The DCIT, (OSD)-I, Circle-4, Ahmedabad V. Mahalaxmi Rubtech Ltd., Ahmedabad

ITA 1190/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9043 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Capital receipt; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD, AM. ITA NO.1190/AHD/2014 ASST. YEAR: 2010-11 DCIT(OSD)-CIR-4, AHMEDABAD. VS. MAHALAXMI RUBTECH LTD., 47 NEW CLOTH MARKET, AHMEDABAD. APPELLANT RESPONDENT PAN AABCM 7864L APPELLANT BY SHRI PRASOON KABRA, SR.DR RESPONDENT BY NONE DATE OF HEARING: 06/03/2017 DATE OF PRONOUNCEMENT: 06/03/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF REVENUE FOR ASST. YEAR 2010-11 IS D IRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A)-VIII, AHMEDABAD, DATED 30.01.2014 VIDE APPEAL NO.CIT(A)- VIII/42/AC(OSD)-1 R-4/12-13 ARISING OUT OF ORDER U/ S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FRAMED ON 2 0/06/2012 BY ACIT(OSD)-1, CIRCLE -4, AHMEDABAD. REVENUE HAS RAIS ED FOLLOWING GROUNDS : 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.94,80,000/- FROM THE TOTAL INCOME TREATING IT AS CAPITAL RECEIPT INSTEAD OF REVENUE, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABO VE EXTENT. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D EXPORT OF RUBBER AND TEXTILE PRODUCTS. INCOME-TAX RETURN DECL ARING TOTAL INCOME AT RS.3,92,98,770/- WAS FILED ON 29.09.2010. CASE W AS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE AC T DATED 25.8.2011 FOLLOWED BY NOTICE U/S 142(1) OF THE ACT WERE ISSU ED AND DULY SERVED ON THE ASSESSEE. NECESSARY INFORMATION WERE CALLED FOR AND SUBMITTED. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE FILED A LE TTER DATED 6.5.2012 REQUESTING TO EXCLUDE A SUM OF RS.94.80 LA CS FROM THE TOTAL INCOME AS IT WAS RECEIVED FOR FORFEITURE OF APPLICA TION MONEY RECEIVED BY WAY OF ISSUE OF SHARE WARRANTS AND CLAIMED IT TO BE A CAPITAL RECEIPT. ASSESSEE REQUESTED THAT AS THE AMOUNT RECE IVED IS NOT FROM THE BUSINESS ACTIVITIES IT CANNOT BE TERMED AS REVE NUE RECEIPT AND IT SHOULD BE REDUCED FROM THE TOTAL INCOME. HOWEVER, T HE CONTENTIONS OF ASSESSEE WERE NOT ACCEPTABLE TO THE LD. ASSESSING O FFICER AND HE REJECTED THE APPLICATION OF ASSESSEE BY TREATING TH E AMOUNT OF RS.94.80 LACS AS REVENUE RECEIPT BY OBSERVING AS FO LLOWS :- 4,1 THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDE RED CAREFULLY. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. THE APPLICATION MON EY RECEIVED BY THE ASSESSEE BY WAY OF ISSUE OF SHARE WARRANTS HAS BEEN RECEIVED DU RING THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND IS THE BUSINESS INCOME . THE SAID AMOUNT IS NOT A CAPITAL RECEIPT AS CONTENDED BY THE ASSESSEE SINCE THE SAME HAS BEEN RECEIVED DURING THE COURSE OF BUSINESS AND IS TO BE TREATED AS REVENUE RECEIPT ONLY. NO SPECIFIC EXEMPTION ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 3 IS PROVIDED UNDER THE ACT IN RESPECT OF SUCH RECEIP TS. THE DEFINITION OF 'INCOME' U7S. 2(24) IS INCLUSIVE ONE AND ANYTHING WHICH CAN PROPE RLY BE DESCRIED AS INCOME IS TAXABLE UNDER THE ACT UNLESS EXEMPT UNDER ONE OR OT HER PROVISIONS OF THE ACT. EVEN IF THE MOUNT RECEIVED ON FORFEITURE OF SHARES IS TREAT ED AS CAPITAL RECEIPT, ALL CAPITAL RECEIPTS ARE NOT EXEMPT FROM TAXATION. IN VIEW OF T HE ABOVE, THE CONTENTION OF THE ASSESSEE TO TREAT THE ABOVE RECEIPTS AS CAPITAL REC EIPTS IS HEREBY REJECTED. