DCIT, New Delhi V. M/s. CNB Finwiz Ltd., New Delhi

ITA 3756/DEL/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4795 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHRI SRIVASTAVA
• Assessee Lawyers: C S AGARWAL; RAVI MAL
• Keywords: Business income; Depreciation; Capital receipt
• Section: 28

Judgement Text

ITA NO. 3756/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3756/DEL/2010 A.Y. : 200 6 - 0 7 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI VS. M/S CNB FINWIZ LIMITED, 4318/3, ANSARI ROAD, DARYA GANJ, NEW DELHI 110 002 (PAN: AABCB2613A) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. C.S. AGARWAL, SR. ADVOCATE & SH. RAVI MAL, ADVOCATE DEPARTMENT BY : MS. NIDHRI SRIVASTAVA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, NE W DELHI DATED 02.6.2010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD.CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. II) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.5.75,00,000/- MADE ON ACCOUNT OF FORFEITURE OF WARRANTS IGNORING THE FACT ITA NO. 3756/DEL/2010 2 THAT THIS IS CLEAR CASE OF TAX AVOIDANCE WHEREBY TH E ASSESSEE USED CO ARABLE DEVICE IN THE NATURE OF STAGE MANAGED TRANSACTION ON ACCOUNT OF ISSUE OF WARRANTS, PAYMENT OF PART CALLED UP MONEY AND LATER FORFEITURE OF WARRANTS ON NON PAYMENT OF REMAINING AMOUNT. RELIANCE IS PLACED ON THE DECISIONS OF THE HONBLE SUPREME COURT IN JUGGILAL KAMLAPAT VS. CIT (1969) 73 ITR 702; AND M/S MCDOWELL & CO. VS. ITO (1985) 154 ITR 148. III) THE LD.CIT(A) HAS ERRED IN AW AND ON FACTS IN DELETING ADDITION OF RS. 9366/- MADE ON OF ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION CLAIMED BY TH E ASSESSEE ON COMPUTER PERIPHERALS IGNORING THE FACT THAT AS PER INCOME TAX RULES DEPRECIATION @ 60% IS ALLOWABLE ONLY ON COMPUTER AND NOT ON THE ACCESSORIES. IV) THE APPELLANT CRAVES LEAVE FOR RESERVING THE R IGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. APROPOS ISSUE OF DELETION OF ADDITION OF RS. 5,7 5,00,000/- MADE ON A/C OF FORFEITURE OF WARRANTS. IN THIS CASE THE ASSESSEE IS CARRYING ON THE BUSI NESS OF PURCHASE AND SALES OF SHARES ON ITS OWN ACCOUNT. AS SESSING OFFICER OBSERVED THAT THE PERUSAL OF ASSTT. RECORDS AND THE BALANCE SHEET ENCLOSED WITH THE RETURN REVEALS THAT THE ASSESSEE CO. HAS TREATED A SUM OF RS. 5,75,00,000/- ON A/C OF FORFEITURE OF OP TIONALLY CONVERTIBLE WARRANTS AS CAPITAL RECEIPTS; THAT THE ASSESSEE COM PANY WAS INCORPORATED IN THE YEAR 2000; THAT DURING THE FINA NCIAL YEAR 2003- ITA NO. 3756/DEL/2010 3 04 THE COMPANY SOLD WARRANTS WORTH RS.5,75,00,000/ UNDER A SCHEME FORMULATED BY THE CO.; THAT AS PER THE SCHEM E THE INVESTORS WERE REQUIRED TO PAY AN INITIAL AMOUNT AND THEN SUB SEQUENT AMOUNTS AS PER THE CALLS BY THE COMPANY; THAT WHEN THE INVESTORS WERE UNABLE TO PAY THE AMOUNT CALLED BY THE CO., T HE LATTER FORFEITED THE