AI Drafter 
TaxTMI 
TaxTMI 
2019 (12) TMI 743
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....cts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Order dated 21 February 2018 passed by the Deputy Commissioner of Income Tax - 15(1}(2) (Ld DCIT') u/s. 154 of the Act was erroneous and prejudicial to the interests of revenue and in thereby revising the same. 1.3 On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the Ld DCIT was neither erroneous nor prejudicial to the interest of the revenue and hence the revision of the same by the Hon'ble PCIT u/s. 263 of the Act is erroneous and bad in law. 1.4 On the facts and circumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Act by the Learned PCIT is to be struck down. Without prejudice to the aforesaid: 2. Re: Denial of carry forward and set off of losses and unabsorbed depreciation of INR 18,11.68.666 pursuant to the provisions of section 79 of the Act: 2.1 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Appellant is not entitled to carry forward and set off of the losses pertain....
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....ay petition before this Tribunal and during the course of stay petition herein, the assessee had pleaded before this Tribunal that the ld. AO be directed to dispose off the 154 petition pending before him so that there would be no tax payable by the assessee. The ld. AR stated that this Tribunal directed the ld. AO accordingly. We would like to point out that even though this was stated by the ld AR before us but no order passed by this Tribunal was placed on record for our perusal. Later, the ld. AO vide its order dated 21/02/2018 passed an order u/s.154 of the Act accepting the plea of the assessee and determined the total income for the A.Y.2012-13 at Rs. Nil and determined the refund due to assessee including interest u/s.244A of the Act thereon. In the said order, the ld. AO had recorded as under:- "It has been brought to my notice by application dated 25/01/2018 that the following mistake has occurred in the intimation dated 31/01/2017 u/s.143(3) of the Income Tax Act, 1961 which is apparent from record. B/fd losses not given By considering the statement and examining the records, total income and demand are rectified as under:" (Underlining provide....
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.... previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the Vast day of the year or years 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 previous year consequent upon the death of a shareholder or on account of transfer 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 shareholders of the amalgamated or the resulting foreign company. (b)[***] Provided that nothing contained in this section shall apply to a case where a change in the said voting power and shareholding ta....
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.... in Rs. Number of shares Amt in Rs. (a) Authorised Equity shares of Rs. 100/- (b) Issued Subscribed and fully paid up Equity shares of Rs. 100/- each fully paid up 9,000,000 900,000,000 4,000,000 400,000,000 8,873,920 887,392,000 3,743,920 374,392,000 Total 8,873,920 887,392,000 3,743,920 374,392,000 Details of shares held by each shareholder holding more than 5% shares: Particulars As at 31 March. 2012 As at 31 March, 2011 Number of share % Number of shares % TracHoldings, LLC Rustic Canyon, LLC 5,130,000 3,743,919 57.81 42.19 3,743,919 100.00 d) During 2010-11, the Company had given 5,130,000 shares to Tracholdings, LLC being consideration in the scheme of amalgamation. The allotment, however was made in the current Year, [Also refer note no. 2.21 (b) Apart from above, during the previous five years, the Company has not issued bonus shares/brought back shares/issued shares for consideration other than cash. (B) It would also be relevant to refer to note No.2.21 of the notes to Financial Accounts for the y....
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.... (3,824,645) 2,908,760 Authorization of Goodwill -- -- (17,983,791) Net Profit / (Loss) (15,075,031) (C) It would be pertinent to refer to note No.2.24 of the notes to financial statements for the year ended 31/03/2012 under the caption "related borrowed transactions" which is as under:- 2.24. Related Party Transactions: Related party disclosures as required by AS-18 "Related Party Disclosures" are given below: A. Names of the related parties: i Parties where control exists: a. Ultimate holding company Rustic Canyon, LLC b. Holding Company: Tracholdings, LLC c. Fellow Subsidiaries: 1. Superior Asset Management Holdings, LLC 2. Superior Asset Management Inc. 3. RC GPM, LLC 4. Bay Area Credit Services, LLC 8. From the aforesaid disclosure made in the financial statements, it could be safely concluded that assessee had duly brought to the notice of the ld. AO about the scheme of amalgamation, about the scheme being approved by the Hon'ble High Court, about the shareholding pattern post amalgamation etc as deta....
