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TaxTMI 
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2015 (7) TMI 157
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....-tax Act, 1961 ('the Act') to the extent prejudicial to the Appellant, is perverse, erroneous on facts and bad in law. 2.1. That on the facts and circumstance of the case and in law, the CIT(A) exceeded its jurisdiction contemplated in Section 251 of the Act, by enhancing the income of the Appellant on account of denial of claim for bad debts written off through provision for bad debt account of Rs. 7,53,08,028. 2.2. Without prejudice to the above, in view of the facts and circumstances of the case and in law, the learned CIT(A) erred in disallowing the claim of bad debts of Rs. 7,53,08,028 written off through provision for bad debt account. 3.1. That the learned CIT(A) has erred in computing the Transfer pricing adjustment of Rs. 7,62,29,166 for the manufacturing segment of Power Control Domestic Tariff Area ('PCDTA') division of the Appellant Company. 3.2. That the learned CIT(A) has erred while computing the raw material adjustments of the Appellant Company and the comparable companies in the manufacturing segment of the PCDTA division and consequently arriving at the revised operating margin of comparable companies. 3.3. Without prejudice to the above, the learned CIT....
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....heme. It was also stated that, the accounting practices and policies have not been and are not required to be aligned under the scheme of arrangement. Even the order of the Hon'ble High Court has also made it mandatory not to make any alignment in the accounting practices and policies subsequent to the scheme being made operational. 10.2 From the plain reading of the order of the Hon'ble High Court as well as the accounting practices and policies adopted by the Board of Directors subsequent to the merger/amalgamation, as per the A.O. there was no scope of any alignment in the accounting practices and policies including taxation matters in the books of accounts of the new entity i.e. the appellant. As per the AO the scheme of merger was approved with the appointed date which was 01-04-2003 and accordingly the arrangement/ amalgamation/ merger became effective from the first day of the previous year relevant to assessment year under consideration. Since the order of Hon'ble Gujarat High Court regarding the scheme of arrangement was passed on 02-05-2005 whereas all the companies including the appellant company were liable to file their return of income as per provisions ....
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.... the AO all the companies as listed above which were part of the scheme of arrangement in their respective original returns of income filed on the basis of their respective audit reports claimed / added disallowables as per Annexure-A to this order. As per the AO on perusal of annexure-A, the total disallowable considered by the respective companies in their returns of income were totaling to Rs.62,63,45,413/-. Thus as per the AO accordingly while computing the income as per the revised return prepared to give effect to scheme of arrangement without any alignment in the accounting practices and policies of respective companies ought to have considered with disallowable being added to the income as per profit and loss account should have been naturally Rs.62,63,45,413/-. As per the AO however on perusal of revised return of income such disallowables were considered at Rs.51,25,39,846/-. Thus as per the AO the act of the appellant company of reduction in the amount of disallowables to the tune of Rs.11,60,49,285/- was neither justified nor maintainable within the provisions of law. The AO was of the view that the figures shown as disallowables in the respective returns of the above c....
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....In view of this the AO held that the income from other sources reduced to the tune of Rs.24,19,886/- (i.e. Rs.28,84,598/- - Rs.4,64,712/-) and the same was added by him to the total income of the appellant. 10.3 In view of the above discrepancies with regard to disallowables and allowable of business income and income from other sources, the AO held that the revised return of income of the appellant was not showing the true state of affairs and accordingly he rejected the books of accounts of the appellant u/s 145(3) of the IT Act." 3.1. The AO further made adjustment as proposed by TPO and made addition of Rs. 2,11,55,611/-. 3.2 Against this, the assessee filed an appeal before the ld.CIT(A) who, after considering the submissions partly allowed the appeal. The ld.CIT(A) made disallowance of bad debt of Rs. 7,53,08,029/-; thereby enhanced the income of the assessee. The ld.CIT(A) also made enhancement into Transfer Pricing adjustment. The assessee feeling aggrieved by the order of the ld.CIT(A), has filed the present appeal before us. 4. First ground of assessee's appeal is general in nature which require no independent adjudication. 5. Ground Nos.2.1 & 2.2 are inter-connect....