OPTIONALLY CONVERTIBLE WARRANTS AFTE R GIVING A FINAL SHOW CAUSE TO THEM. 3.1 THE ASSESSEE WAS SHOW CAUSED AS TO WHY GAIN ON ACCOUNT OF FORFEITURE OF WARRANTS NOT BE TREATED AS YOUR BUSIN ESS PROFIT WITHIN THE MEANING OF SECTION 28(IV) OF THE ACT. ASSESSEE RESPONDED AS UNDER:- 'THE AMOUNT OF RS 5,75,00,000/- WAS RECEIVED BY THE CO. FOR CONVERTIBLE WARRANTS WHICH WAS FORFEITE D FOR NON FULFILLMENT OF THE COMMITMENT MADE BY THE SUBSCRIBERS. IT IS RESPECTFULLY SUBMITTED THAT THE SAME DOES NOT BECOME THE INCOME OF THE CO. ON THE FACTS OF THE CASE, IN TERMS OF SECTION 28 OF THE I. T. ACT, 1961. THERE ARE ALWAYS INSTANCES, WHERE 'CALL MONEY' IS NOT PAID BY THE SUBSCRIBERS TO THE PUBLIC ISSUE, EV EN AFTER REPEATED REMINDERS OF THE CO. AND EVENTUALLY THE PARTLY PAID UP AMOUNT OF THE SHARES SUBSCRIBED BY THE SHAREHOLDERS IS FORFEITED BY THE CO. BUT THE SAME DOES NOT BECOME THE INCOME OF THE CO. IN TERM OF SECTION 28 OF THE ACT. SIMILARLY PREMIUM PAID ON SHARES IS ALSO NOT THE INCOME OF THE CO. ITA NO. 3756/DEL/2010 4 3.2 THE ASSESSING OFFICER WAS NOT CONVINCED BY THE ABOVE REPLY. HE OBSERVED THAT THE ASSESSEE HAS TREATED THE AMOUN T ON ACCOUNT OF FORFEITURE OF WARRANTS AS CAPITAL RECEIPTS WHILE THE INVESTORS HAVE SHOWN ARTIFICIAL LOSS ON FORFEITURE OF WARRANTS AS SHORT TERM CAPITAL LOSS. IN THIS REGARD, THE ASSESSING OFFICER OBSER VED AS UNDER:- IT NEEDS TO BE MENTIONED HERE THAT THESE INVESTORS ARE THE FOLLOWING TWO PARTIES:- MR. C. R. BAGRI WHO IS THE MANAGING DIRECTOR OF M/S CNB FINWIZ LTD. AND IS ALSO MAJOR SHARE HOLDER IN THIS COMPANY . M/S BLB LTD. WHICH IS ONE OF THE ASSOCIATED CONCERN S OF THE ASSESSEE CO. FURTHER, THIS COMPANY IS A CLOSELY HELD COMPANY AND ITS AFFAIRS ARE MANAGED BY MR. C.R. BAGRI AND HIS FAMILY. THERE IS HARDLY ANY SHARE HOLDING /STAKE IN THIS CO. OF ANY OUTSIDE PARTY. IN SUCH A SITUATION IT IS NOT AT ALL DIFFICULT FOR THE ASSESSEE TO STAGE-MANAGE THE WHOLE PROCESS RESULTING IN AN ARTI FICIAL AND FICTIONAL LOSS SHOWN BY SH. C.R. BAGRI IN HIS RETUR N. THUS IN A WAY THE WHOLE AFFAIRS ARE MANIPULATED IN SUCH A WAY THAT THERE IS A CAPITAL LOSS IN THE HANDS OF MR. C.R. BAGRI WH ICH HAS BEEN SET OFF WITH THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES FOR THE YEAR UNDER CONSIDERATION AND ON THE OTHER HAND THE CO. AFTER FORFEITING THE WARRANTS HAS TREATED IT AS CAPITAL R ECEIPT AND THEREFORE ITS FINANCIAL NEEDS ARE ALSO MET. THUS IT IS A CLEAR CASE OF TAX AVOIDANCE WHEREBY THE ASSESSEE USED THE COLORABLE DEVICE IN THE NATURE OF STAGE-MANAGED TRA NSACTION ON A/C OF ISSUE OF WARRANTS, PAYMENT OF PART CALLED UP MONEY AND LATER FORFEITURE OF WARRANTS ON NON PAYMENT OF REMAINING AMOUNT. IN THE CASE OF TAX AVOIDANCE, THE TAX PAYER APPARENTLY CIRCUMVENTS THE LAW, WITHOUT GIVING RISE TO A CRIMI NAL OFFENCE, ITA NO. 3756/DEL/2010 5 BY THE USE OF A SCHEME, ARRANGEMENT OR