ARAVALI IMPLEMENTS P LTD., Alwar v. DCIT, Alwar

ITA 644/JPR/2011 | 1997-1998
Pronouncement Date: 25-11-2011 | Result: Allowed

Appeal Details

RSA Number 64423114 RSA 2011
Assessee PAN INGOF3000S
Bench Jaipur
Appeal Number ITA 644/JPR/2011
Duration Of Justice 5 month(s) 1 day(s)
Appellant ARAVALI IMPLEMENTS P LTD., Alwar
Respondent DCIT, Alwar
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 25-11-2011
Date Of Final Hearing 22-11-2011
Next Hearing Date 22-11-2011
Assessment Year 1997-1998
Appeal Filed On 23-06-2011
Judgment Text
1 INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCHES SMC JAIPUR (BEFORE SHRI N.L. KALRA) ITA NO.644/JP/2011 ASSESSMENT YEAR 1997-98 M/S. ARAVALI IMPLEMENTS (P)LTD. VS. DY.. COMMISS IONER ALWAR. OF INCOME-TAX CIRCLE ALWAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.C. PARWAL RESPONDENT BY: SHRI D.K. MEENA DATE OF HEARING: 22.11.2011 DATE OF PRONOUNCEMENT: 25.11.2011 ORDER PER SHRI N.L. KALRA A.M. 1. THE ASSESSEE HAS FILED AN APPEAL AGAINST ORDER O F LD. CIT (A) DATED 13.04.2011. 2. THE GROUND OF APPEAL IS AS UNDER: THAT THE LD. ASSESSING OFFICE HAS ERRED IN LAW AS W ELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT ALLOWING THE SET O FF OF CARRY FORWARD OF BUSINESS LOSSES AND ITS SET OFF AGAINST THE CURRENT YEARS PROFIT ON THE GROUND THAT THE 55.25% SHARE HOLDING HAVE BEEN TRAN SFERRED WHEREAS THE FACT REMAINS THAT ONLY 51.42% SHARES CONTINUES TO H OLD BY THE SAME PERSON WHO WERE THE SHARE HOLDERS OF THE COMPANY IN THE EARLIER YEARS AND THE LD. CIT (APPEALS) HAS ERRED IN SUSTAINING T HE SAME. THE LD. ASSESSING OFFICE HAS ALSO ERRED IN NOT CONSIDERING THE ANNUAL RETURN AS FILED WITH THE ROC JAIPUR. 3. THE FACTS OF THE CASE ARE AS UNDER: 2 ASSESSEE COMPANY HAS AN AUTHORIZED SHARE CAPITAL OF RS.3 00 000/- CONSISTING OF 3000 SHARES @ RS.100. DURING THE YEAR UNDER CONSIDERATION SHAREHOLDERS HOLDING 48.60% SHARES OF THE COMPANY I .E. 1458 SHARES TRANSFERRED THEIR SHARES IN THE NAME OF THE FOLLOWI NG PERSONS:- NAME OF THE SHAREHOLDERS WHO TRANSFERRED THEIR SHARES NO. OF SHARES TRANSFERRED NAME OF THE PURCHASER SH. GANGADEEP GUPTA 860(28.67%) SH. RAMESHCHANDRA A GARWAL SH. PRAMOD GUPTA 200(6.67%) SH. GHANSHYAMDAS AGARWA L SH. VIJAY GUPTA 200(6.67%) SMT. SUMAN AGARWAL SMT; VIMLA GUPTA 152(5.07%) SH. GHANSHYAMDAS AGARWA L SMT. NISHA GUPTA 46(1.53%) SH. GHANSHYAMDAS AGARWAL 1458 (48.6%) AO ON THE BASIS OF STATEMENT DATED 30.11.1997 OF SH . PRAMOD GUPTA HELD THAT SHAREHOLDERS HOLDING 55.27% (48.6% + 6.67%) SH ARES OF THE COMPANY I.E. 1658 SHARES HAD TRANSFERRED THEIR SHAR ES (INCLUDING SH. VINOD GUPTA WHO IS ALLEGED TO HAVE TRANSFERRED 6.67 % OF ITS SHARES TO SMT. SUDHA AGARWAL) THUS LEAVING ONLY 44.73% SHAR EHOLDERS SAME IN THE YEAR IN WHICH THE LOSS WAS INCURRED & IN THE PREVIO US YEAR & THUS THE LOSS INCURRED IN ANY YEAR PRIOR TO THE PREVIOUS YEAR IS NOT ENTITLED TO BE CARRIED FORWARD & SET OFF AGAINST THE INCOME OF THE PREVIOU S YEAR AS PER SECTION 79 OF THE I.T. ACT 1961. CIT (A) CONFIRMED THE SAME. 4. