DCIT, RANGE- 8(2), MUMBAI V. M/S HOTEL LEELA VENTURE LTD., MUMBAI

ITA 4453/MUM/2013

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8595 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Scheme of amalgamation; Unabsorbed depreciation; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 4453/MUM/2013 Assessment Year: 2007-08 Asst. Commissioner of Income Tax, Range 8(2), R. No. 216-A, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. M/s Hotel Leela Venture Ltd., The Leela Kempinski Sahar, Andheri (East), Mumbai-400059. PAN No. AAACH 3167 J Appellant Respondent Revenue by : Mr. Rakesh Ranjan, CIT-DR Assessee by : Mr. Prakash K. Jotwani, Adv. Date of Hearing : 30/06/2022 Date of pronouncement : 10/08/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 06/03/2013 passed by the Ld. Commissioner of Income-tax (Appeals)-17, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2007-08, raising following grounds: 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the assessee's claim of set off of brought forwarM/s. Kovalam Hotels Ltd. on the ground that M/s. Kovalam Hotels Ltd. has been taken over completely by the appellant with effect from 01.04.2006 and, therefore, the provisions of section 72A will override the apsection 79 of the Act, without appreciating that in the assessment order dated 29.12.2008 for AY 2006of M/s. Kovalam Hotels Ltd., the Assessing Officer has helthe business loss of Rs.previous year 2005the applicability of provisions of section 79 of the Act and therefore, no such loss was available to the assessee for set off against its profits in AY 20072. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored."2. Briefly stated facts of the case are that the assessee filed return of income on 01.10.2007 declaring total income of which was further revised on 18/09/2008 income to ₹25,06,77,cited by the assessee as claim of and the unabsorbed deM/s Hotel Leela Venture Ltd. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the assessee's claim of set off of brought forward losses of Rs. 13,43,71,999/- pertaining to M/s. Kovalam Hotels Ltd. on the ground that M/s. Kovalam Hotels Ltd. has been taken over completely by the appellant with effect from 01.04.2006 and, therefore, the provisions of section 72A will override the applicability of the provisions of section 79 of the Act, without appreciating that in the assessment order dated 29.12.2008 for AY 2006-07 in the case of M/s. Kovalam Hotels Ltd., the Assessing Officer has helthe business loss of Rs.13,43,71,999/- incurred prior to the previous year 2005-06 is not eligible for carry forward due to the applicability of provisions of section 79 of the Act and therefore, no such loss was available to the assessee for set off against its profits in AY 2007-08." appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored."stated facts of the case are that the assessee filed return 2007 declaring total income of ₹ch was further revised on 18/09/2008 reducing25,06,77,024/-. Reasons for revision of the income were cited by the assessee as claim of set off of brought forward losses unabsorbed depreciation in respect of M/s Kovalam HotelM/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 2 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the assessee's claim of set off pertaining to M/s. Kovalam Hotels Ltd. on the ground that M/s. Kovalam Hotels Ltd. has been taken over completely by the appellant with effect from 01.04.2006 and, therefore, the provisions of plicability of the provisions of section 79 of the Act, without appreciating that in the 07 in the case of M/s. Kovalam Hotels Ltd., the Assessing Officer has held that curred prior to the 06 is not eligible for carry forward due to the applicability of provisions of section 79 of the Act and therefore, no such loss was available to the assessee for set off appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored." stated facts of the case are that the assessee filed return ₹68,57,40,290/-, reducing the taxable . Reasons for revision of the income were brought forward losses respect of M/s Kovalam Hotels Ltd., which amalgamated with the assessee company with effect from 01/04/2006 i.e. during the previous year relevant to the assessment year under consideration. 2.1 The Assessing Officerof business loss and assessee in para 6.2 the assessment orderdetail is extracted as under:“6.2 As stated above, the assessee has claimed ₹25,83,74,068/depreciation of Kovalam Hotels Ltd. The breakunder: Business Loss (for A.Y. 2002Unabsorbed Depreciation (for A.Y. 2002& 05-06) Total Add: Assessed Business Loss for AY 20062.2 The Assessing OfficerAudit Report (TAR) assessment year 2006Auditor that losses incuM/s Hotel Leela Venture Ltd. , which amalgamated with the assessee company with effect from 01/04/2006 i.e. during the previous year relevant to the assessment year under consideration. Assessing Officer has reproduced amount of carrybusiness loss and unabsorbed depreciation claimed by the n para 6.2 the assessment order. For ready reference, said is extracted as under: As stated above, the assessee has claimed set off of ₹25,83,74,068/- representing carry business and unabsorbed epreciation of Kovalam Hotels Ltd. The break-up of this loss is as Business Loss (for A.Y. 2002-03, 04-05 and 05-06 13,43,71,999/Unabsorbed Depreciation (for A.Y. 2002-03, 03-04, 04-05 8,26,32,781/21,70,04,780/Business Loss for AY 2006-07 