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agk IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.10104 OF 2010
Nihilent Technologies Private Limited
having registered office at D Block,
4th Floor, Weikfield IT City Infopark,
Nagar Road, Pune - 411 014 ..Petitioner.
Versus
1)
The Dy. Commissioner of Income-tax,
Circle - 2, PMT Building, B Wing,
1st Floor, Shankarsheth Road,
Swargate, Pune 411 037.
2) The Commissioner of Income Tax - II,
PMT Building, B Wing, 1st Floor,
Shankarsheth Road, Swargate,
Pune 411 037.
3) Union of India,
through the Secretary,
Ministry of Finance, North Block,
New Delhi - 110 001 ..Respondents.
Mr.S.E. Dastur, Senior Advocate with Mr.Niraj Seth i/by Mint & Confreres for
the petitioner.
Mr.Vimal Gupta for the respondents.
CORAM : J.P. Devadhar &
A.A. Sayed, JJ.
DATE : 18th July, 2011.
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ORAL JUDGMENT : (Per J.P. Devadhar, J.)
1. Rule. Rule is made returnable forthwith. By consent of parties,
the petition is taken up for final hearing.
2. This petition is filed to challenge the notice dated 29th March
2010 issued under Section 148 of the Income Tax Act, 1961 seeking to
reopen the assessment for assessment year 2003-2004. The petitioner –
assessee has also challenged the order dated 16th December, 2010 whereby
the objections raised by the assessee for reopening of the assessment have
been rejected.
3. The assessee is a private limited company engaged in the
business of development of software. The shares of the assessee company
were held in the initial three years, as follows.
Share-holders of the petitioner- 31-03-2001 31-03-2002 31-03-2003
company
Hatch Investments (Mauritius) Ltd., 99.85% 76.63% 76.25%
Other share-holders 0.15% 23.37% 23.75%
TOTAL 100% 100% 100%
The share-holding of Hatch Investments (Mauritius) Limited
(‘Hatch Investments’ for short) at 99.85% on as on 31st March 2001 was
reduced to 76.63% as on 31st March 2002 on account of additional shares
issued by the assessee company to the remaining shareholders, thereby
increasing the shareholding of other shareholders from 0.15% to 23.37%. It
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may be noted that 0.15% shares as on 31st March 2001 were held by 11
shareholders. Neither, Hatch Investments nor other shareholders have sold
their shares to any third parties, save and except that one shareholder,
namely, Nimisha Singh had transferred her 100 shares in favour of another
shareholder viz. L.C. Singh. Thus, as on 31st March 2002 the number of
other shareholders of the assessee company was reduced from 11 to 10
shareholders. Even in the year ending on 31st March 2003, none of the
shareholders of the assessee Company had sold or transferred their shares in
the assessee Company.
4. The assessment for assessment year 2003-04 was completed
under Section 143(3) of the Act on 31st March 2006, wherein the carried
forward loss incurred by the assessee in assessment year 2001-02 was
allowed to be set off.
5. By the impugned notice dated 29th March 2010 assessment for
assessment year 2003-2004 is sought to be reopened by recording following
reasons :
“In accordance with the provisions contained in section 79
of the I.T. Act, 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 substantially interested, no loss incurred
in any previous year shall be carried forward and set off against
the income of the previous year unless on the last day of the
previous year which the shares of the company carry in not less
than fifty one percent of the voting power were beneficially held
by persons, who beneficially held shares of the company
carrying not less than 51% of the voting power on the last day of
the year in which loss was incurred.
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M/s.Nihilent Technologies P. Ltd. promoted by Shri L.C.
Singh in May 2000 and as per share holders agreement out of
the authorized capital of Rs.20,00,00,000/-, the company hasissued 15.1% shares to the promoters and stock management
team as a sweat equity shares and 10% to EXOP trust for
employees on approved stock plan. The balance 74.9% shares
were brought by Nedcore group through Nedcore bank Ltd.
South Africa through Hatch Investment (Mauritius) as and by31-03-2002 the same was increased to 76.25%. During the year
2002-03, Nedbank Ltd. has diverted its share in Hatch
Investment (Mauritius) by selling off 50% of the above holding
in the assessee company i.e. 38.125% to Dimension Data, PLC,UK. In other words, the effective share holding of Ned Bank Ltd
in the assessee company which stood at 76.25% in the beginningwas gone below 51% to 38.125%. As such the assessee
company has barred from setting of the previous year losses and
carry forward of the same.