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSION S OBSERVED AS UNDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSION OF THE ASSESSEE AND CASE RELIED UPON IT IS FOUND THAT SHR I PRAMOD GUPTA HAD ADMITTED BEFORE THE AO VIDE LETTER DATED 18.02.1997 THAT HE HAS SOLD 200 SHARES AND HANDED OVER THE SHARE CERTIFICATES ALONG WITH TRANSFER DEED TO SMT. SUDHA AGARWAL AND RECEIVED THE PAYMENTS THROUG H CHEQUES NO.430936 DATED 20.03.1996 DRAWN ON BANK OF RAJASTH AN AND DEPOSITED IN ACCOUNT NO.3479 WITH BANK OF INDIA ALWAR ON 21. 3.1996. IT APPEARS THAT THE ASSESSEE COMPANY HAS NOT COMPLETED THE TEC HNICAL FORMALITIES ON ITS RECORD AS WELL AS HAD NOT CHANGED THE OWNERSHIP OF THE SHARES FROM SHRI PRAMOD GUPTA TO SUDHA AGARWAL BUT HONBLE SC H AS HELD IN CASE OF RAGHUVANSI MILL LTD VS. CIT (1961) 41 ITR 613 THAT THE WORDS UNCONDITIONALLY AND BENEFICIALLY INDICATE THAT THE VOTING POWER ARISING FROM THE HOLDING OF THOSE SHARES SHOULD BE FREE AND NOT WITH IN THE CONTROL OF SOME OTHER SHARE HOLDERS AND THE REGISTERED HOLD ER SHOULD NOT BE A NOMINEE OF ANOTHER. THE COURT HAS ALSO POINTED OUT IN SHREE CHANG DEO SUGAR MILL LTD. VS. CIT (1961) 41 ITR 667 (SC) THAT THE UNCONDITIONAL AND BENEFICIAL HOLDING IT MEANS THAT THE SHARES ARE HELD BY THE HOLDERS FOR THEIR OWN BENEFIT ONLY AND WITHOUT ANY CONTROL OF A NOTHER. 3 THE ASSESSEE CITED THE DECISION OF CIT VS. SUBHLAXM I MILLS 119 ITR 281 WHICH IS NOT SQUARELY APPLICABLE IN THIS CASE AS TH ERE IS NO REQUIREMENT OF THIS SECTION TO PROVE THAT VOTING POWER WAS CHANGED TO AVOID THE TAX U/S. 79(B) OF I.T. ACT. THEREFORE ADDITION IS CONFIRMED . 5. BEFORE US THE LD. A/R SUBMITTED AS UNDER: PROVISIONS OF SECTION 79 OF THE I.T. ACT 1961 RE ADS AS UNDER:- NOTWITHSTANDING ANYTHING CONTAINED IN THIS CHAPTER WHERE A CHANGE IN SHARE HOLDING HAS TAKEN PLACE IN A PREVIOUS YEAR IN THE CASE OF A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTAN TIALLY INTERESTED NO LOSS INCURRED IN ANY YEAR PRIOR TO THE PREVIOUS YEA R SHALL BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME OF THE PREVI OUS YEAR UNLESS- (A) ON THE LAST DAY OF THE PREVIOUS YEAR THE SHARES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER WE RE BENEFICIALLY HELD BY PERSONS WHO BENEFICIALLY HELD SHARES OF THE COMPANY CARRYING NOT LESS THAN FIFTY-ONE PER CENT OF THE VOTING POWER ON THE LAST DAY OF THE YEARS IN WHICH THE LOSS WAS INCURRED. THUS SECTION 79 WOULD GET ATTRACTED WHEN 51% OF VOT ING POWER OF A PRIVATE LIMITED COMPANY IS NOT BENEFICIALLY HELD BY THE EXISTING PERSONS. THE ONLY DISPUTE IN THE PRESENT CASE IS WITH REGARD TO TRANSFER OF 6.67% SHARES OF SH. VINOD GUPTA IN THE NAME OF SMT. SUDH A AGARWAL. IN THIS REGARD PROVISIONS OF SECTION 41 87 & 108(1) OF THE COMPANIES ACT 1956 READS AS UNDER:- DEFINITION OF MEMBER (I) THE SUBSCRIBER OF THE MEMORANDUM OF A COMPANY S HALL BE DEEMED TO HAVE AGREED TO BECOME MEMBERS OF THE COMPANY AN D ON ITS REGISTRATION SHALL BE ENTERED AS MEMBERS IN ITS RE GISTER OF MEMBERS. (II) EVERY OTHER PERSON WHO AGREES IN WRITING TO BE COME A MEMBER OF A COMPANY AND WHOSE NAME IS ENTERED IN ITS REGISTER O F MEMBERS SHALL BE A MEMBER OF THE COMPANY. VOTING RIGHTS (I) SUBJECT TO THE PROVISIONS OF SECTION 89 AND SUB -SECTION (2) OF SECTION 92- (A) EVERY MEMBER OF A COMPANY LIMITED BY SHARES AND HOLDING ANY EQUITY SHARE CAPITAL THEREIN SHALL HAVE A RIGHT TO VOTE IN RESPECT OF SUCH CAPITAL ON EVERY RESOLUTION PLACED