Income Tax Appellate Tribunal - Mumbai
Dcit, Range- 8(2), Mumbai vs M/S Hotel Leela Venture Ltd., Mumbai on 10 August, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "H" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND
SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER)
ITA No. 4453/MUM/2013
Assessment Year: 2007-08
Asst. Commissioner of Income M/s Hotel Leela Venture Ltd.,
Tax, Range 8(2), The Leela Kempinski Sahar,
R. No. 216-A, Aayakar Bhavan, Vs. Andheri (East),
M.K. Road, Mumbai-400059.
Mumbai-400020.
PAN No. AAACH 3167 J
Appellant Respondent
Revenue by : Mr. Rakesh Ranjan, CIT-DR
Assessee by : Mr. Prakash K. Jotwani, Adv.
Date of Hearing : 30/06/2022
Date of pronouncement : 10/08/2022
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 06/03/2013 passed by the Ld. Commissioner of Income-tax (Appeals)-17, Mumbai [in short 'the Ld. CIT(A)'] for assessment year 2007-08, raising following grounds:
M/s Hotel Leela Venture Ltd. 2 ITA No. 4453/M/2013
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the assessee's claim of set off of brought forward forwar losses of Rs. 13,43,71,999/- pertaining to M/s. Kovalam Hotels Ltd. on the ground that M/s. Kovalam Hotels Ltd. has been taken over completely by the appellant with effect from 01.04.2006 and, therefore, the provisions of applicability of the provisions of section 72A will override the applicability section 79 of the Act, without appreciating that in the 2006 07 in the case assessment order dated 29.12.2008 for AY 2006-07 of M/s. Kovalam Hotels Ltd., the Assessing Officer has hel held that the business loss of Rs.13,43,71,999/-
Rs. incurred
curred prior to the
previous year 2005 06 is not eligible for carry forward due to 2005-06 the applicability of provisions of section 79 of the Act and therefore, no such loss was available to the assessee for set off against its profits in AY 2007-08."2007
2. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored."
2. Briefly stated facts of the case are that the assessee filed return of income on 01.10.2007 ₹68,57,40,290/-, 2007 declaring total income of ₹ which ch was further revised on 18/09/2008 reducing the taxable income to ₹25,06,77, 25,06,77,024/-.. Reasons for revision of the income were cited by the assessee as claim of set off of brought forward losses and the unabsorbed depreciation de in respect of M/s Kovalam Hotels Hotel M/s Hotel Leela Venture Ltd. 3 ITA No. 4453/M/2013 Ltd.,, which amalgamated with the assessee company with effect from 01/04/2006 i.e. during the previous year relevant to the assessment year under consideration.
2.1 The Assessing Officer has reproduced amount of carry forward of business loss and unabsorbed depreciation claimed by the assessee in n para 6.2 the assessment order.
order. For ready reference, said detail is extracted as under:
"6.2 As stated above, the assessee has claimed set off of ₹25,83,74,068/ representing carry business and unabsorbed ₹25,83,74,068/-
depreciation break up of this loss is as epreciation of Kovalam Hotels Ltd. The break-up under:
Business Loss (for A.Y. 2002-03, 2002 04-05 and 05-06 13,43,71,999/-
13,43,71,999/ Unabsorbed Depreciation (for A.Y. 2002-03, 2002 03-04, 04-05 8,26,32,781/-
8,26,32,781/
& 05-06)
Total 21,70,04,780/-
21,70,04,780/
Add: Assessed Business Loss for AY 2006-07 2006 4,09,65,442/ 4,09,65,442/-"
2.2 The Assessing Officer examined the return of income and Tax Audit Report (TAR) in the case of Kaovalam Hotels Ltd Ltd. for assessment year 2006-07, 2006 07, wherein he observed comment of the Tax Auditor that losses incurred incurred prior to previous year cannot be M/s Hotel Leela Venture Ltd. 4 ITA No. 4453/M/2013 allowed to be carried forward in terms of section 79 of the Income-
tax Act,, 1961 (in short 'the Act').
