2023 (8) TMI 498 - AT - Income Tax

Characterization of receipt - Capital contribution received - treated by the AO as being revenue in nature - CIT(A) rejected the assessee s contention of capital contribution as being not taxable on account of being received as advance, on the ground that no evidence in this regard was filed by the assessee - HELD THAT - ITAT for Asst. Year 2009-10 has emphatically reiterated that the proposition laid down for taxing capital contribution received by the assessee in Asst. Year 2001-02 is to be followed, and the capital contribution are to be subjected to tax in 5 years on deferred basis. There remains no scope, therefore, for following any other method for taxing capital contribution received by the assessee. In view of the same, therefore, we hold that capital contributions are to be subjected to tax as per the decision of the ITAT in the case of the assessee for Asst. Year 2001-02 taxing entire capital contribution received on deferred basis in 5 years. In sum and substance, 15th of capital contribution received during the year is to be subjected to tax in the impugned year, and all capital contributions received in preceding years which are to be subjected to tax on deferred basis in the impugned year are also to be included in the income of the assessee. The issue is, therefore, restored to the AO to re-work the amount of capital contribution to be brought to tax in accordance with the order of the ITAT in the case of the assessee for Asst. Year 2001-02. Ground No.2 and 3, therefore, are allowed for statistical purpose. Addition of capital contribution which the assessee has pleaded consistently is only in the nature of advance and therefore cannot be subjected to tax in the impugned year - Additional evidences filed in the case of all the parties from whom the purported advances were received, the assessee has sought to demonstrate and substantiate its pleading that the amount received from them was only in the nature of advances by way of capital contribution, which was refunded to them on account of approval of GPCB not being obtained in their cases. These evidences, undoubtedly being generated post the order passed by the ld.CIT(A), therefore, could not be filed before him, and at the same time, undoubtedly, they do substantiate the assessee s plea that the amount received from these parties was not full and final payment of these parties towards capital contribution, but was only portion of the capital contribution to be made by them given by way of advance towards membership of the assessee-company subjected to approval by GPCB. Since these evidences throw light and bring out the nature of the purported amount, they are relevant for adjudicating the controversy before us, whether the impugned amounts were in the nature of advance for capital contribution or not. The additional evidences, therefore, are admitted for adjudication, and the issue is restored back to the AO to verify the additional evidences - AO is directed to adjudicate the issue in accordance with law. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Disallowance of Rs. 61,50,000/- as advance received from industries.
2. Treatment of Rs. 2,50,36,450/- as revenue receipt.
3. Enhancement of income by Rs. 39,19,484/- for deferred capital contributions from previous years.

Summary:

Issue 1: Disallowance of Rs. 61,50,000/- as advance received from industries

The assessee contended that Rs. 61,50,000/- was an advance received from industries yet to be granted membership by GPCB, thus it should be treated as a current liability and not taxable. The CIT(A) rejected this argument due to lack of evidence and substantiation from the assessee. The Tribunal admitted additional evidence provided by the assessee, including letters and cheques issued for refunding the advances, and remanded the issue back to the AO for verification of these evidences to determine the true nature of the amounts received.

Issue 2: Treatment of Rs. 2,50,36,450/- as revenue receipt

The CIT(A) confirmed the entire amount of Rs. 2,50,36,450/- as revenue receipt, rejecting the assessee's plea for deferred revenue treatment over five years. The Tribunal noted that the ITAT had previously ruled in favor of deferring such contributions over five years in the assessee's case for the Asst. Year 2001-02. The Tribunal directed the AO to re-work the amount of capital contribution to be taxed on a deferred basis, in line with the earlier ITAT order.

Issue 3: Enhancement of income by Rs. 39,19,484/- for deferred capital contributions from previous years

The CIT(A) enhanced the income by Rs. 39,19,484/- for deferred contributions from Asst. Years 2007-08, 2008-09, and 2009-10, noting that the assessee had not returned to tax the deferred income of preceding years. The Tribunal, following its earlier decision, reiterated that capital contributions should be taxed on a deferred basis over five years. The issue was remanded to the AO to re-work the deferred amounts to be taxed in the impugned year.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-assess the taxability of the capital contributions based on the ITAT's prior rulings and the additional evidence provided by the assessee. The AO is to verify the nature of the Rs. 61,50,000/- advance and re-work the deferred capital contributions accordingly.