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....orward and set off against the income of the previous year. In the case of the Assessee, there is a change of share holding pattern took place in the A.Y. 2011-12 and such change in share holding pattern is more than 51%.Therefore, the loss incurred prior to such change took place is not allowed to be carried forward in view of the provisions of Section 79 of the Act. This being not done resulted into irregular allowance of carry forward of business losses for set off to the extent of Rs. 9,24,43,289 and consequent short levy of tax of Rs. 2,77,35,986." 4. It was thus alleged by the Pr.CIT that examination of records revealed that the assessment order so passed is erroneous in so far as it is prejudicial to the interests of the revenue for the reason that the AO has failed to conduct requisite enquiry with respect to allowability of carry forward of loss incurred having regard to the provisions of section 79 of the Act owing to substantive change of shareholding pattern of assessee- company. It was observed by the Pr.CIT that the AO has wrongly accepted the claim of carry forward of business losses for set off to the extent of Rs. 924.43 lakhs and consequent short levy of ....
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....he Hon'ble Karnataka High Court in the case of CIT vs. AMCO Power Systems Ltd. reported at 379 ITR 379 (Kar.). The Ld.AR consequently submitted that the AO has taken a correct view in accordance with law and there is scope for any enquiry in this regard. 7. The Ld. DR, on the other hand, relied upon the order of the Pr.CIT in question and contended that despite the change in share hold pattern, the AO has omitted to examine the issue in the backdrop of section 79 of the Act which rendered its order to be both erroneous as well as prejudicial to the interests of the revenue. The Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. & Another vs. ITO in SLP No.23976/2017 order dated 29/11/2017 to submit that setting aside the order of the AO by the designated authority for the purposes of conducting proper enquiry into vital issue by invoking section 263 of the Act cannot be interfered. The Ld. DR accordingly submitted that the action of the Pr.CIT vs. 263 is in sync with authority of law on both the premises namely applicability of section 79 to the facts as well as lack of enquiry in this regard. 8. We have care....
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.... set off of business losses of earlier years of a company and prohibits its availability in the hands of any new owner. In the instant case, it is manifest that no such misuse can be inferred since the beneficial ownership did not change hands. 9.3. Interestingly, we also take note of the expression "held" used in section in distinction to the expression "owned". Needless to say, the expression held is far more elastic to cover the situation whereby if a person is found capable of influencing the voting rights to the extent of specified percentage (51%), section 79 will not be triggered. Therefore, while the legal ownership might have changed, the ownership/control/voting power of the assessee-company continues to be beneficially held by the same owner. This inevitably means that the cause for issuance of notice under s.263 ceases to exist. 10. In view of the discussion noted above, we find considerable merits in the plea on behalf of the assessee that section 79 has not application in the absence of change in beneficial voting power. This being so, we see no error in the order of the AO on this score. This apart, once these facts were brought to the notice of Pr.....
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....he subsequent years after the new owner takes over the Company. For such purpose, it is provided under the said Section that 51% of the voting power which was beneficially held by a person or persons should continue to be held, then only such benefit could be given to the Company. As we have observed above, though ABL may not have continued to hold 51% shares, but Section 79 speaks of 51% voting power, which ABL continued to have even after transfer of 49% shares to TAFE, as it controlled the voting power of APIL, and together, ABL had 51% voting power. Meaning thereby, the control of the company remained with ABL as the change in shareholding did not result in reduction of its voting power to less than 51%. 11. The ld. DR vehemently argued that the ld. AO is not bound to look into ultimate ownership of shares held in the assessee company, in support of which, he relied on the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings reported in 341 ITR 1. We find that this aspect has already been addressed by us in the light of the provisions of Section 79 which only mentions shares to be "beneficially held". This has been duly complied with in the as....