). The auditor further added that since the losses claimed by the company, which has become subsidiary of Hotel Leela Ventures Ltd.. (i.e. the assessee) assessee), which is a listed company, provisions of section 79 will not be applicable to such company. The Assessing Officer in the case of Kovala Kovalam Hotel Ltd. for assessment year 2006-07, 2006 declined carry forward of the business loss of ₹13, 13,43,71,999/-incurred incurred prior to previous year 2005-06 i.e. assessment year 2006-07.
20062.3 The Assessing Officer in the case of the assessee also rejected off of the business loss of ₹13,43,71,999/-
the claim for set of ₹ observing as under:
6.5 The assessee's contention is carefully perused but is not found "6.5 tenable under the Law. It is not in dispute that there is a change in the shareholding pattern of the Kovalam Hotels Ltd during the Financial Year 2005 ich, the hotel 2005-06 (A.Y.2006-07) as a result of which, assessee company. Therefore, the became a subsidiary of the assessee-company. provisions of Sec.79 are clearly attracted as far as the carry forward M/s Hotel Leela Venture Ltd. 5 ITA No. 4453/M/2013 business losses of Kovalam Hotels Ltd are concerned. Now, it is to be examined whether the assessee is entitled entitled to an exemption from the provisions of Sec.79 by taking shelter u/s. 2(18) of the I.T. Act during the A.Y.2006-07.
07. This aspect has been discussed in detail by the Assessing Officer of Kovalam Hotels Ltd. in his assessment order as the end of his analysis, it is clearly found that referred to above. At the the assessee (Kovalam Hotels Ltd.) cannot be called a company in which the public is substantially interested as it has not satisfied any of the conditions as laid down u/s. 2(18) during the P.Y. 2005 2005-06 (A.Y. 2006-07), A.Y.2006 07 shall not be
07), hence, business loss prior to A.Y.2006-07 allowed to be carried forward for future set-off.
set off. Therefore, the Rs.13,43,71,999/ which have been carried forward business loss of Rs.13,43,71,999/- by Kovalam Hotels Ltd prior to the assessment year under consideration, which have already been denied by the Assessing Officer of Kovalam Hotels Ltd from being carried forward, cannot be set off by the assessee in its return of income for now allowed to be set-off the present A.Y. 2007-08 2007 e, out of the under consideration. Therefore, Rs.25,83,74,068/ , claimed by the total brought forward loss of Rs.25,83,74,068/-, assessee as set off representing the brought forward losses and depreciation of Kovalam Hotels Ltd, Rs.13,43,71,999/-
Rs.13,43,71,999/ is being excluded and the remaining amount of Rs.12,4002,069 Rs.12,4002,069/- is being allowed as set--off.
3. On further appeal, the Ld. CIT(A) referred to the provisions of section 79 of the Act vis-à-vis section 72A of the Act and held that in view of fact that section 72A of the Act being specific provision it has M/s Hotel Leela Venture Ltd. 6 ITA No. 4453/M/2013 to be preferred red over the general provisions of section 79 of the Act, therefore provisions of section 79 are not applicable in the instant case. The relevant finding of the Ld. CIT(A) is reproduced as under:
"5.8 It can be seen from the above that the section pertains to amalgamation of a company owing industrial undertaking or a ship or a hotel with another company. which is the case in appeal before me. It has also been held in various case laws that the specific provision will overrule the general provision. Recently in the case of Tata Autocomp System Ltd vs. ACIT 2(3), the Hon'ble ITAT held on April 30, 2012 that specific provision would prevail over the general provisions. Section 72A is a specific provision relating r to amalgamation of the company running a hotel with another company. Whereas section 79 deals with only change in the share holding. In the instant case, because it is amalgamation, it is covered High Court of by section 72A of the Income Tax Act. The Hon'ble High Bombay vide Company Petition No. 38 of 2007 connected with Company Application No. 1124 of 2006 in the matter of scheme of amalgamation of Kovalam Hotel Ltd with Hotel Leela Venture and Company Petition No. 733 of 2007 connected with Company plication No. 749 of 2007 as on November 2, 2007 approved the Application scheme of arrangement as per section 391 to 394 of Companies Act, 1956. These sections of the Companies Act deal with amalgamation. Further the composite scheme of arrangement presented before the t Hon'ble High Court of Bombay