4,09,65,442/Assessing Officer examined the return of income and(TAR) in the case of Kaovalam Hotels Ltdassessment year 2006-07, wherein he observed comment of the that losses incurred prior to previous year cannot be M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 3 , which amalgamated with the assessee company with effect from 01/04/2006 i.e. during the previous year relevant to the of carry forward claimed by the . For ready reference, said set off of representing carry business and unabsorbed up of this loss is as 13,43,71,999/- 8,26,32,781/- 21,70,04,780/- 4,09,65,442/-“ the return of income and Tax in the case of Kaovalam Hotels Ltd. for 07, wherein he observed comment of the Tax rred prior to previous year cannot be allowed to be carried forward in terms of section 79 of the tax Act, 1961 (in short since the losses claimed by the company, which has become subsidiary of Hotel Leela listed company, provisions of section 79 will not be applicable to such company. The Assessing OfficerLtd. for assessment year 2006business loss of ₹13,2005-06 i.e. assessment year 20062.3 The Assessing Officerthe claim for set ofobserving as under: “6.5 The assessee's contention is carefully perused but is not found tenable under the Law. It is not in dispute that there is a change in the shareholding pattern of the Kovalam Hotels Ltd during the Financial Year 2005became a subsidiary of the assesseeprovisions of Sec.79 are clearly attracted as far as the carry forward M/s Hotel Leela Venture Ltd. allowed to be carried forward in terms of section 79 of the , 1961 (in short ‘the Act’). The auditor further added that since the losses claimed by the company, which has become subsidiary of Hotel Leela Ventures Ltd. (i.e. the assessee)listed company, provisions of section 79 will not be applicable to Assessing Officer in the case of Kovalafor assessment year 2006-07, declined carry 13,43,71,999/-incurred prior to previous year i.e. assessment year 2006-07. Assessing Officer in the case of the assessee also rejected the claim for set off of the business loss of ₹ 6.5 The assessee's contention is carefully perused but is not found tenable under the Law. It is not in dispute that there is a change in the shareholding pattern of the Kovalam Hotels Ltd during the Financial Year 2005-06 (A.Y.2006-07) as a result of which, the hotel became a subsidiary of the assessee-company. Therefore, the provisions of Sec.79 are clearly attracted as far as the carry forward M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 4 allowed to be carried forward in terms of section 79 of the Income-). The auditor further added that since the losses claimed by the company, which has become . (i.e. the assessee), which is a listed company, provisions of section 79 will not be applicable to in the case of Kovalam Hotel forward of the incurred prior to previous year in the case of the assessee also rejected ₹13,43,71,999/- 6.5 The assessee's contention is carefully perused but is not found tenable under the Law. It is not in dispute that there is a change in the shareholding pattern of the Kovalam Hotels Ltd during the ich, the hotel company. Therefore, the provisions of Sec.79 are clearly attracted as far as the carry forward business losses of Kovalam Hotels Ltd are concerned. Now, it is to be examined whether the assessee is entitleprovisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during the A.Y.2006-07. This aspect has been discussed in detail by the Assessing Officer of Kovalam Hotels Ltd. in his assessment order as referred to above. At tthe assessee (Kovalam Hotels Ltd.) cannot be called a company in which the public is substantially interested as it has not satisfied any of the conditions as laid down u/s. 2(18) during the P.Y. 20052006-07), hence, business loss prior to A.Y.2006allowed to be carried forward for future setbusiness loss of Rs.13,43,71,999/by Kovalam Hotels Ltd prior to the assessment year underconsideration, which have already been denied by the Assessing Officer of Kovalam Hotels Ltd from being carried forward, cannot be now allowed to be setthe present A.Y. 2007total brought forward loss of Rs.25,83,74,068/assessee as set off representing the brought forward losses and depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/excluded and the remaining amount of Rs.12,4002,069allowed as set-3. On further appeal, the Ld. CIT(A) referred to the provisions of section 79 of the Act view of fact that section 72A of the Act being specific provision it has M/s Hotel Leela Venture Ltd. business losses of Kovalam Hotels Ltd are concerned. Now, it is to be examined whether the assessee is entitled to an exemption from the provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during 07. This aspect has been discussed in detail by the Assessing Officer of Kovalam Hotels Ltd. in his assessment order as referred to above. At the end of his analysis, it is clearly found that the assessee (Kovalam Hotels Ltd.) cannot be called a company in which the public is substantially interested as it has not satisfied any of the conditions as laid down u/s. 2(18) during the P.Y. 200507), hence, business loss prior to A.Y.2006-07 shall not be allowed to be carried forward for future set-off. Therefore, the business loss of Rs.13,43,71,999/- which have been carried forward by Kovalam Hotels Ltd prior to the assessment year underconsideration, which have already