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.... submitted that the taxability of subject bad debts was neither a subject matter of appeal nor was it considered by the Ld. AO during the course of assessment proceedings. The enhancement is bad in law as the Ld. CIT(A) has sought to tax a new source of income. There are numerous judgments in the context of Section 31 of the Income-tax Act, 1922 which state that items of income which have not been considered during the course of assessment cannot be encompassed in the enhancement power of the AAC. Reliance in placed on the judgments of the Gujarat High Court in the case of Prabhudas Ramji v CIT (1966) (62ITRITR 621) and CIT v Jagdish Mills Ltd (1964) (51 ITR 266); Karnataka High court in the case of Sterling Construction And Trading Company v ITO (1975)(99 ITR 236). It is further contended that the power of enhancement by CIT(A) contemplated in Section 251 of the Act does not include the power to discover new source of income. This contention was also upheld by the Delhi High Court in the case of CIT vs Union Tyres (240 ITR 556) and approved by the full bench of Delhi High Court in the case of CIT v Sardari Lal and Co (251 ITR 864) after placing reliance on the judgments of C....
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....he issue of bad debts had not been considered by the Ld. AO during the course of assessment. To buttress the contention of jurisdiction, the Ld. CIT(A) relied on the judgment of the Delhi HC in the case of Gurinder Mohan Singh Nindrajog v CIT (348 ITR 170). However the said reliance is also misplaced and distinguishable on facts. In the said case, the subject matter of enhancement was considered by the AO and after receiving a reply from the assessee, the AO chose not to make an addition. Accordingly, it was held that the AO had considered the matter. Drawing a parallel to the case under consideration, the Ld. AO, at the time of assessment, had not enquired anything about the subject claim of bad debt. Though, the subject bad debts did form part of the financial statements of the assessee for the subject AY, it was not enquired upon on any aspect by the Ld. AO. Accordingly, it is submitted that the subject bad debts were not considered by the Ld. AO and enhancement by the Ld. CIT(A) on that account after roving enquires would tantamount to discovery of new source of income which is beyond the jurisdiction of his office. Indirect way of making additions beyond the limitation....
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.... Company. Accordingly, the same has been claimed as deduction in compliance with the provisions of section 36(l)(vii) r.w.s 36(2) of the Act. During the year under consideration, the subject bad debts have been credited to the debtor's account with a corresponding debit to the "Provision for bad debt account". This in itself would demonstrate that the subject debts have been written off from the ledger of the debtor. The judgment of CIT v Hotel_Ambassador (253 ITR 430) sought to be relied by the Ld. AO is distinguishable on facts. In the said case, the assessee wrote off the amount as bad debts in the debtors ledger, after the accounts were finalised and audited. In that context, it was held that deduction under Section 36(l)(vii) cannot be allowed if the assessee writes off the debt in some of the books maintained by it, which do not form part of the audited accounts. However, in the case of the Appellant, bad debts have been written off from the books of accounts which have been finalized and audited by the statutory auditors. Further, the Ld. CIT(A) has relied on the judgment of Sampanna Kuries by the Kerala High Court to substantial that even after the deletion of t....
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....d tantamount to double disallowance. Hence, in the event, bad debt is disallowed in the current year, deduction should be allowed with regard to provision created in the preceding years." 5.1. On the contrary, ld.CIT-DR also submitted a note and reiterated as were made in the submission, which reads as under:- "Note on Enhancement of income by the Commissioner (Appeals) It is commonly understood that the First Appellate Authority viz. the Commissioner (Appeals) has the power of enhancement in relation to any matter connected with an appeal before him. This proposition arises from the wording in section 251(1) which reads as under: In disposing of an appeal, the Commissioner (Appeals) shall have the following powers - (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment (emphasis added). However, some decisions have been rendered wherein the power of enhancement was sought to be restricted by holding that such enhancement would not apply to sources of income which had not been considered by the Assessing Officer -CIT, Bombay v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC). However, this line of thinking was overturne....
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.... of the Assessing Officer, earlier stated the Court concluded as under: This means that even if question No. 2 is answered in the affirmative, question nos. 1 and3 must be answered in the negative. The appeal is therefore allowed............ The Apex Courts decision is in tune with the well accepted legal maxim that no word can be read into a statute if it is not clearly so provided. No word which is provided in a statute can also be excluded as meaningless. In other words, there has to be a strict interpretation of the statute as is clear from the wordings: Cape Brandy Syndicate v. IRC (1921) 1 KB 64, AV Fernandez V. State of Kerala AIR 1957 SC 657, CWT v. Kripashankar Dayashankar Worah 81ITR 763 (SC). However, subsequent to the Supreme Court's decision which appeared to have set at rest finally the issue as to whether the first appellate authority had limitless powers of enhancement of income, Court decisions have been coming seeking to distinguish the decision of the Supreme Court cited earlier. Thus, in CIT v. Union Tyres [1999] 240 ITR 556 (Delhi) and in CIT v. Sardari Lal and Co. [2002] 251 ITR 864 (Delhi) the High Courts has sought to distinguish the Apex Court dec....
