2013 (10) TMI 1509 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 4.99 crores received by the Assessee Company from Mrs. N. Sunitha.
2. Determination of whether the amount should be treated as share application money or income from other sources.

Summary:

Issue 1: Addition of Rs. 4.99 crores received by the Assessee Company from Mrs. N. Sunitha

The Assessee filed an appeal against the order of CIT(A) dated 25.1.2012 for the A.Y. 2007-08, contesting the addition of Rs. 4.99 crores received from Mrs. N. Sunitha. The Assessee claimed this amount as share application money, while the AO treated it as income from other sources. The AO noted that the cheque for Rs. 4.99 crores was credited to the accounts of M/s. Primeslots Properties Pvt. Ltd. on 29.5.2006 and was paid out of Mrs. N. Sunitha's account. The Assessee failed to provide documentary evidence supporting the nature of the transaction. The AO concluded that the amount was undisclosed income from other sources and taxed it accordingly.

Issue 2: Determination of whether the amount should be treated as share application money or income from other sources

The CIT(A) upheld the AO's decision, stating that the receipt of Rs. 4.99 crores could not be treated as share application money, as evidenced by the petition filed by Mrs. N. Sunitha before the Hon'ble High Court of Mumbai. The CIT(A) observed that the amount was advanced for purposes other than share allotment, leading to litigation resolved by consent, making the amount taxable as income from other sources.

The Assessee argued that the amount was received as share application money, duly recorded in the books of accounts, and supported by statutory compliance under the Companies Act. The Assessee cited various legal precedents to support the claim that forfeited share application money credited to the capital reserve account is a capital receipt not chargeable to tax. The Assessee also highlighted that the amount was refunded in part and that Mrs. N. Sunitha was allotted shares as per the consent terms approved by the High Court.

The Tribunal considered the rival submissions and noted that the revenue authorities did not deny the receipt of the amount by cheque. The Tribunal found no evidence suggesting that the amount was received for rendering services. Citing the decision of the Hon'ble Supreme Court in Parimisetti Seetharamamma vs. CIT, the Tribunal held that the burden of proving the receipt as income lies with the Department. Since no evidence supported the revenue's claim, the Tribunal set aside the order of CIT(A) and deleted the addition of Rs. 4.99 crores.

Conclusion:

The appeal filed by the Assessee was allowed, and the addition of Rs. 4.99 crores was deleted. The Tribunal pronounced the order in the open court on 25/10/2013.