been denied by the Assessing Officer of Kovalam Hotels Ltd from being carried forward, cannot be now allowed to be set-off by the assessee in its return of income for the present A.Y. 2007-08 under consideration. Therefore, out of the total brought forward loss of Rs.25,83,74,068/-, claimed by the assessee as set off representing the brought forward losses and depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/excluded and the remaining amount of Rs.12,4002,069-off. On further appeal, the Ld. CIT(A) referred to the provisions of Act vis-à-vis section 72A of the Act fact that section 72A of the Act being specific provision it has M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 5 business losses of Kovalam Hotels Ltd are concerned. Now, it is to be d to an exemption from the provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during 07. This aspect has been discussed in detail by the Assessing Officer of Kovalam Hotels Ltd. in his assessment order as he end of his analysis, it is clearly found that the assessee (Kovalam Hotels Ltd.) cannot be called a company in which the public is substantially interested as it has not satisfied any of the conditions as laid down u/s. 2(18) during the P.Y. 2005-06 (A.Y. 07 shall not be off. Therefore, the which have been carried forward by Kovalam Hotels Ltd prior to the assessment year under consideration, which have already been denied by the Assessing Officer of Kovalam Hotels Ltd from being carried forward, cannot be off by the assessee in its return of income for e, out of the , claimed by the assessee as set off representing the brought forward losses and depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/- is being excluded and the remaining amount of Rs.12,4002,069/- is being On further appeal, the Ld. CIT(A) referred to the provisions of Act and held that in fact that section 72A of the Act being specific provision it has to be preferred over the general provisions of section 79 of the Act, therefore provisions of section 79 are not applicable in the instant case. The relevant finding of the Ld. CIT(A) is reproduced as under:“5.8 It can be seen from the above that the section pertains to amalgamation of a company owing industrial undertaking or a ship or a hotel with another company. which is the case in appeal before me. It has also been held in various case laws that the specificprovision will overrule the general provision. Recently in the case of Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on April 30, 2012 that specific provision would prevail over the general provisions. Section 72A is a specific provision ramalgamation of the company running a hotel with another company. Whereas section 79 deals with only change in the share holding. In the instant case, because it is amalgamation, it is covered by section 72A of the Income Tax Act. The Hon'ble HiBombay vide Company Petition No. 38 of 2007 connected with Company Application No. 1124 of 2006 in the matter of scheme of amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and Company Petition No. 733 of 2007 connected with Company Application No. 749 of 2007 as on November 2, 2007 approved the scheme of arrangement as per section 391 to 394 of Companies Act, 1956. These sections of the Companies Act deal with amalgamation. Further the composite scheme of arrangement presented before tHon'ble High Court of Bombay mentions about the amalgamation of the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case where section 72A should have been applied instead of section 79, as M/s Hotel Leela Venture Ltd. red over the general provisions of section 79 of the Act, therefore provisions of section 79 are not applicable in the instant case. The relevant finding of the Ld. CIT(A) is reproduced as under:It can be seen from the above that the section pertains to amalgamation of a company owing industrial undertaking or a ship or a hotel with another company. which is the case in appeal before me. It has also been held in various case laws that the specificprovision will overrule the general provision. Recently in the case of Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on April 30, 2012 that specific provision would prevail over the general provisions. Section 72A is a specific provision ramalgamation of the company running a hotel with another company. Whereas section 79 deals with only change in the share holding. In the instant case, because it is amalgamation, it is covered by section 72A of the Income Tax Act. The Hon'ble High Court of Bombay vide Company Petition No. 38 of 2007 connected with Company Application No. 1124 of 2006 in the matter of scheme of amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and Company Petition No. 733 of 2007 connected with Company plication No. 749 of 2007 as on November 2, 2007 approved the scheme of arrangement as per section 391 to 394 of Companies Act, 1956. These sections of the Companies Act deal with amalgamation. Further the composite scheme of arrangement presented before tHon'ble High Court of Bombay mentions about the amalgamation of the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case where section 72A should have been applied instead of section 79, as M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 6 red over the general provisions of section 79 of the Act, therefore provisions of section 79 are not applicable in the instant case. The