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.... presence of such specific provisions, a similar power is available to the first appellate authority. We can see that a new issue of availability of alternate methods of enhancement like 147, 263 etc. are being discussed now. Here, one can see that the Court itself has accepted the existence of alternate methods of enhancement - 147 / 148 or 263 but put its foot down on another alternate enhancement method - 251(1). The fact that the distinction made regarding new source of income just not being there is clear from the fact that enhancement based on new source of income had been considered and approved by the Apex Court in Deluram's case et al, and quite clear from the reproduction from that case noted earlier. It is also worth noting that if the wording in section 251(1)(a) read as under: In respect of issues in appeal, he may confirm, reduce, enhance or annul the assessment, then, the interpretation given by the various High Courts may perhaps have been relevant. We have also noted that a strict interpretation of the statute is the norm. It is also interesting to note that under 251(2), the Commissioner (Appeals) is bound to give reasonable opportunity of being heard to....
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....ibetur at omne per quod devenitur ad illud". 6.1. the ld.CIT(A) proceeded on the basis that the assessee has not complied with the statutory requirement of section 36(1)(vii), therefore first we would examine whether the ld.CIT(A) was justified in holding that there is a non-compliance of the provisions of section 36(1)(vii) r.w.s.36(2) of the Act; thereby the claim of bad debt could not have been allowed. Undisputedly, the contention of the assessee is that it has complied with the provisions of section 36(1)(vii) r.w.s.36(2) of the Act. It is submitted that the subject bad debts have been credited to the debtor's account with a corresponding debit to the "Provision for bad debt account". In this context our attention was drawn to page Nos.77 and 78 of the paper-book. It is also contended that the provision for bad debt was offered to tax in the preceding years in which the said provision was created and charged to profit and loss account. The disallowance of bad debts written off in the current year would tantamount to double disallowance. The Reliance is placed on judgement of the Hon'ble Apex Court rendered in the case of TRF Ltd. vs. CIT reported at (2010) 323 ITR 397 (SC). W....
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....the raw-material adjustments or not. In this regard reference is made to para-6.7 of the order u/s.92CA(3) of the TPO, Ahmedabad for A.Y. 2005-06. The TPO in such order on perusal of P&L account realized that the cost of raw-material was major cost affecting the profit of the appellant and hence it was decided to mark up the cost of raw-material of the comparables to arrive at adjusted value of the total purchases of the appellant so that costlier local purchases do not colour the appellant's transaction with AE's. Hence, the entire raw-material cost was reduced to bring Industry at level. The TPO observed that the local raw-material purchases of the appellant was very high (65.99%) and due to these higher local cost of purchase, its results were not comparable with local comparables. It was also observed by the TPO that the cost of purchase of raw-material of local comparable may be not due to existence of unrecognized raw-material market. Thus as per provision of rule 10B(e)(iii) of the income Tax Rules, adjustment was made to the results of the comparable companies and purchase inefficiency of the appellant was adjusted, which results into mean adjusted margin to sales at 1.22%.....
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....ing Adjustment of Rs.7,62,29,166/-. In view of this, the AO is directed to follow the above method/approach for AY 2004-05 and to make transfer pricing adjustment on account of Arm's Length Price at Rs.7,62,29,166/- in the case of appellant. In result, there will be enhancement of Transfer Pricing Adjustment of Rs.5,50,73,555/- on account of Arm's Length Price in the case of appellant for the year under consideration. The assessment is enhanced by an amount of Rs.5,50,73,555/- accordingly. Thus the grounds of appeal no.3,4,5,6 & 7 of the appellant are dismissed. Since the appellant has filed inaccurate particulars of income by adopting wrong and incorrect method in respect of Transfer Pricing adjustment with regard to International Transactions entered into with AE in view of the reasons as discussed above and therefore the penalty proceedings u/s.271(1)(c) of the IT Act are also initiated on enhanced income of Rs..5,50,73,555/- for filing of inaccurate particulars of income." 8.1. The submissions of the ld.counsel for the assessee are reproduced hereunder:- "B. ARGUMENTS BEFORE THE HON'BLE TRIBUNAL (Ground No. 3.1 and 3.4): Ground No. 3.1: That the learned CIT(A) has er....
