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TMI Blog2007 (6) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer (i )by not giving sufficient proper and effective opportunity of being heard to the appellant, and (ii)by failing to appreciate that the Assessing Officer had framed the assessment order without giving proper, effective and sufficient opportunity of being heard to the appellant. 1.2 It is submitted that the appellate order requires to be held bad and illegal as the same is passed in violation of the principles of natural justice. Without prejudice to the above 2.1 The ld. CIT(A) erred in confirming the action of the Assessing Officer whereby the Assessing Officer denied the benefit of section 10A of the Income-tax Act, 1961 to the appellant. 2.2 While doing so, the ld. CIT(A) failed to appreciate that : (i )there was no change in beneficial ownership of the appellant company with respect to the shares carrying more than 51 per cent of voting power, and (ii)the appellant company's case was not covered by sub-section (9) read with Explanation 1 to section 10A of the Act. 2.3 It is submitted that in the facts and the circumstances of the case, and in law, the, appellant is entitled to the benefit under section 10A of the Act and accordingly, the action of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. 4. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer in this behalf with the following observations : "9. I have carefully considered the facts of the case, findings of the Assessing Officer and submissions of the appellant before Assessing Officer as well as in appellate proceedings. It is very evident from the chart given above that shareholding pattern of the company has changed during the previous year. As mentioned above, the company has incorporated on 19-9-1997 and Mr. Aatish Dedhia and Nanji Dedhia were holding 50 per cent of the shares and voting power of the company each on 31-3-1998. Their shares holding percentage together reduced to 42.60 per cent as on 31-3-2001 which clearly reveals that the percentage of the shares of the company held by shareholders in the year the undertaking was set up, as got reduced to less than 51 per cent i.e., 42.60 per cent of the shares as against 100 per cent held previously. So it is clearly established that the beneficial interest in the undertaking is transferred. Hence in view of the provisions of section 10A(9) read with Explanation 1 to said section the claim of the assessee-company for deduction under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the promoters in the assessment year under appeal, the case of the assessee was not hit by the bar contained in sub-section (9) in view of specific clarification given in Explanation 1 to section 10A. 6. In support of his submissions, the ld. counsel has invited our attention to Explanation 1 to section 10A and submitted that the said Explanation clearly laid down the circumstances in which the ownership or beneficial interest in the undertaking can be said to have been transferred. He submitted that a company shall be presumed to have transferred its ownership or the beneficial interest in the undertaking only when the shares of the company carrying not less than 51 per cent of the voting power are not beneficially held, on the last day of any previous year, by persons who held the shares of the company carrying not less than 51 per cent of the voting power on the last day of the year in which the undertaking was set up. According to him, the Legislature has consciously and deliberately chosen to keep voting power as the sole criterion and not shareholding pattern simpliciter as criterion for deciding the transfer of ownership or beneficial interest in the companies. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 430 (Gauhati) (xxiii) Kothari (Madras) Ltd. v. Agrl. ITO [1989] 177 ITR 538 (Mad.) (xxiv) CIT v. Madurai Soft Drinks (P.) Ltd. [2005] 276 ITR 607 (Mad.) (xxv) Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC) (xxvi) CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149 (SC). 7. In reply, the ld. Departmental Representative supported the orders of the Departmental authorities. 8. We have heard both the parties, perused the orders of the Departmental authorities and other materials placed before us. There is no dispute with regard to the factual aspects of the case. It is true that the shares were allotted to foreign strategic financial investors without voting rights during the year under appeal with the result that original promoters continued to have 51 per cent or more of the voting power without beneficially holding shares carrying not less than retaining 51 per cent of the voting power in the year under appeal. On this factual matrix the short question is whether the claim of the assessee for exemption under section 10A is hit by sub-section (9) thereof. 9. For the sake of convenience it may be useful to reproduce sub-section (9) of section 10A as it stood at the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially interested either at the time of setting up or later on its becoming a company in which public are substantially interested. The proviso also applies to any change in the shareholding pattern of any venture capital company or a venture capital funds, which have to necessarily disinvest at some stage." [Emphasis supplied] 11. It is quite clear on careful perusal of sub-section (9) of section 10A that deduction under section 10A shall not be available to an assessee for any previous year during the course of which he transfers the ownership or the beneficial interest, in the undertaking by any means. Thus, where an undertaking, which is eligible for deduction under section 10A for assessment year 2001-02, transfer its ownership or beneficial interest during the said previous year, deduction under section 10A shall not be available to the said assessee for the said assessment year i.e., assessment year 2001-02. The provision of section 10A(9) is intended to forfeit exemption in case of transfer of ownership or beneficial interest in the undertaking otherwise eligible for relief. 12. We shall now turn to Explanation 1 to section 10A on which the ld. counsel for the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 42.60 per cent as on 31-3-2001. They would therefore, have voting power to the extent of their shareholding only. They however continued to control and manage the company as they had majority of the voting power not by virtue of their holding the shares carrying not less than 51 per cent of the voting power but by virtue of the shares allotted to the foreign strategic financial investors without giving any voting right to them. It is thus clear that the promoters in the present case have ceased to beneficially hold shares carrying not less than 51 per cent of voting power. 13. We have duly taken note of all the authorities cited at the bar. However, none of the decisions relied upon by them is with reference to the provisions of section 10A(9) of the Income-tax Act in the context of the facts presented before us. As regards the plea of the assessee that sufficient opportunity was not given by the Assessing Officer and CIT(A), we find that they have passed their respective orders after giving reasonable opportunity for hearing to the assessee. The assessee has brought no evidence before us that it wanted more time to properly prepare its case and the Departmental authorities hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation given by the assessee is bona fide and the nature of the default committed is technical and hence it should be excused from the levy of penalty. He has relied upon more than 30 decisions in support of the proposition that no penalty for concealment is possible if there is no evidence that the explanation given by the assessee is false. According to him, the penalty is not automatically attracted even if the explanation given by the assessee is rejected. 18. In reply, the ld. Departmental Representative has supported the order of the CIT(A) and the Assessing Officer. 19. We have heard the parties. We find that the assessee has made full and true disclosure of all facts materials to the computation of its income in the documents accompanying the return of income. It is not the case of the Departmental authorities either that the assessee has concealed any such particulars from the department. The assessee however preferred to claim exemption under section 10A on its own understanding of law. It is a quite different thing that neither the Departmental authorities nor this Tribunal has agreed with the claim made by the assessee. But every rejection of the claim made by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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