relevant finding of the Ld. CIT(A) is reproduced as under: It can be seen from the above that the section pertains to amalgamation of a company owing industrial undertaking or a ship or a hotel with another company. which is the case in appeal before me. It has also been held in various case laws that the specific provision will overrule the general provision. Recently in the case of Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on April 30, 2012 that specific provision would prevail over the general provisions. Section 72A is a specific provision relating to amalgamation of the company running a hotel with another company. Whereas section 79 deals with only change in the share holding. In the instant case, because it is amalgamation, it is covered gh Court of Bombay vide Company Petition No. 38 of 2007 connected with Company Application No. 1124 of 2006 in the matter of scheme of amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and Company Petition No. 733 of 2007 connected with Company plication No. 749 of 2007 as on November 2, 2007 approved the scheme of arrangement as per section 391 to 394 of Companies Act, 1956. These sections of the Companies Act deal with amalgamation. Further the composite scheme of arrangement presented before the Hon'ble High Court of Bombay mentions about the amalgamation of the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case where section 72A should have been applied instead of section 79, as has been done by the AO. The appellant has relieClassic Shares and Stock Broking Services Ltd of Hon'ble ITAT Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Bench, New Delhi vide order no. 5524/Del/2on 5.8.2011 that since the scheme of amalgamation has been approved by the Hon'ble High Court there is no reason to suspect that the amalgamation was not for genuine business purpose and it was a colourable tax devise. Since sectiappellant has already merged the accounts of the Kovalam Hotel Ltd with itself as on the effective date of the scheme of amalgamation i.e. 1.4.2006, and the income of that hotel is also offered by the appellant by revising the return of income. The assets of Kovalam Hotels Ltd have been completely taken over by the appellant. When the AO of Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006the appellant was holdingas per the order of Hon'ble High Court, took place from the effective date i.e. April 1, 2006. This specific date is falling in A.Y. 2007the year in appeal. While the AO of Kovalam Hotels Ltd was dealing with the issue for A.Y. 2006taken place. Hence, once the amalgamation is approved by Hon'ble High Court of Bombay and the accounts were merged, provisions of section 72A only will come into play and not section 79 as held by the AO. Therefore, it is held that the appeforward of losses of Kovalam Hotel Ltd as per section 72A of the Income tax Act, 1961 and the ground of appeal of the appellant is allowed.” M/s Hotel Leela Venture Ltd. has been done by the AO. The appellant has relied on the case ofClassic Shares and Stock Broking Services Ltd of Hon'ble ITAT Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Bench, New Delhi vide order no. 5524/Del/2010 for A.Y. 2006on 5.8.2011 that since the scheme of amalgamation has been approved by the Hon'ble High Court there is no reason to suspect that the amalgamation was not for genuine business purpose and it was a colourable tax devise. Since section 72A were in application, the appellant has already merged the accounts of the Kovalam Hotel Ltd with itself as on the effective date of the scheme of amalgamation i.e. 1.4.2006, and the income of that hotel is also offered by the appellant he return of income. The assets of Kovalam Hotels Ltd have been completely taken over by the appellant. When the AO of Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006the appellant was holding-only 51% share and the complete merger, per the order of Hon'ble High Court, took place from the effective date i.e. April 1, 2006. This specific date is falling in A.Y. 2007the year in appeal. While the AO of Kovalam Hotels Ltd was dealing with the issue for A.Y. 2006-07 when the amalgamation had not taken place. Hence, once the amalgamation is approved by Hon'ble High Court of Bombay and the accounts were merged, provisions of section 72A only will come into play and not section 79 as held by the AO. Therefore, it is held that the appellant is eligible for carry forward of losses of Kovalam Hotel Ltd as per section 72A of the Income tax Act, 1961 and the ground of appeal of the appellant is M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 7 d on the case of Classic Shares and Stock Broking Services Ltd of Hon'ble ITAT Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Range 18, it has been held by the Hon'ble High Court of Delhi 'F' 010 for A.Y. 2006-07 held on 5.8.2011 that since the scheme of amalgamation has been approved by the Hon'ble High Court there is no reason to suspect that the amalgamation was not for genuine business purpose and it was a on 72A were in application, the appellant has already merged the accounts of the Kovalam Hotel Ltd with itself as on the effective date of the scheme of amalgamation i.e. 1.4.2006, and the income of that hotel is also offered by the appellant he return of income. The assets of Kovalam Hotels Ltd have been completely taken over by the appellant. When the AO of Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006-07 and only 51% share and the complete merger, per the order of Hon'ble High Court, took place from the effective date i.e. April 1, 2006. This specific date is falling in A.Y. 2007-08 i.e. the year in appeal. While the AO of Kovalam Hotels Ltd was dealing amation had not taken place. Hence, once the amalgamation is approved by Hon'ble High Court of Bombay and the accounts were merged, provisions of section 72A only will come into play and not section 79 as held by the llant is eligible for carry forward of losses of Kovalam Hotel Ltd as per section 72A of the Income tax Act, 1961 and the ground of appeal of the appellant is 4. Before us the Ld.has been declined to MOfficer in assessment year 2006Ltd. has amalgamated with the assessee company with effect from assessment year 2007Ltd was available with theconsideration. He further submitted that as per section 79 of the if there is a change in shareholding of the closely held company in any previous year, then carryforward of the loss of years prior to the previous year shall not allowedyear 51% of the shareholding is not held beneficially by the shareholder on the last day of the year or years in which the loss was incurred. He submitted that in assessment year 2006is a change in the shareholding of more than 51% from old shareholders to new shareholders and therefore Kovalam Hotels Ltd. did not satisfy this condition of sectioM/s Hotel Leela Venture Ltd. Ld. DR submitted that carry forward of the loss has been declined to M/s Kovalam Hotels Ltd. by its in assessment year 2006-07 whereas M/s Kovalam Hotels has amalgamated with the assessee company with effect from assessment year 2007-08 and therefore no loss of Kovalam Hotels Ltd was available with the assessee for set off in the year under He further submitted that as per section 79 of the if there is a change in shareholding of the closely held company in any previous year, then carryforward of the loss of years prior to the us year shall not allowed, if on the last day of the previous year 51% of the shareholding is not held beneficially by the shareholder on the last day of the year or years in which the loss was incurred. He submitted that in assessment year 2006is a change in the shareholding of more than 51% from old shareholders to new shareholders and therefore Kovalam Hotels did not satisfy this condition of section 79 in assessment year M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 8 forward of the loss by its Assessing 07 whereas M/s Kovalam Hotels has amalgamated with the assessee company with effect from 08 and therefore no loss of Kovalam Hotels assessee for set off in the year under He further submitted that as per section 79 of the Act, if there is a change in shareholding of the closely held company in any previous year, then carryforward of the loss of years prior to the on the last day of the previous year 51% of the shareholding is not held beneficially by the shareholder on the last day of the year or years in which the loss was incurred. He submitted that in assessment year 2006-07, there is a change in the shareholding of more than 51% from old shareholders to new shareholders and therefore Kovalam Hotels n 79 in assessment year 2006-07 for carry forward of losses of years prior to previous year2005-06. Thus, the declined carryforward of losses. 5. The Ld. Counsel paperbook containing page 1 to 127 and also filed case laws. 6. The Ld. Counsel 79 are not attracted in the instant case. In support of the contention that assessee is entitled for set ofdecision of the Tribunal (Mumbaii. DCIT Vs Credila Financial Services 112 (Mumbai) ii. DCIT Vs Instant Traders P Ltd iii. M/s Meredith Traders P Ltd 7. We have heard rival submissiondispute and perused the relevant material on record. In the case two M/s Hotel Leela Venture Ltd. for carry forward of losses of years prior to previous yearThus, the Assessing Officer in that case has correctly declined carryforward of losses. Counsel of the assessee on the other hand filed paperbook containing page 1 to 127 and also filed Ld. Counsel vehemently argued that provision of section 79 are not attracted in the instant case. In support of the contention that assessee is entitled for set off of the losses, he relied on the Tribunal (Mumbai Bench) in following cases:Financial Services Private Limited [2018] 91 taxmann.com DCIT Vs Instant Traders P Ltd [2018] 96 taxmann.com 378 (MumbaiM/s Meredith Traders P Ltd v. ITO (ITA Nos. 3435 & 3436/M/2010)We have heard rival submissions of the partiesdispute and perused the relevant material on record. In the case two M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 9 for carry forward of losses of years prior to previous year in that case has correctly of the assessee on the other hand filed a paperbook containing page 1 to 127 and also filed compilation of rgued that provision of section 79 are not attracted in the instant case. In support of the contention the losses, he relied on the in following cases: [2018] 91 taxmann.com [2018] 96 taxmann.com 378 (Mumbai-Trib.) v. ITO (ITA Nos. 3435 & 3436/M/2010) ies on the issue in dispute and perused the relevant material on record. In the case two events have happened which business loss sought to be set off by the assesseehappened in the previous year 2005assessment year 2006Hotel Leela Venture Ltd., (substantially interestedthan 51%) of