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....culations correctly, the adjusted operating margin would be as provided in the table below. Computation of the proportion of international transaction to total costs Particulars Amount (In INR) Amount (In INR) Income Income from Operations 1,045,039,761 Expenditure Total expenses (excluding raw material cost) 417,262,348 Total Material Cost 709,346,049 Less: Downward Adjustment of materials cost as per material cost of comparables (1,045,039,761*18.50%) 193,332,356 516,013,693 Total Expenditure (after adjustment for raw material cost) 933,276,041 Revised Profit 111,763,720 Adjusted OP/ Sales 10.69% 18. As is evident from the table above, if the calculation would have been correctly followed by the learned TPO, the adjusted operating margin of the Appellant would be at 10.69% which is higher than the arithmetic mean of 6.78% of the comparable companies. Accordingly, this lends support to the fact that the international transactions of PCDTA manufacturing segment continue to be demonstrated to be at arm's length even as per the learned TPO's own accepted analysis....
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....w for immediate reference: "transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then take....
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.... under TXMM, have to be made with reference to the same relevant base (i.e. Sales). Adopting a different, controlled base, would vitiate the analysis by considering the very transaction which is the subject matter of test for the purpose of the adjustment. 29. Thus in the present case, the raw material adjustments in the manufacturing segment of the Power Controls division of GEIIPL have to be computed by comparing the ratio of raw material costs to sales of the tested party with the ratio of raw material costs to sales of the comparable companies, thereby adjusting the operating margins of the comparable companies for the differences in this ratio. Base considered by the Ld. TPO in AY 2005-06 and AY 2004-05 30. In this regard the Appellant submits would also like to highlight certain factual references made by the Ld. TPO in the TP order for AY 2005-06 which also support the above principle. For the purposes of computing the raw material adjustment, the Ld. TPO has compared the RM / Sales ratio of the tested party vis-a-vis the comparable companies. Attention is drawn to the reference made in the Ld. TPO's order for AY 2005-06 (para 6.7 Page 7 line no 5) attached herewit....
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....PO's own accepted analysis. Without prejudice to the fallacy of the adjustments in terms of our contentions made above, the Appellant further contends as follows: Adjustment to be made on proportionate basis 38. The transaction related to purchases from associated enterprises and expenses on account of transacting with related enterprises amounts Rs. 121,269,639 which is only 10.76% of the total expenses of the PCDTA manufacturing segment which are Rs. 1,126,608,397 excluding unusual expenses incurred by the division during the year [and only 17% of the total material costs]. The workings have been provided in the Table below. Computation of the proportion of international transaction to total costs Calculation of % of AE Transactions to Total Cost AE transactions 121,269,639 Total Costs 1,126,608,397 % of AE Transactions to Total Cost 10.76% Computation of the proportion of international transaction to total raw material costs Calculation of % of AE Transactions to Total Raw Material Cost Purchase from AE's 121,269,639 Purchase from non AE's 588,076,410 Total Raw Material Costs 709,346,049 % of AE Transactions to Total Material Cost 17.10% &n....
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....10.76% 21,155,611 2,276,343 Actual AE costs to actual total material costs ratio 17.10% 21,155,611 3,617,609 44. Based on the above, in summary, the Appellant contends that for the reason that the international transaction value is miniscule to the total costs of the segment, it would be highly unreasonable to attribute the entire difference, between the arithmetical mean of the OPM of the comparable companies vis-a-vis the OPM of the manufacturing segment of PCDTA, to the transfer prices in the international transactions. Accordingly, based on the calculations provided in the above table, the Appellant contends that even as per the approach followed by the TPO the adjustment could have been only Rs. 2,276,343 and not Rs. 21,155,611 as computed by the learned TPO. 45. Based on the above submissions, the Appellant contends that the learned TPO and consequently the learned DCIT have erred in determining an adjustment of Rs. 21,155,611 in respect of the manufacturing segment of PCDTA under section 92C(4) read with subsections (3) and (4) of section 92C(3), the domestic industrial business division of the Appellant." 8.2. On behalf of the Revenue, the submissions are....
