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TMI Blog2017 (3) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... not taxable u/s 41(1) or section 28(iv) of the Act. - Decided against revenue - I.T.A. No.238/Mum/2015, I.T.A. No.299/Mum/2015 - - - Dated:- 8-3-2017 - SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) For The Revenue : Shri Rahul Raman, CIT-DR For The Respondent : Shri Rakesh Joshi ORDER Per Ashwani Taneja, AM :- These appeals pertain to two different assessees. Though these appeals were heard on different dates but involve identical issue, therefore, these are being disposed of by this common order for the sake of convenience. 2. First, we shall take up appeal filed by the Revenue in the case of Nalwa Chrome Pvt Ltd in ITA No.238/Mum/2015 filed against the order of Ld. Commissioner of Income-tax (Appeals)-36, Mumbai [hereinafter called CIT(A)] dated 16-10-2014 passed against the assessment order u/s 143(3) dated 18-03-2013 on the following grounds:- Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is justified in deleting the addition of ₹ 4,50,00,000/- on account of advance against share capital received in FY 2003-04 3. The solitary issue raised by the Revenue before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee Company during the F.Y. 2003-04 which is the period beyond the period under consideration in the present proceedings. Without prejudice to the above fact, we would like to submit that remission of liability on account of share capital advance is a capital receipt not liable to tax under provisions of Income Tax Act. Further, the said amount received from M/s. Anand Transport would not qualify for addition u/s 41(1) of the Income Tax Act' 1961 since it has never been claimed as a deduction in any of the years nor would it qualify for addition u/s.28 since the loan had not been received in the course of a trading transaction but being a Capital Receipt, received for the purpose of allotment of Equity Shares. 5. In support of its claim, the assessee placed reliance upon various judgements for the proposition that the aforesaid amount was capital receipt and, therefore, correctly transferred to capital reserve and, therefore, could not have been treated as income of the assessee. However, AO did not agree with the submissions of the assessee. It was observed by the AO that the aforesaid amount was offered to tax by Shri M.V.S. Sesagiri Rao, director of JSW Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod tinder consideration in the present proceedings. Without prejudice to above fact, we would like to submit that remission of liability on account of share capital advance is a capital receipt not liable to tax under provisions of Income Tax Act. It may he pertinent to mention here that the aforesaid amount was received as advance against equity to be issued by the appellant and is shown in the balance sheet as such for so many years from 2003 to 2011. The Assessing Officer has not brought out any other facts on record to make an addition 2(24). Mere fact that, share application money was pending for allotment for a decade cannot be a ground to suggest that, such share-application money represents income of the appellant company on allotment of shares While the said sum has been offered for taxation, the same is merely to buy peace of mind and avoid protracted litigation. It does not tantamount to admission of any wrong doing by the Appellant. No such finding of the Learned Assessing Officer also comes out from the Assessment Order passed. Further, it would also be pertinent to note here that the treatment of the same would be as prescribed by law in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading transactions whereas in the case of the assessee, the amount was received towards allotment of equity shares, and therefore it was apparently capital receipt. Ld. CIT(A) considered the submissions made by the assessee as well as the order of the AO and deleted the addition made by the AO with the following observations:- 7. The oral and written arguments made by the appellant's AR have been duly considered. There is no dispute to the fact that impugned amount of ₹ 4.50 Crores was received by appellant company in FY 2003-04 as advance against equity. The advance against share capital was a capital receipt at the initial stage. The stand of AO is that the amount has been received for the purpose of assessee's business and therefore should be chargeable to tax in the year of write back as business income u/s 28(iv) of the Act. I find the stand of AO to be misplaced as the advance was received against issue of equity shares of appellant company which cannot be termed as deposit or advance received in the normal course of business of the appellant. The share application money being received against contribution to equity capital, even after forfeiture, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the Tribunal. During the course of hearing before us, Ld. CIT-DR relied upon the order of the AO and submitted that since the assessee has written-back the amount, it should be treated as income of the assessee. 