M/s Kovalam Hotels Limitedof shares, majority shares MFAR Hotels Ltd., a interested, and thereforecompany, prior to change of shareholdings 2005-06. The provisions of section 79 gets attracted on happening of this first event i.e. AY 20067.1 The second event happwhich is corresponding to previous year 2006order of the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd.M/s Hotel Leela Venture Ltd. happened which are having impact on the claim t to be set off by the assessee. The first event ed in the previous year 2005-06, corresponassessment year 2006-07. During the previous year 2005Hotel Leela Venture Ltd., (which is a company in which publsubstantially interested) acquired majority shareholding (of M/s Kovalam Hotels Limited. Prior to such acquisition, majority shares of Kovalam Hotels Ltd. were company in which public is not , and therefore M/s Kovalam Hotels Ltd was a closely held company, prior to change of shareholdings during previous year The provisions of section 79 gets attracted on happening of this first event i.e. AY 2006-07. The second event happened in assessment year 2007onding to previous year 2006-07. By way of the f the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd.M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 10 having impact on the claim of . The first event corresponding to During the previous year 2005-06, M/s which is a company in which public are ) acquired majority shareholding (i.e. more Prior to such acquisition of Kovalam Hotels Ltd. were held by M/s not substantially valam Hotels Ltd was a closely held ng previous year The provisions of section 79 gets attracted on happening ened in assessment year 2007-08, . By way of the f the Hon’ble Bombay High Court, M/s Kovalam Hotels Ltd., amalgamated with the assessee company from the eon 01/04/2006. So with effesaid M/s Kovalam Hotels LtdThe provisions of section 72A of the Act gets attracted in the event of merger/amalgamated, thereforeinto picture only at the stage of second event i.e.7.2 In the case of M/s Kovalam 2006-07, the assessee claimed earlier years amounting to such loss has been tabulated by the Ld. CIT(A)impugned order. For ready reference, said detailunder: 2002-03 2003-04 2004-05 2005-06 Total M/s Hotel Leela Venture Ltd. with the assessee company from the e. So with effect from assessment year 2007said M/s Kovalam Hotels Ltd. became part of the assessee company.The provisions of section 72A of the Act gets attracted in the event of merger/amalgamated, therefore, in the case section 72A comes into picture only at the stage of second event i.e. AY 2007In the case of M/s Kovalam Hotels Ltd. for assessment year 07, the assessee claimed carry forward of business loss of earlier years amounting to ₹13,43,71,982/-. The yeartabulated by the Ld. CIT(A) in para 5.3 of the or ready reference, said detail AY Business Loss (In ₹) 45,13,758/ 8,92,29,786/ 4,06,28,455/13,43,71,982/M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 11 with the assessee company from the effective date as ct from assessment year 2007-08, the became part of the assessee company. The provisions of section 72A of the Act gets attracted in the event in the case section 72A comes AY 2007-08. for assessment year business loss of The year-wise details of in para 5.3 of the is extracted as 45,13,758/- 8,92,29,786/- 4,06,28,455/- 13,43,71,982/- 7.3 The Assessing Officerassessment year 2006the loss of ₹13,43,71,999/assessment order, which is available on page 56 paperbook. The relereproduced as under for ready reference:“The assessee company is not covered under the provisions of Sub clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. The only probability of covering the under Sub clause (b). For this assessee has to satisfy the condition either under Item (A) or Item (B). Condition under Item (A) is not satisfied as the company is not listed in a stock exchange as on the last day of the previthe condition in the Item (B) to claim as a company in which the public are substantially interested. To satisfy this condition more than 51% of the shares of the assessee company should have held by the Government or Corporation or a company in which public are substantially interested throughout the relevantthan 51% of the share of the assessee company was held by M/S MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a company in which the public are substantially interested in any part of the relevant previous year. M/s Hotel Leela Ventures Ltd is a M/s Hotel Leela Venture Ltd. Assessing Officer in the case of Kovalam Hotels Ltdassessment year 2006-07 has rejected the claim for carryforward 71,999/-. The assessee has filed cowhich is available on page 56 paperbook. The relevant part of the said assessment order is reproduced as under for ready reference: The assessee company is not covered under the provisions of Sub clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. The only probability of covering the provision of Section 2(18) is under Sub clause (b). For this assessee has to satisfy the condition either under Item (A) or Item (B). Condition under Item (A) is not satisfied as the company is not listed in a stock exchange as on the last day of the previous year. So the assessee company has to satisfy the condition in the Item (B) to claim as a company in which the public are substantially interested. To satisfy this condition more than 51% of the shares