mentions about the amalgamation of the Kovalam Hotel Ltd with Hotel Leela Ltd. Therefore, this is the case where section 72A should have been applied instead of section 79, as M/s Hotel Leela Venture Ltd. 7 ITA No. 4453/M/2013 has been done by the AO. The appellant has relied on the case of relied Classic Shares and Stock Broking Services Ltd of Hon'ble ITAT Mumbai 'I' Bench. In the case of Wrigley India P. Ltd vs. Addl: CIT, Range 18, it has been held by the Hon'ble High Court of Delhi 'F' Bench, New Delhi vide order no. 5524/Del/2010 for A.Y. 2006-07 5524/Del/2010 2006 held on 5.8.2011 that since the scheme of amalgamation has been approved by the Hon'ble High Court there is no reason to suspect that the amalgamation was not for genuine business purpose and it was a colourable tax devise. Since section 72A were in application, the section appellant has already merged the accounts of the Kovalam Hotel Ltd with itself as on the effective date of the scheme of amalgamation i.e. 1.4.2006, and the income of that hotel is also offered by the appellant he return of income. The assets of Kovalam Hotels Ltd by revising the have been completely taken over by the appellant. When the AO of Kovalam Hotels Ltd have dealt with the case it was A.Y. 2006 2006-07 and holding only 51% share and the complete merger, the appellant was holding-only as per the order of Hon'ble High Court, took place from the effective date i.e. April 1, 2006. This specific date is falling in A.Y. 2007 2007-08 i.e. the year in appeal. While the AO of Kovalam Hotels Ltd was dealing with the issue for A.Y. 2006-07 2006 amation had not when the amalgamation taken place. Hence, once the amalgamation is approved by Hon'ble High Court of Bombay and the accounts were merged, provisions of section 72A only will come into play and not section 79 as held by the appellant is eligible for carry AO. Therefore, it is held that the appellant forward of losses of Kovalam Hotel Ltd as per section 72A of the Income tax Act, 1961 and the ground of appeal of the appellant is allowed."
M/s Hotel Leela Venture Ltd. 8 ITA No. 4453/M/2013
4. Before us the Ld. DR submitted that carry forward of the loss has been declined to M/s M Kovalam Hotels Ltd. by its Assessing Officer in assessment year 2006-07 2006 07 whereas M/s Kovalam Hotels Ltd. has amalgamated with the assessee company with effect from 2007 08 and therefore no loss of Kovalam Hotels assessment year 2007-08 Ltd was available with the assessee for set off in the year under consideration. He further submitted that as per section 79 of the Act, if there is a change in shareholding of the closely held company in any previous year, then carryforward of the loss of years prior to the previous us year shall not allowed, allowed if on the last day of the previous year 51% of the shareholding is not held beneficially by the shareholder on the last day of the year or years in which the loss was incurred. He submitted that in assessment year 2006 2006-07, there is a change in the shareholding of more than 51% from old shareholders to new shareholders and therefore Kovalam Hotels Ltd. did not satisfy this condition of sectio section n 79 in assessment year M/s Hotel Leela Venture Ltd. 9 ITA No. 4453/M/2013 2006-07 for carry forward of losses of years prior to previous year 2005-06. Thus, the Assessing Officer in that case has correctly declined carryforward of losses.
5. The Ld. Counsel of the assessee on the other hand filed a paperbook containing page 1 to 127 and also filed compilation of case laws.
6. The Ld. Counsel vehemently argued rgued that provision of section 79 are not attracted in the instant case. In support of the contention of of the losses, he relied on the that assessee is entitled for set off decision of the Tribunal (Mumbai Bench) in following cases:
i. DCIT Vs Credila Financial Services Private Limited [2018] 91 taxmann.com 112 (Mumbai) ii. DCIT Vs Instant Traders P Ltd [2018] 96 taxmann.com 378 (Mumbai (Mumbai-Trib.) iii. M/s Meredith Traders P Ltd v. ITO (ITA Nos. 3435 & 3436/M/2010)
7. We have heard rival submission submissions of the parties ies on the issue in dispute and perused the relevant material on record. In the case two M/s Hotel Leela Venture Ltd. 10 ITA No. 4453/M/2013 events have happened which are having impact on the claim of business loss soughtt to be set off by the assessee.
assessee. The first event happened ed in the previous year 2005-06, 2005 correspon corresponding to assessment year 2006-07.
2006 During the previous year 2005-06,
2005 M/s
(which is a company in which public Hotel Leela Venture Ltd., (which publ are interested)) acquired majority shareholding (i.e. substantially interested ( more than 51%) of M/s Kovalam Hotels Limited.
Limited Prior to such acquisition of shares,, majority shares of Kovalam Hotels Ltd. were held by M/s MFAR Hotels Ltd., a company in which public is not substantially interested,, and therefore M/s Kovalam valam Hotels Ltd was a closely held company, prior to change of shareholdings during ng previous year 2005-06. The provisions of section 79 gets attracted on happening of this first event i.e. AY 2006-07.
20067.1 The second event happened happened in assessment year 2007-08, 2007 which is corresponding onding to previous year 2006-07.
2006 . By way of the order off the Hon'ble Bombay High Court, M/s Kovalam Hotels Ltd., Ltd.
M/s Hotel Leela Venture Ltd. 11 ITA No. 4453/M/2013 amalgamated with the assessee company from the effective e date as on 01/04/2006.. So with effect effect from assessment year 2007-08, 2007 the said M/s Kovalam Hotels Ltd.
Ltd became part of the assessee company.
The provisions of section 72A of the Act gets attracted in the event therefore, in the case section 72A comes of merger/amalgamated, therefore into picture only at the stage of second event i.e. AY 2007-08.
20077.2 In the case of M/s Kovalam Hotels Ltd. for assessment year 2006-07, 07, the assessee claimed carry forward of business loss of earlier years amounting to ₹13,43,71,982/-. The year-wise year details of such loss has been tabulated by the Ld. CIT(A) in para 5.3 of the or ready reference, said detail is extracted as impugned order. For under:
AY Business Loss (In ₹)
2002-03 45,13,758/-
45,13,758/
2003-04 8,92,29,786/
8,92,29,786/-
2004-05
2005-06 4,06,28,455/-
4,06,28,455/
Total 13,43,71,982/-
13,43,71,982/
M/s Hotel Leela Venture Ltd. 12
ITA No. 4453/M/2013
7.3 The Assessing Officer in the case of Kovalam Hotels Ltd.
Ltd for assessment year 2006 2006-07 has rejected the claim for carryforward of the loss of ₹13,43,71,999/ 71,999/-.. The assessee has filed copy co of the said assessment order, which is available on page 56 to 60 of the relevant part of the said assessment order is paperbook. The relevant reproduced as under for ready reference:
The assessee company is not covered under the provisions of Sub "The clause (a), (aa), (ab), (ac) and (ad) of the Clause (18) in Section 2. The only probability of covering the provision of Section 2(18) is under Sub clause (b). For this assessee has to satisfy the condition either under Item (A) or Item (B). Condition under Item (A) is not satisfied as the company is not listed in a stock exchange as on the previous year. So the assessee company has to satisfy last day of the previous the condition in the Item (B) to claim as a company in which the public are substantially interested. To satisfy this condition more than 51% of the shares of the assessee company should have held by ernment or Corporation or a company in which public are the Government substantially interested throughout the relevant previous year. More 1% of the share of the assessee company was held by M/S than 51% MFAR Hotels Ltd before the transfer of shares and by M/s Hotel Leela Ventures Ltd after the share transfer. M/s MFAR Hotels Ltd is not a company in which the public are substantially interested in any part of the relevant previous year. M/s Hotel Leela Ventures Ltd is a M/s Hotel Leela Venture Ltd. 13 ITA No. 4453/M/2013 company in which the public are substantially interest interested. But the shares of the assessee company were not held by the M/s Hotel Leela Ventures Ltd throughout the relevant previous year. Thus the assessee company does not satisfy the condition in the Item (B) also. It is very clear that M/s Kovalam Hotels Ltd is not a company in which the public are substantially interested during the previous year 06 and hence the provisions of section 79 is applicable in the 2005-06 Rs.13,43,71,999/ incurred prior assessee's case. The business loss of Rs.13,43,71,999/-
2005 06 is not allowed to carry forward u/s 79 to the previous year 2005-06 of the IT Act."