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CO MMISSIONER OF INCOME TAX(A) AND SUCCEEDED IN FULL AS LD. COMMISSI ONER OF INCOME TAX(A) FOLLOWING THE DECISION OF THE CO-ORDINATE BE NCH, AHMEDABAD IN THE CASE OF DCIT (OSD), AHMEDABAD VS. BRIJLAXMI LEASING AND FINANCE LTD. 118 ITD 546(AHD) ALLOWED ASSESSEES GR OUND BY ACCEPTING RS.94.80 LACS AS CAPITAL RECEIPT BY OBSER VING AS FOLLOWS :- 2.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE APPELLANT HAD ISSUED IN CERTAIN SHARES WARRANTS AND RECEIVED PART PAYMENT O N THOSE WARRANTS. HOWEVER, SUBSEQUENTLY THE SHARE APPLICANT'S DID NOT MAKE THE FINAL PAYMENT AND ACCORDINGLY THE SHARE APPLICATION MONEY WAS FORFEITED. THE APPELLANT RECEIVED AN AMOUNT OF RS. 94,80,000/- ON THIS ACCOU NT. INITIALLY THE AMOUNT WAS SHOWN AS A REVENUE RECEIPT IN THE PROFIT AND LOSS ACCOUNT HOWEVER SUBSEQUENTLY, DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE APPELLANT CLAIM THAT IT WAS A CAPITAL RECEIPT AND S HOULD NOT BE CONSIDERED AS PART OF THE TOTAL INCOME EARNED FROM THE BUSINESS A CTIVITY. THE AO DID NOT ACCEPT THE CLAIM OF THE APPELLANT REGARDING TREATME NT OF FORFEITURE OF SHARE APPLICATION MONEY AS CAPITAL RECEIPT. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPE LLANT HAS SUBMITTED THAT SHARE APPLICATION MONEY WHICH WAS FORFEITED IS CLEA RLY IN THE NATURE OF CAPITAL RECEIPT AND SHOULD THEREFORE BE EXCLUDED. IT ALSO P LACED RELIANCE ON THE JUDGEMENT OF AHMEDABAD ITAT IN THE CASE OF BRIJLAXM I LEASING AND FINANCE 118 ITD 546. I HAVE CAREFULLY EXAMINED THE ISSUE. IT IS A FAIRLY SETTLED LAW THAT FORFEITURE OF SHARE APPLICATION MONEY WHICH HAS BEEN DULY RECEIVE D BY THE APPELLANT IN TERMS OF PROSPECT AND CREDITED TO CAPITAL RESERVE A CCOUNT WAS A CAPITAL RECEIPT. THE FACTS CLEARLY SHOW THAT THE APPELLANT HAD ISSUED CERTAIN SHARES WARRANTS WHICH WERE SUBSCRIBED BY THREE COMPANIES. THE AMOUNT RECEIVED ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 4 WAS CREDITED TO SHAREHOLDERS FUND IN THE BALANCE SH EET. THESE APPLICANTS MADE PART PAYMENT IN PURSUANCE TO THE SHARE APPLICA TION. THE ISSUE OF SHARES WARRANTS WAS DULY APPROVED BY BOMBAY STOCK EXCHANGE , AS THE APPELLANT COMPANY A LISTED COMPANY ON BSE. HOWEVER, LATER ON THE SHARE APPLICANTS DID NOT MAKE FURTHER PAYMENTS AND AFTER INFORMING T HE SHARE APPLICANT'S AND GIVING THEM THE OPPORTUNITY THE APPELLANT FORFEITED THE AMOUNT OF 10% OF THE SHARE WARRANT PAID BY THE APPLICANTS. IT IS OBSERVE D FROM THE DOCUMENTS GIVEN BY THE APPELLANT DURING THE COURSE OF APPELLATE PRO CEEDINGS THAT THERE IS SUFFICIENT DOCUMENTARY EVIDENCE TO PROVE THE CLAIM OF THE APPELLANT. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES ' AND ALSO THE JUDGEMENT OF HONOURABLE ITAT AHMEDABAD BENCH IN THE CASE OF BRIJ LAXMI LEASING AND FINANCE (SUPRA), THE ACTION OF THE AO IN TREATING THE SHARE FORFEITURE AMOUNT AS REVENUE RECEIPT IS SET ASIDE AND HE IS ACCORDINGLY DIRECTED TO TREAT IT AS CAPITAL RECEIPT AND EXCLUDE THE SAME FROM THE INCOME. 3. IN THE RESULT, THE APPEAL IS ALLOWED. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED SUPPO RTING THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT ASSES SEE IN ITS RETURN OF INCOME HAS TREATED THE AMOUNT OF RS.94.80 LACS AS R EVENUE RECEIPT AND IT WAS AN AFTER-THOUGHT ACTION OF THE ASSESSEE TO CLAIM IT TO BE A CAPITAL RECEIPT AND LD. ASSESSING OFFICER, THEREFOR E, RIGHTLY TREATED THE SAME AS REVENUE RECEIPT. HOWEVER, LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDING AND DIFFERENTIATE THE FACTS FROM THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF DC IT (OSD) VS. BRIJLAXMI LEASING & FINANCE LTD.(SUPRA) FOLLOWED BY LD. COMMISSIONER OF INCOME TAX(A). 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER , THE CASE HAS BEEN HEARD WITH THE HELP OF LD. DEPARTMENTAL RE PRESENTATIVE AND PERUSING THE AVAILABLE RECORD. ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 5 6. WE HAVE HEARD THE CONTENTIONS OF LD. DEPARTMENTA L REPRESENTATIVE AND GONE THROUGH THE RECORDS PLACED BEFORE US AS WELL AS THE DECISION OF THE CO-ORDINATE BENCH, AHME DABAD IN THE CASE OF DCIT(OSD) VS. BRIJLAXMI LEASING & FINANCE L TD.(SUPRA). SOLITARY GRIEVANCE OF THE REVENUE THROUGH THIS APPE AL IS AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) DELETING THE ADDITION OF RS.94.80 LACS BY TREATING THE AMOUNT RECEIVED ON AC COUNT OF FORFEITURE OF SHARE APPLICATION MONEY BY WAY OF ISSUE OF SHARE WARRANTS AS CAPITAL RECEIPTS AS AGAINST LD. ASSESSING OFFICER S ORDER TREATING IT TO BE REVENUE RECEIPT. WE OBSERVE THAT THERE IS NO DIS PUTE FROM THE SIDE OF REVENUE TO THE ESTABLISHED FACT THAT ASSESSEE RE CEIVED THE APPLICATION MONEY OF RS.94.80 LACS FOR TECHNICAL TE XTILE PROJECT AS PER SECURITY EXCHANGE BOARD OF INDIA AND BOMBAY STOCK E XCHANGE GUIDELINES AND WITH THE NECESSARY APPROVAL FOR ISSU ING SHARE WARRANTS. THIS SUM OF RS.94.80 LACS HAS BEEN SHOWN IN THE AUDITED BALANCE SHEET UNDER THE HEAD SHARE-HOLDERS FUND. AS THE SHARES WERE TO BE ALLOTTED BEFORE 24.2.2009 BUT THE SHARE WARRANT APPLICANTS FAILED TO GIVE THE BALANCE AMOUNT, THE WARRANT APPL ICATION MONEY HAD BEEN FORFEITED DURING THE RELEVANT YEAR. 6.1 WE FURTHER OBSERVE THAT SIMILAR ISSUE DEALING W ITH SIMILAR FACTS RELATING TO FORFEITURE OF SHARE APPLICATION MONEY T O BE TREATED AS CAPITAL RECEIPT OR REVENUE RECEIPT CAME UP BEFORE T HE CO-ORDINATE BENCH, AHMEDABAD IN THE CASE OF DCIT(OSD) VS. BRIJL AXMI LEASING & FINANCE LTD. (SUPRA) AND REVENUES APPEAL WAS DISMI SSED BY OBSERVING AS FOLLOWS :- '7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. I N THE INSTANT CASE THE ASSESSEE WAS TO RECEIVE CALL MONEY IN RESPECT OF SHARE AS PE R THE TERMS OF PROSPECTUS AND ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 6 THE ALLOTMENT LETTERS, BUT THE SAME WERE NOT RECEIV ED FROM SOME OF THE SHAREHOLDERS. IN THIS CASE, THE SHARE APPLICATION M ONEY WAS FORFEITED AS PER THE TERMS OF THE PROSPECTUS. THE ABOVE FACTS ARE NOT IN DISPUTE. THE SHORT QUESTION WHICH FALL FOR OUR CONSIDERATION IS WHETHER THE ABO VE FORFEITURE AMOUNT IS TAXABLE UNDER THE PROVISIONS OF INCOME-TAX ACT , 1961 OR NOT. THE LEARNED DR VEHEMENTLY PLACED RELIANCE ON THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) F OR HIS CONTENTION THAT FORFEITED AMOUNT IS TAXABLE AS REVENUE RECEIPT. HOW EVER, WE FIND THAT THE FACTS OF THE CASE THAT WERE BEFORE THE HON'BLE SUPREME CO URT ARE DISTINGUISHABLE FROM THE FACTS BEFORE US. IN THE INSTANT CASE NO SECURIT Y DEPOSIT OR ADVANCE RECEIVED FOR PERFORMANCE OF THE CONTRACT WAS