of the assessee company should have held by ernment or Corporation or a company in which public are substantially interested throughout the relevant previous year. More 1% of the share of the assessee company was held by M/S MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a company in which the public are substantially interested in any part of the relevant previous year. M/s Hotel Leela Ventures Ltd is a M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 12 in the case of Kovalam Hotels Ltd. for rejected the claim for carryforward of . The assessee has filed copy of the said which is available on page 56 to 60 of the vant part of the said assessment order is The assessee company is not covered under the provisions of Sub clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. provision of Section 2(18) is under Sub clause (b). For this assessee has to satisfy the condition either under Item (A) or Item (B). Condition under Item (A) is not satisfied as the company is not listed in a stock exchange as on the ous year. So the assessee company has to satisfy the condition in the Item (B) to claim as a company in which the public are substantially interested. To satisfy this condition more than 51% of the shares of the assessee company should have held by ernment or Corporation or a company in which public are previous year. More 1% of the share of the assessee company was held by M/S MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a company in which the public are substantially interested in any part of the relevant previous year. M/s Hotel Leela Ventures Ltd is a company in which the public are substantially interestshares of the assessee company were not held by the M/s Hotel Leela Ventures Ltd throughout the relevant previous year. Thus the assessee company does not satisfy the condition in the Item (B) also. It is very clear that M/s Kovalam Hotels Ltd which the public are substantially interested during the previous year 2005-06 and hence the provisions of section 79 is applicable in the assessee's case. The business loss of Rs.13,43,71,999/to the previous year 2005of the IT Act.” 7.4 Thus according to the business loss of ₹13,43,71,to next assessment year i.eshareholding has happened or taken place in Kovalam Hotels Ltdwhich was a closely held company and Kovalam Hotels Ltd. as company in which public are substantially company due to such change, therefore, provisions of section 79 are applicable over the facts of the case. 7.5 But the assessee in the year under consideration has claimed the set off of the said loss on the ground that M/s Kovalam Hotels M/s Hotel Leela Venture Ltd. company in which the public are substantially interestshares of the assessee company were not held by the M/s Hotel Leela Ventures Ltd throughout the relevant previous year. Thus the assessee company does not satisfy the condition in the Item (B) also. It is very clear that M/s Kovalam Hotels Ltd is not a company in which the public are substantially interested during the previous year 06 and hence the provisions of section 79 is applicable in the assessee's case. The business loss of Rs.13,43,71,999/- incurred prior to the previous year 2005-06 is not allowed to carry forward u/s 79 Thus according to the Assessing Officer of Kovalam Hotels13,43,71,999/-was not available for carryforward to next assessment year i.e. AY 2007-08 because change in eholding has happened or taken place in Kovalam Hotels Ltdwhich was a closely held company and Kovalam Hotels Ltd. as hich public are substantially interested company due to such change, therefore, provisions of section 79 are applicable over the facts of the case. But the assessee in the year under consideration has claimed the set off of the said loss on the ground that M/s Kovalam Hotels M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 13 company in which the public are substantially interested. But the shares of the assessee company were not held by the M/s Hotel Leela Ventures Ltd throughout the relevant previous year. Thus the assessee company does not satisfy the condition in the Item (B) also. is not a company in which the public are substantially interested during the previous year 06 and hence the provisions of section 79 is applicable in the incurred prior 06 is not allowed to carry forward u/s 79 essing Officer of Kovalam Hotels Ltd., was not available for carryforward 08 because change in eholding has happened or taken place in Kovalam Hotels Ltd., which was a closely held company and Kovalam Hotels Ltd. as interested is resultant company due to such change, therefore, provisions of section 79 are But the assessee in the year under consideration has claimed the set off of the said loss on the ground that M/s Kovalam Hotels Ltd. has been merged with the assessee company with effect from assessment year 20077.6 In our opinion, once the Kovalam Hotels Ltd for assessment year 2006rejected claim of carrysection 79 of the Act, for set off u/s 72A of the ActAssessing Officer is reversed by the higher appellate authorities. The Ld. counsel of the assessee intimatedof the Assessing Officer2006-07 is pending before the considered view, the said business loss becomes eligible for the set off in the year underthe allowability of carryforward in the case of Kovalam Hotel Ltdunder section 79 of the assessment order in the case of Kovalam Hotels LtdM/s Hotel Leela Venture Ltd. merged with