2018 (4) TMI 1282 - AT - Income Tax

Revision u/s 263 - determining the total loss after making certain adjustments to the loss declared by the assessee - change in share holding of the assessee-company by more than 51% of the voting power - Held that - 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. 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.CIT, the Pr.CIT ought to have appreciated the case of the assessee objectively in perspective and could not shrink his sacrosanct obligations and resort to simply set aside a completed assessment on non-existent ground. Thus, the prerequisites of section 263 are not satisfied. We also do not visualize any merit in the plea on behalf of the Revenue about the lack of enquiry on the factual aspects. In the absence of any change in the beneficial ownership, we are unable to comprehend the nature of enquiry sought by the Pr.CITin this regard. Hence, we are disposed to hold that the action of the Pr.CIT is devoid of sanction of law. - Decided in favour of assessee

Summary

Issues:
- Jurisdiction of Pr.CIT under section 263 of the Income Tax Act, 1961 regarding assessment order for AY 2011-12.
- Applicability of section 79 of the Act on carry forward of business losses due to a change in shareholding pattern.

Analysis:

Issue 1: Jurisdiction of Pr.CIT under section 263
The appeal was filed by the assessee against the order of the Commissioner of Income Tax-I, Ahmedabad under section 263 of the Act concerning the assessment for AY 2011-12. The Pr.CIT invoked section 263, alleging that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue due to failure in conducting the necessary inquiry regarding the allowability of carry forward of losses under section 79 of the Act. The Pr.CIT set aside the assessment and directed the AO to re-adjudicate the issue. The assessee challenged the jurisdiction of the Pr.CIT, arguing that the assessment order was based on relevant facts and not erroneous. The Tribunal examined the contentions of both parties and concluded that the Pr.CIT's action was not justified as the assessment order was not erroneous or prejudicial to the revenue's interests.

Issue 2: Applicability of section 79 of the Act
The central issue revolved around the applicability of section 79 of the Act on the carry forward of business losses due to a change in shareholding pattern. The Pr.CIT alleged that the AO failed to apply the correct position of law as per section 79, resulting in an irregular allowance of carry forward of business losses and a short levy of tax. However, the Tribunal analyzed the facts and determined that despite a change in shareholding, the beneficial ownership remained with the same holding company. The Tribunal interpreted section 79 and concluded that since there was no change in beneficial voting power, the provision did not apply. It was emphasized that the purpose of section 79 is to prevent misuse of loss carry-forwards, which was not the case here. The Tribunal found no error in the AO's order and criticized the Pr.CIT for not appreciating the case objectively and setting aside the assessment without valid grounds. Consequently, the Tribunal allowed the appeal of the assessee, canceling the order passed under section 263 by the Pr.CIT.

In conclusion, the Tribunal upheld the AO's assessment order for AY 2011-12, emphasizing that section 79 did not apply due to the continuity of beneficial ownership despite a change in shareholding. The Tribunal found the Pr.CIT's action under section 263 unwarranted and lacking legal sanction, leading to the cancellation of the order and the allowance of the assessee's appeal.