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TMI Blog2021 (5) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue Audit Party had indeed raised an objection on the very same subject of allowability of Long Term Capital loss and that the ld AO had not accepted the same. This is evident from the detailed reply given by the ld AO to the Revenue Audit Party vide his letter dated 3.7.2017. We find that the ld PCIT had invoked revision jurisdiction u/s 263 of the Act on the very same point of allowability of LTCL. Hence it could be safely concluded that the revision proceedings has been invoked by the PCIT u/s 263 of the Act based on audit objection, which is nothing but borrowed satisfaction. Hence the said revision proceedings u/s 263 of the Act need to be construed as bad in law. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the issue of allowability of LTCL to be carried forward to subsequent years on the ground that the ld AO had taken an incorrect view based on improper and incomplete appreciation and verification of facts and therefore unsustainable in law. We find that the ld PCIT also relied on Explanation 2(a) to section 263 of the Act which came into effect from 1.6.2015 to support his conclusion. Ultimately, the ld PCIT set aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue with a direction to the ld AO to carry out complete verification of the legal tenability of the SPV created on 21.2.2013, the source of finances of SPV to acquire the shares of Aditya Birla Minacs Worldwide Limited (ABMWL), the valuation of shares of ABNL IT & ITES Ltd and sale of shares, if any, on 14.3.2013. 5. We find that the assessee in its return of income had claimed Long Term Capital loss (LTCL) arising on account of sale of shares of Aditya Birla Minacs Worldwide Ltd (ABMWL) to ABNL IT & ITES Ltd. These details were duly disclosed by the assessee in the return of income filed as well as in the computation of income filed together with its detailed workings. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f personal hearing, we find that the ld AR had enclosed the order sheet copies in pages 177 to 179 of the factual paper book filed before us. We find that the assessee had vide its letter dated 21.10.2016 (enclosed in page 125 of the factual paper book) furnished a detailed reply regarding details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited (ABMWL) as under:- "Details of long term capital loss on sale of shares of Aditya Birla Minacs Worldwide Limited 4.1. The Assessee company was holding investment (99.60%) in the shares of Aditya Birla Minacs Worldwide Limited ("Minacs India‟), which was engaged into the business of Information Technology & Enabled Services (ITeS). 4.2. The IT & ITes business of Minacs India was not performing as expected and therefore, due to commercial expediency, the Assessee Company wanted to exit from the ITeS business and it was in talks with the various investors. 4.3. In order to achieve the object of exiting from IT & ITes business by divestment of shares of Minacs India, the Assessee Company incorporated another subsidiary company ABNL IT & ITES Ltd. ("ABNL IT & ITES‟) (Special Purpose Vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see Company (Annexure 5). Copy of audited financial statements for the year ended 31 March 2016 of Minacs India (Annexure 6). 4.11. Further, during FY 14-15, the object of incorporating the SPV was achieved as SPV divested the stake in Minacs India to certain investors. Aditya Birla Minacs IT Services Ltd (PSI Data Systems Ltd.) Company stands merged with Aditya Birla Minacs Worldwide Ltd. w.e.f. F.Y.2011-12 Years of Purchase Nos. of Shares Cost as per books Cost Inflation Index in the year of purchase Indexed Cost (F.Y.) 12-13=852 2001-02 5,311,669 1,002,853,083 426 2,005,706,166 2004-05 3,440 126,282 480 224,151 2008-09 463,240 33,024,192 582 48,344,693 2009-10 482,686 28,438,503 632 38,337,982 2010-11 200,367 12,002,161 711 14,382,336 6,461,402 1,076,444,221 A 2,106,995,328 Aditya Birla Minacs Worldwide Ltd., (Transworks Information Services Ltd) Year of purchase Nos of Shares Cost Cost Inflation Index in the year of purchase Indexed Cost (F.Y.12- 13=852) 2003-04 15,738,378 687,787,270 463 1,265,647,417 2006-07 5,000,000 1,500,000,000 519 2,462,427,746 2011-12 4,437,974,852 1,170,973,274 785 1,270,916,216 2012-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 addressed by the ld AO to the audit party is reproduced hereunder:- "Kindly refer to the above. The Revenue Audit has raised audit objection as under: "As per section 47(iv) of the Act, any transfer