7.4 Thus according to the Assessing essing Officer of Kovalam Hotels Ltd., business loss of ₹13,43,71, 13,43,71,999/-was was not available for carryforward to next assessment year i.e i.e. AY 2007-08 08 because change in shareholding eholding has happened or taken place in Kovalam Hotels Ltd., Ltd which was a closely held company and Kovalam Hotels Ltd. as company in which hich public are substantially interested is resultant company due to such change, therefore, provisions of section 79 are applicable over the facts of the case.
7.5 But the assessee in the year under consideration has claimed the set off of the said loss on the ground that M/s Kovalam Hotels M/s Hotel Leela Venture Ltd. 14 ITA No. 4453/M/2013 Ltd. has been merged with the assessee company with effect from assessment year 2007-08.
20077.6 In our opinion, once the Assessing Officer in the case of Kovalam Hotels Ltd for assessment year 2006-07 2006 07 has already rejected claim of carry forward of the said business loss in terms of section 79 of the Act, then n same cannot be available to the assessee for set offf u/s 72A of the Act until and unless said finding of the Assessing Officer is reversed by the higher appellate authorities. The Ld. counsel of the assessee intimated that appeal against the order of the Assessing Officer in the case of Kovalam Hotels Ltd Ltd. for AY 07 is pending before the Ld. First Appellate Authority.
2006-07 Authority In our considered view, the said business loss becomes eligible for the set off in the year under consideration only subsequent to decision of the allowability of carryforward in the case of Kovalam Hotel Ltd.
Ltd under section 79 of the Act in the favour of assessee.
assessee As on date, the assessment order in the case of Kovalam Hotels Ltd.
Ltd for AY 2006-07 M/s Hotel Leela Venture Ltd. 15 ITA No. 4453/M/2013 is in operation and which has not been reversed by the Ld CIT(A) or ITAT, thus, said business loss of ₹13,43,71,999/- has not been carry forwarded to assessment year 2007-08 2007 08 and therefore same is not available for set off against different heads of the income inc of the assessee as per the provisions of section 72A the Act for the he issue of set off of business assessment year under consideration. The loss in AY 2007-08 u/s 72A of the Act is consequent to the issue of carry forward of loss in AY 2006-07 2006 in Kovalam m Hotels Ltd.
Ltd in terms of section 79 of the Act.
Act The Ld. CIT(A) in the year under consideration is not justified in deciding the question of carryforward of loss in the case of Kovalam Hotels Ltd Ltd. for assessment year 2006 2006-07 invoking section 72A of the Act as that issue has to be adjudicated by the appellate authorities having jurisdiction n over the case of Kovalam Hotels Hote Ltd. for AY 2006-07 2006 .
Therefore,, we are also not adjudicating on the issue whether carryforward of the said business loss in the case of Kovalam K Hotels M/s Hotel Leela Venture Ltd. 16 ITA No. 4453/M/2013 Ltd. for AY 2006-07 07 is permitted under the law law. Accordingly, we set aside the finding of the Ld. CIT(A) on the issue in dispute.
dispute The Assessing Officer is directed to give effect of set off of business loss in the case of the assessee, assessee consequent to the finding of appellate authorities in the case of Kovalam Hotels Ltd. on the issue of carry forward of business loss under u reference.. The ground of the appeal of the Revenue is accordingly allowed.
8. In the result, the appeal filed by the the Revenue is allowed.
Order pronounced ounced in the Court on 10/08/2022.
Sd/- Sd/-
(SANDEEP
SANDEEP SINGH KARHAIL)
KARHAIL (OM
OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 10/08/2022
Rahul Sharma, Sr. P.S.
M/s Hotel Leela Venture Ltd. 17
ITA No. 4453/M/2013
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
Sr. Private Secretary)
(Sr. Secretary
ITAT, Mumbai