2021 (12) TMI 447 - AT - Income Tax

Revision u/s 263 - As per CIT A.O had not deliberated on the provisions of Sec.79 and not conducted any inquiry qua the set-off of the brought forward losses of the previous year against its income for the year under consideration - HELD THAT - As decided in Amco Power Systems ltd. 2015 (10) TMI 2385 - KARNATAKA HIGH COURT as the control of the assessee company before them remained with the holding company as the change in the shareholding had not resulted in reduction of its voting power to less than 51%, therefore, the provisions of Sec.79 denying the benefit of carry forward of losses to the assessee company would not come into play. As held by the Hon ble High Court of Bombay in the case of K. Subramanian Anr. 1983 (4) TMI 3 - BOMBAY HIGH COURT the A.O was obligated to take a view which was in favor of the assessee and not against him. Backed by the aforesaid facts involved in the case of the assessee before us read a/w the aforesaid position of law, we are of the considered view that no infirmity arises from the order of the A.O whose view qua the issue in question is in conformity with the judgment of Amco Power Systems ltd. 2015 (10) TMI 2385 - KARNATAKA HIGH COURT which being a view favourable to the assessee, he was obligated to follow as per the judgment of the Hon ble jurisdictional High Court in the case of Siemen s India Ltd. Anr. 1983 (4) TMI 3 - BOMBAY HIGH COURT . Thus we are of a strong conviction that as the A.O while framing the assessment had taken a possible and a plausible view with respect to the issue under consideration i.e the entitlement of the assessee company to set-off its brought forward losses of the previous years as against its profits for the year under consideration, therefore, on the said count itself the CIT was divested of his jurisdiction to have revised the assessment order u/s 263 of the Act. We, thus, in terms of our aforesaid deliberations are unable to sustain the order passed by the CIT u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Order under Section 263 of the Income Tax Act, 1961.
2. Denial of carry forward of business losses pursuant to the provisions of Section 79 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 263 of the Income Tax Act, 1961:

The assessee challenged the order passed by the Commissioner of Income Tax (International Taxation)-1, Mumbai, under Section 263 of the Income Tax Act, 1961, arguing that the order was erroneous and prejudicial to the interests of revenue. The assessee contended that the original assessment order passed by the Assessing Officer (A.O) under Section 143(3) read with Section 144C(3) was neither erroneous nor prejudicial to the interest of the revenue. The assessee argued that the CIT had overstepped his jurisdiction by revising the A.O's order, which was passed after due deliberation and was in accordance with the law.

The Tribunal observed that the A.O had taken a possible and plausible view regarding the issue of set-off of brought forward losses, and as such, the CIT was not justified in invoking his revisional jurisdiction under Section 263. The Tribunal referenced the judgment of the Hon’ble High Court of Karnataka in the case of CIT Vs. Amco Power Systems Ltd., which supported the assessee's claim. It was concluded that the CIT's order under Section 263 was unsustainable and was therefore quashed.

2. Denial of Carry Forward of Business Losses Pursuant to the Provisions of Section 79 of the Income Tax Act, 1961:

The CIT observed a change in the shareholding of the assessee company, which led to the application of Section 79 of the Act, thereby denying the carry forward and set-off of business losses amounting to INR 26,92,22,927/- from earlier years. The CIT directed the A.O to re-examine the shareholding pattern and the applicability of Section 79.

The assessee argued that despite the change in shareholding, the beneficial ownership remained with the ultimate holding company, Bechtel Group Inc., and thus, the provisions of Section 79 were not applicable. The Tribunal supported this view, referencing the judgment of the Hon’ble High Court of Karnataka in CIT Vs. Amco Power Systems Ltd., which held that the control of the company remained with the holding company despite the change in shareholding, and therefore, the provisions of Section 79 did not apply.

The Tribunal also noted conflicting judgments from different High Courts but emphasized that the A.O was obligated to follow the view favorable to the assessee, as per the judgment of the Hon’ble High Court of Bombay in K. Subramanian & Anr. Vs. Siemen’s India Ltd. & Anr. Consequently, the Tribunal found no infirmity in the A.O's original order, which allowed the set-off of brought forward losses, and restored the A.O's order.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the CIT's order under Section 263 and restoring the original assessment order passed by the A.O. The Tribunal concluded that the A.O had taken a possible and plausible view regarding the set-off of brought forward losses, and as such, the CIT's revisional jurisdiction under Section 263 was not justified. The provisions of Section 79 were deemed inapplicable as the ultimate control of the company remained with the same holding company despite the change in shareholding.