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....re was arrived at Rs. 10,51,19,729/-, whereas the value of international transaction was Rs. 12,12,69,639/-. Since the value of international transaction was beyond the benefit +/-5%, the downward adjustment of Rs. 2,11,55,611/-( 12,12,69,639/- (-) 10,01,14,028/-) was made by the TPO. (ii) The CIT(A) upheld the approach of the TPO for making adjustment. However, it was found action of TPO making adjustment to eliminate the difference as per Rule 10B(e)(iii) in the case of assessee was found incorrect by the CIT(A) because as per Rule 10B(e)(iii) adjustment was required to be made in the case of comparables. Accordingly, the CIT(A) enhanced the adjustment to Rs. 7,62,29,166/-. The relevant portion of the CIT(A)'s order (page No. 204 & 205, para 13.13 to 13.15 of CIT(A)' order) is reproduced as under:- "13.13 In view of above submission of the appellant, now the question arises whether while computing the raw-material adjustment, RM/Operating expenses ratio of the tested party and comparable companies can be considered and can be proceeded to compute the raw-material adjustments or not. In this regard reference is made to para 6.7 of the order u/s 92CA(3) of the TPO, Ahme....
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....ons. That means that instead of gross profit the transactional net margin method analyses the net profits in relation to an appropriate base such as costs, sales or as the case may, assets. This is done via net margins or so called profit level indicators. In contrast to the cost plus method, which generally computes the mark up after direct and indirect costs of production, the transactional net margin method uses margins computed after operating expenses. 13.15 In view of the above discussion it is held that the TPO, Ahmedabad has followed the correct method in his order u/s 92CA(3) of AY 2005-06 by computing the raw-material adjustment by comparing the raw-material adjustment to operating cost ratio of the tested party vis-a-vis the rawmaterial to operating cost ration of each of the comparable company and accordingly by making adjustment to the raw-material expenses of the comparable companies.!, therefore, hold that this method/approach is required to be followed in the case of appellant for AY 2004-05 also and in doing so there will be Transfer Pricing Adjustment on account of Arm's Length Price at Rs. 7,62,29,166/- in the case of appellant." (iii) In view of the abov....
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....g this approach the CIT(A) has mentioned in para 13.13 of appeal order that "It is pertinent to mention that if the adjusted cost of raw-material is calculated on the basis of sales turnover, then the cost of raw-material will also include the profit margin of sales, which increases the adjusted cost of raw-material which in turn will reduce the actual profit margin which is not correct and not comparable. The correct method/appropriate base to calculale the adjusted cost of raw-material proportionate to the total operating cost. The element of profit is to be eliminated or not to be considered while calculating the adjusted cost of raw-material. " The assessee has claimed that the adjusted margin (OP/Sales) of the comparables after allowing the adjustment for difference in cost of material, the arithmetic mean of adjusted OP/Sales comes to (-) 11.73% as per the methodology adopted by TPO in AY 2005-06 whereas the PLI margin of the assessee is (-) 7.81% and therefore the margin of the assessee is better than the comparables and hence the international transaction is at ALP. However, the CIT(A) has changed the methodology for working out the adjustment to be made to eliminate the ....
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....as per Rule 10B(e) (iii) to eliminate the differences in the cost of material, the action of TPO in making adjustment in the hands of tested party to eliminate differences was incorrect methodology. Thus, the claim of assessee is totally incorrect and against the provisions of law. Therefore, this ground may be rejected. Ground No. 3.4 That the learned CIT(A) has erred mathematically by adding the adjustment made by the Transfer Pricing Officer in the Transfer Pricing order of an amount of Rs. 21,155,611 to the revised adjustment as computed based on the learned CIT(A)'s approach, instead of subtracting it from the revised adjustment. TPO's comments: The claim of assessee is correct. However, the C1T(A) has already passed rectification order on 25.10.2012 through which the above mathematical error has been rectified and the revised adjustment is worked out to Rs. 5,50,73,555/- (TP adjustment made by TPO of Rs. 2,11,55,611/- + enhancement made by CIT(A) of Rs. 3,39,17,984/-). Therefore, this ground of appeal is redundant". 9. We have given our thoughtful consideration to the rival submissions made by the respective parties. The undisputed facts remain in this case a....
