2018 (5) TMI 130 - AT - Income Tax

Addition to forfeiture of share application money - assessment year - Held that - We find that the share application money has continued to be reflected as part of the Shareholder s Funds in the past since Assessment Year 2005-06 and in the instant year, no event has taken place to say that there is any write-back of the share application money. AO, in our view, has grossly erred in holding that assessee has not been able to give any specific reason as to why the same cannot be assessed in the current year . The Assessing Officer has wrongly put the onus on the assessee, rather, in our view, the onus was on the Assessing Officer to show as to why, inspite of assessee having written-back the amount in the subsequent year, the impugned sum was liable to be assessed in the instant year itself. Assessing Officer has assessed the same in the instant year without any rationale which, in our view, has been rightly set-aside by the CIT(A). Determination of profit u/s 115JB - MAT - Held that - We affirm the decision of CIT(A) in holding that the income relating to the SEZ unit is excludible while computing the book profit u/s 115JB of the Act. Thus, the CIT(A) made no mistake in setting aside the action of the Assessing Officer, which is hereby affirmed. Computation of deduction eligible u/s 10A - Held that - In the case before us, it is factually evident that the interest income on FDRs with bank is with respect to the borrowings which have in turn been utilised for the eligible business and, therefore, such interest income would be eligible for the benefits of Sec. 10A of the Act. So far as the interest earned on electricity security deposit is concerned, in a similar situation, our co-ordinate Bench in the case of M/s. Dania Oro Jewellery Pvt. Ltd. vs ITO 2018 (1) TMI 240 - ITAT MUMBAI held such interest income to be eligible for the benefits of Sec. 10A of the Act. Exclusion of sundry credit balances written-back in determining the profits of business for computing deduction u/s 10A - Held that - The details of the sundry credit balances written-back. A perusal of the same shows that in most of the cases, the items are revenue in nature and, therefore, in our view, such income is also eligible for the benefits of Sec. 10A of the Act. Assessment of interest income - Held that - The said income has been reduced twice and, therefore, rectification needs to be carried out to increase the profits of the business to that extent. The said aspect is factual in nature and the matter is restored back to the file of the Assessing Officer for appropriate appreciation of facts and decision thereon. Thus, on this aspect, assessee succeeds for statistical purposes. Exclusion of unrealised export sale proceeds from the figure of export turnover in order to calculate deduction admissible u/s 10A - Held that - The plea raised by the assessee before us is fair and proper and the same is also not disputed by the ld. DR. Accordingly, we direct the Assessing Officer to consider any sum realised out of the unrealised export sales of ₹ 5,18,97,639/- as part of the export turnover as and when the same is received as per the extant guidelines of Reserve Bank of India for the purpose of calculating deduction u/s 10A of the Act. Thus, on this aspect, assessee succeeds for statistical purpose.

Issues Involved:
1. Treatment of share application money written back as capital or revenue receipt.
2. Inclusion of profit under Section 10A in book profit computation under Section 115JB.
3. Exclusion of interest income and sundry credit balances in determining profits for Section 10A deduction.
4. Treatment of unrealized export sale proceeds for Section 10A deduction.

Issue-wise Detailed Analysis:

1. Treatment of Share Application Money Written Back:
The core issue was whether the share application money forfeited should be treated as a capital receipt or a revenue receipt. The assessee received share application money from a foreign national which was not converted into share capital due to business differences, and the amount was written back in the financial year 2011-12. The Assessing Officer treated this sum as a revenue receipt, taxable in the assessment year 2009-10, arguing that the utilization of the money determines its nature. However, the CIT(A) ruled it as a capital receipt, not taxable under Section 28(iv) or 41(1) of the Act. The Tribunal upheld the CIT(A)’s decision, noting that the share application money was consistently treated as a part of shareholder’s funds and not a trading liability. The Tribunal emphasized that Section 28(iv) applies to benefits received in kind, not cash, and Section 41(1) pertains to recoupment of trading liabilities, which was not applicable here.

2. Inclusion of Profit under Section 10A in Book Profit Computation under Section 115JB:
The Revenue contended that the profits from the assessee’s SEZ unit, eligible for deduction under Section 10A, should be included in the book profits for Minimum Alternate Tax (MAT) under Section 115JB. The CIT(A) disagreed, referencing Section 115JB(6), which exempts SEZ units from MAT. The Tribunal upheld the CIT(A)’s decision, citing the precedent set in the assessee’s own case for the assessment year 2008-09 and the decision in Genesys International Corporation Limited, confirming that income from SEZ units should be excluded from book profits under Section 115JB.

3. Exclusion of Interest Income and Sundry Credit Balances in Determining Profits for Section 10A Deduction:
The assessee argued that interest income earned on fixed deposits and security deposits, necessary for business operations, should be included in the profits for Section 10A deduction. The Tribunal agreed, referencing the Karnataka High Court’s decision in Hewlett Packard Global Soft Ltd., which held that such interest income is incidental to the business and eligible for Section 10A benefits. Additionally, the Tribunal ruled that sundry credit balances written back, being revenue in nature, should also be included in the profits for Section 10A deduction. The Tribunal directed the Assessing Officer to rectify any double reduction of interest income.

4. Treatment of Unrealized Export Sale Proceeds for Section 10A Deduction:
The assessee requested that unrealized export sale proceeds should be considered part of the export turnover for Section 10A deduction when realized. The Tribunal accepted this, directing the Assessing Officer to include any realized sums from the unrealized export sales in the export turnover for calculating the Section 10A deduction, in line with RBI guidelines.

Conclusion:
The appeals of the Revenue were dismissed, and the assessee’s appeals were partly allowed, affirming the CIT(A)'s decisions and providing necessary directions for the proper computation of deductions and profits under relevant sections of the Income Tax Act.

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