the assessee company with effect from assessment year 2007-08. In our opinion, once the Assessing Officer Kovalam Hotels Ltd for assessment year 2006-07 has already carry forward of the said business loss section 79 of the Act, then same cannot be available to the assessee f u/s 72A of the Act until and unless said finding of the is reversed by the higher appellate authorities. The of the assessee intimated that appeal against the order Assessing Officer in the case of Kovalam Hotels Ltd07 is pending before the Ld. First Appellate Authorityconsidered view, the said business loss becomes eligible for the set off in the year under consideration only subsequent to decision of the allowability of carryforward in the case of Kovalam Hotel Ltdunder section 79 of the Act in the favour of assesseeassessment order in the case of Kovalam Hotels Ltd. M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 14 merged with the assessee company with effect from in the case of 07 has already forward of the said business loss in terms of n same cannot be available to the assessee until and unless said finding of the is reversed by the higher appellate authorities. The that appeal against the order in the case of Kovalam Hotels Ltd. for AY First Appellate Authority. In our considered view, the said business loss becomes eligible for the set consideration only subsequent to decision of the allowability of carryforward in the case of Kovalam Hotel Ltd. in the favour of assessee. As on date, the for AY 2006-07 is in operation and which has not been reversed by the Ld CIT(A) or ITAT, thus, said business loss of forwarded to assessment year 2007available for set off against different heads of the incassessee as per the provisions of assessment year under consideration. loss in AY 2007-08 u/s 72A of the Act carry forward of loss in AY 2006of section 79 of the Actconsideration is not justified in deciding the question of carryforward of loss in the case of Kovalam Hotels Ltdassessment year 2006issue has to be adjudicated by the appellate authorities having jurisdiction over the case of Kovalam HoteTherefore, we are also not adjudicating on the issue whether carryforward of the said business loss in the case of KM/s Hotel Leela Venture Ltd. is in operation and which has not been reversed by the Ld CIT(A) or thus, said business loss of ₹13,43,71,999/- has not been carryto assessment year 2007-08 and therefore same is not available for set off against different heads of the incassessee as per the provisions of section 72A the assessment year under consideration. The issue of set off of business u/s 72A of the Act is consequent to the issue of carry forward of loss in AY 2006-07 in Kovalam Hotels Ltdof section 79 of the Act. The Ld. CIT(A) in the year under consideration is not justified in deciding the question of carryforward of loss in the case of Kovalam Hotels Ltdassessment year 2006-07 invoking section 72A of the Actissue has to be adjudicated by the appellate authorities having n over the case of Kovalam Hotels Ltd. for AY 2006, we are also not adjudicating on the issue whether carryforward of the said business loss in the case of KM/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 15 is in operation and which has not been reversed by the Ld CIT(A) or has not been carry 08 and therefore same is not available for set off against different heads of the income of the the Act for the he issue of set off of business is consequent to the issue of m Hotels Ltd. in terms The Ld. CIT(A) in the year under consideration is not justified in deciding the question of carryforward of loss in the case of Kovalam Hotels Ltd. for invoking section 72A of the Act as that issue has to be adjudicated by the appellate authorities having Ltd. for AY 2006-07 . , we are also not adjudicating on the issue whether carryforward of the said business loss in the case of Kovalam Hotels Ltd. for AY 2006-07 is permitted under the lawaside the finding of the Ld.Assessing Officer is directed to give effectin the case of the assesseeauthorities in the case of Kovalam Hotels Ltd. forward of business loss uof the Revenue is accordingly allowed. 8. In the result, the appeal filed by thOrder pronounced in the Court on Sd/- (SANDEEP SINGH KARHAILJUDICIAL MEMBERMumbai; Dated: 10/08/2022 Rahul Sharma, Sr. P.S. M/s Hotel Leela Venture Ltd. 07 is permitted under the law. Accordingly, we set aside the finding of the Ld. CIT(A) on the issue in disputeis directed to give effect of set off of business lossin the case of the assessee, consequent to the finding of in the case of Kovalam Hotels Ltd. on the issue of carryforward of business loss under reference. The ground of the appeal is accordingly allowed. In the result, the appeal filed by the Revenue is allowed.ounced in the Court on 10/08/2022. Sd/- SANDEEP SINGH KARHAIL) (OM PRAKASH KANTJUDICIAL MEMBER ACCOUNTANT M/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 16 Accordingly, we set CIT(A) on the issue in dispute. The of set off of business loss consequent to the finding of appellate on the issue of carry . The ground of the appeal e Revenue is allowed. OM PRAKASH KANT) MEMBER Copy of the Order forwarded to1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// M/s Hotel Leela Venture Ltd. Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, MumbaiM/s Hotel Leela Venture Ltd. ITA No. 4453/M/2013 17 Sr. Private Secretary) ITAT, Mumbai