of capital asset by a company to its Indian subsidiary company is not regarded as transfer if the parent company or its nominees hold the whole of the share capital of the subsidiary company. In the instant case, the assessment was completed under section 143(3) r.w.s. 144C of the Act determining taxable income at ₹ 3,66,01,24,600. It was seen that the assessee claimed and was allowed Long Term Capital loss of ₹ 2,67,17,80,899 to be carried forward to future years. This LTCL of ₹ 2,67,17,80,899 included LTCL of ₹ 2,67,07,81,942/- on sale of 25662266 shares of Aditya Birla Minacs Worldwide Limited to ABNL IT & ITES Ltd., It was seen that the transferee ABNL IT & ITES Ltd., was a 100 percent subsidiary of the assessee. As the said transaction is not to be treated as transfer under section 47, the allowance of Long Term Capital Loss was not in order. By generating LTCL in violation of the Act, the assessee would be able to reduce future LTCG tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. As the said transaction is not to be treated as transfer under section 47, the allowance of Long Term Capital Loss was not in order. By generating LTCL in violation of the Act, the assessee would be able to reduce future LTCG tax liability by this action. Non disallowance of the irregular claim of LTCL on account of transfer of assets to its subsidiaries resulted in excess carry forward of LTCL by ₹ 2,67,07,81,942 with a consequent short levy of tax of ₹ 57,76,90,134/- (potential). The Department did not accept the audit observation stating that ABNL IT & ITES Ltd., is not a wholly owned subsidiary of the Assessee Company. The Assessee in the course of assessment proceeding was asked for and assessee filed details vide letter dated 21st October 2016 which I have already gone through and only after proper perusal allowed such claim. On the date of such transaction, ABNL held 95% shares of ABNL IT & ITES Limited and 5% was held by ABNL Investment Ltd., Accordingly, the observation in the Audit note is factually incorrect. The reply of the Department was found not acceptable. The Assessing Officer, by accepting that the assessee had claimed that ABNL h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very same point of allowability of LTCL. Hence it could be safely concluded that the revision proceedings has been invoked by the ld PCIT u/s 263 of the Act based on audit objection, which is nothing but borrowed satisfaction. Hence the said revision proceedings u/s 263 of the Act need to be construed as bad in law. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Maharashtra Hybrid Seeds Co. Ltd reported in 102 taxmann.com 48 (Bom). The relevant operative portion of the said judgement is reproduced hereunder:- "9. As rightly held by the Tribunal, this note firstly shows that all the explanations and arguments of the Assessee have been considered by the Assessing Officer and secondly that the action taken under Section 263 is only on the basis of the audit party's note or report, who it would appear, ultimately did not approve of the Assessing Officer's view regarding the allowability of the deduction. Admittedly, the CIT has not referred to any audit objection but in the light of the note, the Tribunal held that it would be a fair inference that his action under Section 263 was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedents relied upon hereinabove, we hold that - a) Adequate enquiries were indeed carried out by the ld AO in the original assessment proceedings and hence the ld PCIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act ; b) A possible view has been taken by the ld AO on the issue of LTCL on the facts of the case and also by placing reliance on the available case laws on the subject and hence the ld PCIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act merely because he is of a completely different view and opinion on the issue of allowability of LTCL to be carried forward to subsequent years; c) The ld AO had defended his original assessment order before the Revenue Audit Party by accepting the contentions of the assessee and by stating that there was no misrepresentation of facts by the assessee. The evidences in this regard are already on record and already reproduced elsewhere in this order. Hence it could be safely concluded that the revision proceedings u/s 263 of the Act had been apparently triggered only based on borrowed satisfaction i.e Audit Objection and not based on independent application of mind by the ld PCIT. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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