In the assessment for the year 2003-04 completed under
Section 143(3) the department has allowed set off of losses
pertaining to A.Y. 2001-02 amounting to Rs.5,25,42,452/- toarrive at NIL income and also allowed benefit of carry forward
of Rs.4,25,18,048/- for the unabsorbed portion. Therefore, inorder to protect the interest of Revenue, the assessment of the
case for the A.Y. 2003-04 is reopened by issuing notice u/s.148.”
6. From the aforesaid reasons, it is seen that the only ground for
reopening of the assessment is that in the assessment year in question, there
is a change in the shareholding of the assessee Company of not less than 51%
from the shareholding in the assessment year (AY 2001-02) in which the loss
was incurred and, therefore, the loss incurred in the assessment year 2001-02
cannot be allowed to be set off in the assessment year in question.
7. The argument of the Revenue is that the assessee had failed to
disclose that the shareholding of Hatch Investments in the assessment year
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2001-02 was 99.85% and the same was reduced to 38.125% in assessment
year 2003-04, because Hatch Investments, being a wholly owned subsidiary
of Nedcor Bank Limited, South Africa, the Nedcor Bank Limited during
assessment year 2003-04 had transferred 50% shares in Hatch Investments to
Dimension Data PLC, UK (‘Dimension’ for short) thus the effective
shareholding of Nedcor Bank Limited in the assessee Company stood reduced
to 38.125% and, hence, Section 79 of the Act was attracted.
8.
The argument on behalf of the assessee is that all the relevant
facts were disclosed in the assessment proceedings for assessment year
2003-04 and, therefore, it cannot be said that there was any failure on the
part of the assessee to disclose fully and truly all material facts and
consequently, reopening of the assessment beyond four years from the end of
the relevant assessment year is invalid. It is also contended that in the facts
of the present case, Section 79 of the Act is not attracted.
9. From the notes to the financial statements annexed to the return
of income for assessment year 2003-2004, it is seen that the assessee had
disclosed as follows :
“1.1 Nihilent Technologies Private Limited (‘NTPL’ or the
Company) is a company incorporated under the Companies Act,
1956 (‘The Act‘) in India, Hatch Investments (Mauritius) limited
owns 76.25% equity in the Company. Further, Nedbank Limited
(Nedbank’) and Dimension Data (‘Di-Data’) each own 50%
equity stake in Hatch Investments (Mauritius) limited. The
balance shares of NTPL are held by the employees and
significant members of the Company.”
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10. Moreover, during the course of assessment proceedings for
assessment year 2003-04, the Assessing Officer by his letter dated 27th
September 2005 specifically called upon the assessee to furnish the share
holding pattern as on 31st March 2003. The assessee in its reply letter dated
17th November 2005 stated thus :
“Nihilent Technologies Private Limited (Company) is
incorporated in India, and is in the area of Software services and
its export. The Company was promoted by Mr. L.C. Singhtowards the end of May 2000 along with a group of
professionals and support of the Nedcor Group of South Africa.
We would like to bring your kind attention that during the year
2002-03, Nedbank Limited has divested its stake in Hatch
Investments (Mauritius) Limited by selling of 50% shares ofDimension Data, PLC, UK. In a view of above, effective
shareholding of Nedbank in Nihilent Technologies Private
Limited (NTPL) has been reduced from 76.25% to 38.125% as
on 31st March 2003.”
11. Thus, it is evident that during the course of assessment
proceedings for assessment year 2003-04 all material facts relating to the
transfer of shares of Hatch Investments by Nedcor Bank Limited to
Dimension, as well as the fact that the effective shareholding of Nedcor Bank
Limited in the assessee Company has been reduced from 76.25% to 38.125%
as on 31st March 2003 was disclosed to the assessing officer. Thus, the fact
that the effective shareholding of Nedcor Bank Limited in the assessee
company has gone down below 51% was specifically brought to the notice of
the assessing officer by the assessee. In these circumstances, it cannot be said
that there was any failure on the part of the assessee to disclose fully and
truly all material facts necessary for the assessment. If there is no failure to
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assessment, then, as per the proviso to Section 147 of the Act reopening of
the assessment beyond four years from the end of the relevant assessment
year cannot be sustained.
12. In the present case, the assessment for assessment year 203-04 is
sought to be reopened beyond four years from the end of the relevant
assessment year. Since there is no failure on the part of the assessee to
disclose fully and truly all material facts, the reopening of the assessment
beyond four years from the end of the relevant assessment year cannot be
sustained.
13. In the result, the notice dated 29th March 2010 issued under
Section 148 of the Act, as also the order dated 16th December 2010 rejecting
the objections raised by the assessee for reopening of the assessment are
quashed and set aside.
14. Rule is made absolute in the above terms with no order as to
costs.
(A.A. Sayed, J.) (J.P. Devadhar, J.)
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