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2012 (4) TMI 626 - AT - Income TaxWhether CIT(A) has erred in deleting the addition made on account of forfeiture of shares despite the fact that the amount was a Revenue receipt which the assessee had omitted to show as an income? - HELD NO Whether CIT(A) has erred in holding that the issue of notice u/s 148 is barred by time limit despite the fact that the Assessing Officer has issued notice within the time limit? - HELD YES - CIT(A) has not given any findings to this effect that there was no failure on the part of the assessee to make a return u/s 139 or in response to a notice under sub section to section 142 or section 148 or to disclose fully and truly all material facts necessary for assessment for that assessment year. In absence of such findings, the CIT(A) was not justified in holding that the notice issued u/s 148 was barred by limitation. In view of the above, we allow this ground of appeal.
Issues Involved:
1. Whether the amount received on account of forfeiture of shares should be treated as a capital receipt or a revenue receipt. 2. Whether the issue of notice under section 148 of the Income Tax Act was barred by the time limit. Issue-Wise Detailed Analysis: 1. Treatment of Amount Received on Account of Forfeiture of Shares The primary issue revolves around whether the forfeited share amount of Rs. 2,25,87,000/- should be classified as a capital receipt or a revenue receipt. The Assessing Officer (AO) treated the amount as a revenue receipt, relying on the judgments in CIT v T.V. Sundaram Iyengar and Sons Ltd (1996) 222 ITR 344 (SC) and Atlas Cycle Industries Ltd v CIT (1982) 133 ITR 231 (P&H). The AO contended that the forfeited shares remain with the assessee for future offers, and the forfeiture should be considered income. The assessee, Haryana Financial Corporation, argued that the forfeited amount is a capital receipt, not a revenue receipt, and cited various case laws to support this view, including Asiatic Oxygen Ltd Vs. DCIT (1994) 49 ITD (Cal) 355, DCIT Vs. Brijlaxmi Leasing & Finance Ltd (2009) 118 ITD 546, Prism Cement Limited Vs. JCIT (2006) 101 ITD 103 (Mumbai), Addl. CIT Vs. Om Oils & Oil Seeds Exchange Ltd (1985) 152 ITR 552 (DEL), and Travancore Rubber & Tea Co. Ltd Vs. CIT (2000) 243 ITR 158 (SC). The CIT(A) agreed with the assessee, holding that the amount received on account of forfeiture of shares is a capital receipt based on the Supreme Court's decision in Travancore Rubber and Tea Co. Ltd v CIT. Upon appeal, the Tribunal upheld the CIT(A)'s decision, stating that the assessee is not in the business of raising finance through the offer of equity, and the forfeiture of share money is a capital receipt. The Tribunal referenced the ITAT, Ahmedabad Bench's decision in DCIT Vs Brijlaxmi Leasing & Finance Ltd, which distinguished the facts from the case of T.V. Sundaram Iyengar & Sons Ltd and supported the view that forfeited share money is a capital receipt. 2. Timeliness of Notice Issued Under Section 148 The second issue concerns whether the notice issued under section 148 was barred by the time limit. The assessee argued that the notice was issued after the expiry of four years from the end of the relevant assessment year, making it invalid. The CIT(A) agreed with the assessee, holding that the notice was issued after the time limit specified in the first proviso to section 147. However, the Tribunal found that the CIT(A) did not properly consider the proviso to section 147, which allows for action beyond four years if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal noted that the AO had recorded reasons indicating that Rs. 2,25,87,000/- had escaped assessment due to the assessee's failure to disclose fully the material facts. Since the CIT(A) did not provide findings on whether there was such a failure by the assessee, the Tribunal held that the notice under section 148 was not barred by limitation and allowed the Revenue's appeal on this ground. Conclusion The Tribunal concluded that the amount received on account of forfeiture of shares should be treated as a capital receipt, upholding the CIT(A)'s decision on this issue. However, it reversed the CIT(A)'s decision regarding the timeliness of the notice under section 148, allowing the Revenue's appeal on this ground. The appeal was thus partly allowed.
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