9. Per contra, the Ld. Counsel of the assessee vehemently supported the order of the Ld. CIT(A). It was submitted by him that share application money is of the nature of capital receipt. Therefore, reversal of the same cannot change its character. He distinguished the judgment relied upon by the AO in the case of Solid Containers Ltd (supra) and judgment of Hon ble Supreme Court in the case of CIT vs T.V. Sundaram Iyengar 222 ITR 344 (SC) on the ground that in these cases, loan amount was received by the said assessees for trading / revenue purposes. Therefore, under in view of these facts, Hon ble Court held that the amount written back should be treated as income of the year, whereas in the case of the assessee, the amount has undoubtedly been received on account of share capital. No dispute has been raised on that aspect. Therefore, this amount could not have been treated as income of the assessee for the year under consideration. He reiterated the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show how the statement of Shri M.V.S. Sesagiri Rao would have bearing upon the assessment of the company before us. In response, the Ld. CIT-DR was not able to show any authority given by the assessee company under which such statement was given by Mr. Rao on behalf of the assessee company. 12. We have gone through the orders passed by the lower authorities as well as submissions made and judgements placed before us by both the sides. We are required to decide the issue whether the amount received on account of share application money could be treated as income of the assessee, if the same is written-back in the books of account, either u/s 41(1) or 28(iv) of the Income-tax Act, 1961. But before that we came across another facet viz. the AO had relied upon the statement made by Shri M.V.S. Sesagiri Rao for making impugned addition, wherein aforesaid amount has been allegedly offered to tax on behalf of the assessee before us. Therefore, we need to first decide the bearing of the same on the addition made by the AO. 13. It is noted from the information brought before us that search had taken place on JSW group of companies wherein statement of Shri M.V.S. Sesagiri Rao was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also drawn upon the break-up of the aforesaid amount which was claimed to be provided by Shri Rao. Relevant part of the same reads as under:- . Nalwa Chrome Pvt Ltd. 2011-12 4,50,00,00/- Writing back of the advance towards subscription to share capital. (Relevant entry passed in the books of accounts) .. In addition to the above, our attention was also drawn upon the following journal voucher which was passed by the assessee company dated 31-03- 2011:- Particulars Dr. Cr. Advance against Equity 4,50,00,000 Capital Reserve 4,50,00,000 (On account of : Entry to transfer advance against equity received from Anand Transport to Capital Reserve on account of basis of discussion with Income-tax Authorities) 15. We have carefully gone through the entire exercise of making this statement and furnishing of this break-up of offer of additional income. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made an offer to treat the said income as income from other sources . The only reason for making the addition is that it was not entered in the register of the company, for which, the assessee is not responsible specially when she has discharged the burden of proof by disclosing all the transactions in the return, as per the ratio laid down by the Punjab Haryana High Court in the case of CIT vs. Sudarshan Gupta, 2008 (10) DTR 134 (P H). Hence, we are of the view that the surrender letter will have to be ignored. Thus, we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein. 17. Thus, from the above, it may be noted that Hon ble High Court has relied upon the circular of the Board wherein it has been clearly guided by the Board to its revenue officers that they should not take undue advantage of ignorance of assessee. Thus, from the evidences brought before us and the legal position as discussed above, we find that the AO could not have adopted the aforesaid offer as the sole basis to make addition in the hands of assessee. Therefore, in our considered view, the taxability of this amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 344 held that the loan was received by the as ses see for car rying on i ts bus ines s and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this Court in the matter of Mahindra and Mahindra Limited (supra) was distinguished as in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Sol id Containers Limited (supra). In view of the above, the decision of this Court in the mat ter of Sol id Containers Limi ted (supra) wi l l have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra Mahindra Limited (supra). The alternative submission that the amount of loan written off would be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra Mahindra Limited (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. 9) In view of the issue arising in this appeal being covered by the decision of this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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