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TMI Blog2021 (9) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... assification made by the investor company, in their books of account, does not alter the nature of transactions which clearly is share application money as is evident from the copy of share application forms.The explanation of the investor company that since they had not yet received the allotment of shares and therefore, had classified the same as unsecured loans is plausible. - Decided against revenue. - ITA No.116/Lkw/2017 - - - Dated:- 31-8-2021 - Shri A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member For the Appellant : Shri Harish Gidwani, D.R. For the Respondent : Shri K. R. Rastogi, C. A. ORDER PER T. S. KAPOOR, A.M. This is an appeal filed by the Revenue against the order of learned CIT(A)-I, Lucknow dated 31/05/2016 pertaining to assessment year 2012- 2013. In this appeal the Revenue has raised the following grounds of appeal: 1. The CIT(A) has erred in law and on facts of the case in deleting the addition of ₹ 2,00,00,000/- which was made in the absence of proper explanation offered by the assessee regarding forfeited amount of ₹ 2,00,00,000/-, which was shown as unsecured loan in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly made the additions as these are sham transactions using the colourable devise of share application money being forfeited. It was submitted that learned CIT(A) has not rightly appreciated the facts and therefore, it was prayed that the appeal filed by the Revenue may be allowed. 4. Learned counsel for the assessee, on the other hand, submitted that the assessee had received application for issue of 80,000 cumulative redeemable 10% preference shares having face value of ₹ 100/- per share along with premium of ₹ 900/- on each share and application amount of ₹ 250/- was received on 29/04/2011 from the said parties through banking channels and in support of the transactions, the copy of share application forms along with the copy of confirmation of payment of share application money, copy of bank account of the investors were filed. It was submitted that after receiving the payment, the assessee issued notices to aforesaid parties for allotment money on 07/08/2011 which was duly acknowledged by the above investors and since the assessee did not receive the allotment money it again issued notice on 08/09/2011 duly acknowledged by the investors asking for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (2009) 118 ITD 546 (ITAT, Ahmedabad) (iii) Prism Cement Limited vs. JCIT (2006) 101 ITD 103 (ITAT, Mumbai) (iv) Addl. CIT vs. Om Oils Oil Seeds Exchange Ltd. (1985) 152 ITR 552 (Del.) (v) Travancore Rubber Tea Co. Ltd. vs. CIT (2000) 243 ITR 158 (SC) (vi) Deepak Fertilizers Petrochemicals Corpn. Ltd. vs. Dy. CIT [2009] 116 ITD 372 (ITAT, Mumbai) (vii) Multan Electric Supply Co. Ltd., In Rel3 ITR 457 (Lahore) (viii) Jaikishan Dadlani vs. ITO [2005] 4 SOT 138 (ITAT, Mumbai) Learned counsel for the assessee submitted that learned CIT(A) has elaborately discussed the issue in his order and has heavily placed reliance on the findings of learned CIT(A). 5. We have heard the rival parties and have gone through the material placed on record. We find that the application money, received by assessee, is supported by share application forms, placed at pages 13 to 24 of the paper book. The above share application forms clearly state the type of shares, the amount paid as application money. The above share application form also contains acceptance by the investors which also contained that application of shares will be subjected to provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice has been given, may at time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. 24. A forfeited share shall be deemed to be the property of the company, and may be sold of otherwise disposed of on such terms and in such manner as the Board of Director may other manner. 25. At any time before a sale of disposal as aforesaid, the Board of Director may their discretion, neither cancel the forfeiture on such terms as they think fit of deal with it in any other manner. 26. A person whose shares have been forfeited shall cease to be member in respect of the forfeited shares, but shall notwithstanding the forfeiture, remain liable to pay the company all money, which at the date of forfeiture, were presently payable by him to the company in respect of shares. 27. The liability of such persons shall cease if and when the company shall have received in full of such moneys in respect of the shares. 28. A duly verified declaration in writing that the declaring Managing Director, a Director, a Manager or Secretary of the company, and that share in the company has been duly forfeite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and case laws relied by appellant. I have also gone through the findings given by AO in assessment order and I find that the AO has mainly asserted on following points in support of his contention for making aforesaid addition of ₹ 2,00,00,000/- :- (i) The forfeiture of share money issued on premium was an income of the appellant which has not been disclosed in its return. (ii) Since, the parties who had paid the money to appellant have actually shown the same as Unsecured Loans in their respective financial statements instead of confirming the amount being given as share application money towards Cumulative Redeemable 10% Preference Shares issued by the appellant, genuineness of transaction was questionable. 5.1 On careful consideration of the written submissions of the appellant and observations of the AO particularly in respect of his first contention as mentioned above, I hold that forfeiture of share money issued on premium was not an income of the appellant because: a. There was no adverse implication in the I.T. Act, 1961 for the appellant to issue its shares at premium more than its book value during the present year as the clause (viib) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the agreement. Such a clause has been construed as providing for compensation for breach of contract under s. 74 of the Indian Contract Act, 1872. If the agreed sums of money under the agreements had been received by the assessee, they would have been credited in its account as a capital receipt. That being so, the forfeited amounts must also be treated as capital receipt. In the case of Deepak Fertilizers Petrochemicals Corpn. Ltd. vs. Dy. CIT [2009] 116 1TD 372 (ITAT, Mumbai) it was held that the forfeiture of application money received against partly convertible debentures gave rise to capital receipt not chargeable to tax. It has been held in Multan Electric Supply Co. Ltd., In Re13 ITR 457 (Lahore) that any profit which arises on the forfeiture of shares is neither a revenue receipt, nor profit on the working of the company, but is simply the circulating capital of the company, and as such, a capital asset. In the case of Jaikishan Dadlani vs. ITO [2005] 4 SOT 138 (ITAT, Mumbai) it was held that there cannot be any dispute about the position that the share capital forfeiture receipts are in the nature of capital receipts. In view of the above, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to their preliminary information. Afterwards, such aapplicant has stated on oath before its Assessing Officer that because share certificates were not received by them they have shown the amount paid to appellant as Unsecured Loan in their books of account. Another applicant - M/s Zero Traders Services Ltd., Kanpur has also staled before its Assessing Officer that no intimation of forfeiture of share application money was received by them neither the share certificates were received by them so they have shown the money under Unsecured Loans in their Balance Sheet. Fourth applicant - M/s Cityon Systems (India) Limited has furnished copy of report wherein money given to the appellant was recorded under the head unsecured loans. On the of information given by M/s Bansal Suppliers Pvt. Ltd. and Zero Traders Services Ltd., apparently, there was rational connection between the transactions made by them and accounting entries reflected in the books of account of the appellant as the explanation furnished by them for recording the transactions as unsecured loan is itself sufficient to substantiate the nature of origin of such transactions which is entirely sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts Ltd. (2009) 315 ITR 265 (Del.) it was held that no reliance can be placed on the statements as they were inherently contradictory and unreliable and no opportunity was given to the assessee by the AO to cross-examine the person. b) It has been held in Heirs And Lrs of Late Laxmanbhai S. Patel vs. Commissioner of Income Tax (2010) 327 ITR 290 (Guj.) that the legal effect of the statement recorded behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross-examination, is that if the addition is made, the Same is required to be deleted on the ground of violation of the principles of natural justice. c) It was held in the case of CIT vs. SMC Share Brokers Ltd. (2007) 288 ITR 345 (Del) that though statement of third party had evidentiary value, weight could not be given to it in proceedings against the assessee without testing it under cross examination. d) In the case of CIT v. Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal.) it was held that the cross examination is sine ana non of the due process of taking evidence and no adverse inference can be drawn against a party unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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