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....t was 67.88%. Thus, there was difference of 18.50%. The TPO allowed the adjustment therefor while making the revised calculation of margin. After adjustment of cost of raw material, the operating profit of the assessee on sales was worked out to 4.75%, as under:- "i.c. 2 The margin of raw material to sales of the assessee was also computed which was then compared to find out the incremental cost of raw material incurred by the assessee. The calculation of the same is provided as under:- Assessee Comparables Difference Rm/Sales67.88% 49.38% 18.50% i.c.3 From the above table it can be seen that the cost of Raw material of the assessee is more than 18.50% of the cost of comparables. Thus by using the data as computed above the margin of the assessee was recomputed as under:- Calculation of revised margin Income Income from operations &n....
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.... 49,656,283 OP/Sales 4.75%" 12. At the time of hearing before us, it was pointed out by the ld. Counsel that while working out the consumption ....
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....des and facts of the case, we find force in the contention of the ld. Counsel of the assessee that the ratio of raw-material/sales would be a proper ratio to compare the consumption of raw-material by the assessee and comparable parties, because sales in the case of the assessee is, admittedly, uncontrolled transaction. We also find that OECD guidelines in this regard read as under:- "2.88 The denominator should be reasonably independent from controlled transactions, otherwise there would be no objective starting point. For instance, when analyzing a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one could not weight the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm's length principle is being tested. Similarly, for a controlled transaction consisting in the provision of services to an associated enterprise, one could not weight the net profit indicator against the revenue from the sale of services because these are the controlled sales for which consistency with the arm's length principle is being tested. Where ....
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....nt case, what is being tested is whether purchase from associated enterprises is at arms-length or not. Admittedly, sales by the assessee is not to the associated parties and therefore, is un-controlled transaction. In view of above, in the light of OECD guidelines, while working out ratio of raw-material should be worked out by comparing the raw-material vis-à-vis sales. In this view of the matter, we uphold the finding of the TPO for the year under appeal wherein he arrived at the conclusion that the assessee should be allowed the adjustment of 18.50% because of excess consumption of raw-material. However, in our opinion, while giving the adjustment, the assessee should be allowed the adjustment of 18.50% of the sales and not of the 18.50% of the rawmaterial cost. We, therefore, direct the Assessing Officer to allow the adjustment of 18.50% of the sales while working out the operating profit and if, after the above adjustment, the operating profit of the assessee works out to more than 6.78% i.e. the average of operating profit of comparables, then no adjustment should be made. With this direction, we set aside the orders of the lower authorities and restore the matter bac....
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.... set off during the year under consideration pertains to the losses incurred by the Lighting Division (i.e. the Appellant Company) in AY 1997-98 and were set off in compliance with the conditions stipulated in Section 79 of the Act. Section 79 requires an inquiry to be made as to who the shareholders were at two points in time i.e on the last day of the previous year in which the losses are set off and on the last day of the previous year in which the losses were incurred. On identification of persons/ shareholders at two points in time, it must be ascertained what their share holding in the company is at two points in time. Section 79 refers to "persons" in plurality. The reference is to "shareholders" and not a shareholder. The comparison has to be of the collective holdings of these persons or the group. Reliance placed on the ruling of the Supreme Court in the case of CIT vs. Italindia Cotton Co. P. Ltd (1988) 174 ITR 160 and Mumbai Tribunal decision in the case of Sunanda Capital Services Ltd. vs. JCIT (28 SOT 484). The view that the reference in section 79 is to a group of shareholders is supported by judicial precedents and commentary by Kanga and Palkhivala in ....
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....losses and therefore, it is obligatory upon it to substantiate the claim specifically in light of the provisions of Sec.79 of the Act". Thus it is clear that AO had called for details from the appellant during the course of assessment proceedings for AY 2005-06 also for substantiating the claim of the appellant specially in the light of provisions of section 79 of the Act. Once, the entire loss has been disallowed by the AO in the case of appellant in AY 2004-05 itself, then it is not clear as to how carried forward and set off of part of such losses of Rs..102,83,83,355/- can further be considered for the purpose of allowing or disallowing the same u/s.79 of the IT Act against the profit of 2005-06. These facts show that the AO has contradicted himself by stating that the appellant was called upon to furnish details of company-wise losses and share holding pattern of such company in the year of incurrence of losses during the course of assessment proceedings of AY 2005-06. The very fact is that the appellant has claimed carry forward and set off of part of the losses against the profit of subsequent year also i.e. AY 2005-06 and the AO has called for details with regard to such cl....