FORFEITED. IN F ACT, THE AMOUNT RECEIVED WAS AGAINST ISSUE OF SHARES AND ISSUE OF SHARES IS NOT THE BUSINESS OF THE ASSESSEE. THE SAME CANNOT BE TREATED AS RECEIPT IN THE NORMAL COU RSE OF THE BUSINESS OF THE ASSESSEE WHICH IS ENGAGED IN FINANCING AND LEASING BUSINESS. FURTHER, THE ASSESSEE HAS ALSO NOT CREDITED THE FORFEITED AMOUNT IN ITS PROFIT & LOSS ACCOUNT BUT IN CONTRADISTINCTION TO THAT IT HAS CREDITED TH E SAME IN CAPITAL RESERVE ACCOUNT. IN THE ABOVE FACTS, IN OUR CONS IDERED OPI NION THE DECISION OF THE TRIBUNAL IN THE CASE OF PRISM CEMENT LTD. (SUPRA) I S MORE APPLICABLE WHICH WAS RENDERED BY THE TRIBUNAL AFTER DULY CONSIDERING THE AFORESAID DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA). THE TRIBUNAL IN THE SAID CASE HAS HELD AS UNDER : '15. THUS, THE EARNEST MONEY OR AN ADVANCE AMOUNT R ECEIVED ON ACCOUNT OF ISSUANCE OF NCDS, IF FORFEITED ON ACCOUNT OF NON -PAYMENT OF CALL MONEY, THE LOAN LIABILITY WOULD ONLY CONVERT INTO A CAPITAL RECEIPT. IT WOULD NOT ASSUME A CHARACTER OF REVENUE RECEIPT OR BUSINESS RECEIPT BECAUSE NCDS WERE NOT ISSUED IN THE COURSE OF REGUL AR BUSINESS OF THE ASSES SEE AS EVIDENT FROM THE FACTS OF THE CASE. AS SESSEE'S MAIN BUSINESS IS OF CEMENT AND IT WAS IN THE PROCESS OF SET UP OF CE MENT MANUFACTURING PLANT AT SATNA DURING THE IMPUGNED ASSESSMENT YEAR. IN THESE CIRCUMSTANCES, WE ARE CONSTRAINED TO HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN LIEU OF ISSUANCE OF NCDS WHICH WERE FORFEITED LATER, ON ACCOUNT OF NON-PAYMENT OF CALL MONEY ASSUMES A CHAR ACTER OF CAPITAL RECEIPT WHICH EARLIER WAS SHOWN AS A LOAN LIABILITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IF WE CONSIDER THIS RECEIP T TO BE A BUSINESS RECEIPT EVEN THEN IT WOULD NOT BE TAXABLE TO TAX UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT, INASMUCH AS THERE WAS NO ALLOWANCE OR DEDUCTION OF THIS LIABILITY IN THE EARLIER YEARS.' IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE AF ORESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL WE FIND NO REASON TO I NTERFERE WITH THE ORDER OF THE LEARNED CIT(A). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED.' 7. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH IN THE ABOVE CASE, WE FIND THAT THE FACTS DEALT IN THI S CASE ARE SIMILAR TO ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 7 THOSE IN THE CASE OF ASSESSEE AND LD. COMMISSIONER OF INCOME TAX(A) HAS ALLOWED ASSESSEES APPEAL IN A RIGHT PER SPECTIVE BY TREATING THE AMOUNT OF RS.94.80 LACS RECEIVED AS SH ARE APPLICATION MONEY FOR ISSUING OF SHARE WARRANTS AS CAPITAL RECE IPT AND NOT REVENUE RECEIPT AS IT WAS NOT EARNED FROM REGULAR B USINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. COMMISSIONER OF INCOME TAX(A) AND UPHOLD THE SAME. ACCORDINGLY THE GROUND OF REVENUE IS DISMISSE D. 8. OTHER GROUNDS OF GENERAL NATURE, WHICH NEED NO A DJUDICATION. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MARCH, 2017 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 06/03/2017 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1190/AHD/2014 ASST. YEAR 2010-11 8 1. DATE OF DICTATION: 06/03/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 06/03/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7/3/17 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: