AND THE COM PUTATION IS TO BE BASED ON THE BASIS OF THE BOOK PROFITS AND AMOUNTS AS MENTIONED IN THE P&L A/C. THE COMPUTATIONS MADE UNDER NORMAL PROVISIONS DO NOT AFFECT THE COMPUTATION U/S. 115JB. T HE COMPUTATION HAS TO BE AS PER THE PROVISIONS OF SECTION 115JB ONLY. THESE PRINCIPLES WERE ESTABLISHED IN NUMBER OF CASES NOT ONLY BY VARIOUS HIGH COURTS BUT ALSO BY THE HON'BLE SUPREME C OURT IN THE CASE OF APOLLO TYRES [255 ITR 273] (SC) . IN VIEW OF THAT, THE COMPUTATION AS MADE BY THE PR.CIT, ADOPTING THE SO CALL ED CARRIED FORWARD LOSSES IN THE NORMAL PROVISIONS OF THE ACT, AS DETERMINED BY HIM IN THE IMPUGNED ORDERS, CANNOT BE SUBSTITUTED WH ILE COMPUTING UNDER PROVISIONS OF SEC. 115JB. THUS, THE COMPUTATION OF PR.CIT ITSELF IS BEING ERRONEOUS, WE ARE NOT IN A POSITION TO SUSTAIN THE SAME. MOREOVER, SINCE THE AO HAS EXAMINE D THE ISSUE OF COMPUTATION, FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SPECTRA SHARE S & SCRIPS (P.) LTD., VS. CIT [354 ITR 35] (ANDHRA PRADESH), P R.CIT CANNOT EXERCISE THE JURISDICTION U/S. 263 ON THIS MATTER, ON THE REASON THAT AO HAS NOT EXAMINED. THE HON'BLE SUPREME COURT I N THE CASE OF MALABAR INDUSTRIAL CO. LTD., [243 ITR 83] (SC) HE LD THAT WHEN TWO VIEWS ARE POSSIBLE AND AO TOOK ONE VIEW, THE ORDE R CANNOT BE SAID TO BE ERRONEOUS. IN THAT ORDER, THE HON'BLE SUP REME COURT ALSO ESTABLISHED THAT IT CANNOT BE STATED THAT THE AO HAS NO T EXAMINED THE ISSUE JUST BECAUSE HE HAS NOT RECORDED THE REASONS IN THE ORDER. NOT ONLY THAT THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. DEVELOPMENT CREDIT BANK LTD., [323 ITR 206] (BOMBAY) HAS HELD THAT CIT CANNOT INVOKE THE POWERS U/ S. 263 WHEN THE AO HAS ALREADY EXAMINED THE ISSUES UNDER CON SIDERATION. M/S. RCC LABORATORIES INDIA PVT. LTD., :- 16 -: 8. KEEPING THE FACTS OF THE CASE AND PRINCIPLES OF LA W ARISING FROM VARIOUS DECISIONS, IT CAN BE STATED THAT THE ORDERS OF THE PR.CIT IS ERRONEOUS AND NOT THE ORDERS OF AO. ACC ORDINGLY, WE HAVE NO HESITATION IN SETTING ASIDE THE ORDERS U/S. 263 IN BOTH THE YEARS AND WE RESTORE THE ORDERS OF THE AO U/S. 143(3) PASSED IN THE RESPECTIVE ASSESSMENT YEARS. 9. SINCE, THE APPEALS WERE DECIDED ON MERITS, STAY PE TITION BECOMES ACADEMIC AND INFRUCTUOUS, HENCE DISMISSED. 10. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED AND S TAY PETITION IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 28 TH APRIL, 2017 TNMM M/S. RCC LABORATORIES INDIA PVT. LTD., :- 17 -: COPY TO : 1. M/S. RCC LABORATORIES INDIA PVT. LTD., HYDERABAD . C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3 , 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3( 1), HYDERABAD. 3. THE PR.CIT-3, HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.