BEFORE THE COMPANY; AND 4 (B) HIS VOTING RIGHTS ON A POLL SHALL BE IN PROPORT ION TO HIS SHARE OF THE PAID UP EQUITY CAPITAL OF THE COMPANY. TRANSFER NOT TO BE REGISTERED EXCEPT ON PRODUCTION OF INSTRUMENT OF TRANSFER. (I) A COMPANY SHALL NOT REGISTER A TRANSFER OF SHAR ES IN OR DEBENTURES OF THE COMPANY UNLESS A PROPER INSTRUMENT OF TRAN SFER DULY STAMPED AND EXECUTED BY OR ON BEHALF OF THE TRANSFE ROR AND BY OR ON BEHALF OF THE TRANSFEREE AND SPECIFYING THE NAME ADDRESS AND OCCUPATION IF ANY OF THE TRANSFEREE HAS BEEN DEL IVERED TO THE COMPANY ALONGWITH THE CERTIFICATE RELATING TO THE S HARES OR DEBENTURES OR IF NO SUCH CERTIFICATE IS IN EXISTEN CE ALONGWITH THE LETTER OF ALLOTMENT OF THE SHARES OR DEBENTURES. FROM THE ABOVE IT CAN BE NOTED THAT A PERSON WHOSE NAME IS APPEARING IN THE REGISTER OF MEMBERS SHALL BE THE MEMBER OF THE COMPANY AND SUCH MEMBER HAS A VOTING RIGHT IN PROPORTION TO HIS SHAR EHOLDING. UNLESS A PROPER INSTRUMENT OF TRANSFER DULY STAMPED AND EXEC UTED BY OR ON BEHALF OF THE TRANSFEROR AND TRANSFEREE SPECIFYING THE NA ME ADDRESS AND OCCUPATION IF ANY OF THE TRANSFEREE ALONGWITH TH E CERTIFICATE RELATING TO THE SHARES OR DEBENTURES HAS NOT BEEN DELIVERED TO THE COMPANY THE COMPANY WILL NOT REGISTER THE TRANSFER OF SHARES OF THE COMPANY TILL THEN BENEFICIAL VOTING RIGHTS OF SUCH PERSON IS NOT TRAN SFERRED. IN THE PRESENT CASE SHARES BELONGING TO SH. VINOD GUPTA ARE STILL APPEARING IN HIS NAME IN THE COMPANYS REGISTER OF MEMBERS WHICH IS EVIDE NT FROM THE CERTIFIED COPY OF THE ANNUAL RETURN MADE UPTO 28.08.2004 & FI LED WITH THE REGISTRAR OF COMPANIES. THEREFORE SH. VINOD GUPTA IS STILL H OLDING BENEFICIAL VOTING RIGHTS OF THE COMPANY AS PER SECTION 41 READ WITH SECTION 87 OF THE COMPANIES ACT 1956. THE CASES RELIED UPON BY CIT ( A) ARE NOT RELEVANT WITH REFERENCE TO SECTION 79 AND DISTINGUISHABLE ON FACTS. THUS SECTION 79 IS NOT APPLICABLE AND AO BE DIRECTED TO SET OFF THE CARRIED FORWARD LOSSES OF EARLIER YEARS AGAINST INCOME FOR THE YEAR. 6. THE LD. D/R SUPPORTED THE ORDERS OF AUTHORITIES BELOW: 7. I HAVE HEARD BOTH THE PARTIES. SECTION 79 REFERS TO THE CHANGE IN SHAREHOLDING DURING THE PREVIOUS YEAR. THERE IS NO CHANGE IN SHA RE HOLDING DURING THE PREVIOUS YEAR. THE A.O. IN HIS ORDER HAS ALSO MENTIONED THAT TRANS FER OF SHARES IS IN MARCH 96. HENCE SECTION 79 CAN NOT BE INVOKED FOR THE A.Y. 97-98 AN D IN CASE THERE IS ANY TRANSFER THEN IT IS FOR A.Y. 96-97. HENCE I HOLD THAT A.O. WAS NOT J USTIFIED IN INVOKING THE PROVISION OF 5 SECTION 79 OF THE I.T. ACT FOR DISALLOWING THE LOSS OF EARLIER YEAR. WHENEVER SUCH LOSS IS BEING CLAIMED TO BE SET OFF THEN THE A.O. MAY CONSI DER THE ISSUE AS SECTION 79 IS WITH REFERENCE TO SET IF ALSO. 8. IN THE RESULT THERE IS NO CASE IF SET IT IN A.Y .97-98 ON SET IF AND HENCE SECTION 79 IS NOT APPLICABLE. THE APPEAL IS ALLOWED AS PER FINDINGS GIVEN ABOVE. THE ORDER IS PRONOUNCED IN OPEN COURT ON 25.11.201 1 SD/- (N.L.KALRA) ACCOUNTANT MEMBER DATED: 25.11.2011 *S.KUMAR* COPY FORWARDED TO:- 1. M/S. ARAVALI IMPLEMENTS (P). LTD. 2. THE DY.COMMISSIONER OF INCOME TAX CIRCLE ALWAR .. 3. THE CIT 4. THE CIT(A) 5. THE D/R ITAT JAIPUR 6. THE GUARD FILE IN ITA NO.644/JP/2011 BY ORDER SR. PRIVATE SECRETARY