DEVICE, OFTE N OF A COMPLEX NATURE BUT WHERE THE MAIN PURPOSE IS TO DEF ER, REDUCE OR COMPLETELY AVOID THE TAX PAYABLE UNDER THE LAW. 3.3 FURTHER, THE ASSESSING OFFICER REFERRED TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MCDOWELL & CO. LT D. VS. CTO (1985) 154 ITR 148 (SC) AND CIT VS. INDIAN EXPRESS NEWSPAPERS (MADHURAI) P LTD. (1999) 238 ITR 70; DECISION OF TH E HONBLE APEX COURT IN THE CASE OF WORKMEN OF ASSOCIATED RUBBER I NDUSTRY LTD. VS. ASSOCIATED RUBBER INDUSTRY LTD. (1986) 157 ITR 77. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE K. RAMASAMY V S. CIT (2003) 162 ITR 358. THE ASSESSING OFFICER CONCLUDED THAT A SUM OF RS. 5,75,00,000/- SHOWN BY THE ASSESSEE AS CAPITAL RECE IPT IS TAXABLE IN ITS HANDS AS PER THE PROVISIONS OF SECTION 28(IV) O F THE I.T. ACT, 1961. ASSESSING OFFICER HELD THAT SINCE THIS IS A BENEF IT ACCRUING TO THE ASSESSEE ON A/C OF CARRYING ON OF THE BUSINESS OR A RISING FROM BUSINESS. HENCE, RS. 5,75,00,000/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON PROTECTIVE BASIS. 4. UPON ASSESSEES APPEAL LD. CIT(A) ELABORATELY C ONSIDERED THE ISSUE. HE HELD THAT HE WAS STRONGLY INCLINED TO COME TO THE CONCLUSION THAT THE PAYMENT OF RS. 5.75 CRORES SHOW N AS AMOUNT FORFEITED ON ACCOUNT OF NON PAYMENT TOWARDS ISSUE OF CONVERTIBLE WARRANTS CANNOT BE TREATED AS A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. HE FURTHER HELD THAT PROVISION OF SECTI ON 28(IV) OF THE ACT ARE ALSO NOT ATTRACTED AS THE RECEIPTS WERE NOT IN THE NATURE OF PERQUISITES, BUT WERE ACTUALLY MONETARY RECEIPTS. HE FURTHER OBSERVED THAT THOUGH THE ASSESSING OFFICER HAS ATTE MPTED TO MAKE A CASE FOR TAX AVOIDANCE AND PLANNING, NO SUBSTANTI VE EVIDENCE OR ITA NO. 3756/DEL/2010 6 ARGUMENT IS AVAILABLE ON THE BASIS OF WHICH THE ARGUMENTS OF THE ASSESSING OFFICER COULD BE ACCEPTED. LD. CIT(A) CO NCLUDED AS UNDER:- SINCE THE BASIC FACT OF THE NATURE OF THE RECEIPT HAS ALSO NOT BEEN DISPUTED BY THE ASSESSING OFFICER, I DO NO T FIND ANY REASON TO UPHOLD THE ARGUMENT OF THE ASSESSING OFFICER THAT THIS AMOUNT SHOULD BE TREATED AS A REV ENUE RECEIPT EVEN THOUGH IT HAS BEEN SHOWN AS CAPITAL RE CEIPT. I AM SUPPORTED BY SEVERAL JUDICIAL PRONOUNCEMENTS A S ALSO REFERRED TO BY THE AR OF THE APPELLANT IN HIS ARGUMENTS STATED ABOVE. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO DELETE THIS ADDITION OF RS.5 .75 CRORES AS THE SAME CANNOT BE TREATED AS A REVENUE RECEIPT AND INCOME OF THE APPELLANT. THESE GROUNDS ARE THEREFOR E TREATED AS ALLOWED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER O F THE ASSESSING OFFICER. LD. COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE AFORESAID AMOUNT RECEIVED ON THE ISSUE OF OPTIONALLY CONVERT IBLE WARRANTS UNDISPUTEDLY IS A CAPITAL RECEIPT AND THE CHARACTER OF SUCH RECEIPT ON FORFEITURE ON ACCOUNT OF THE NON EXERCISE OF THE OP TION TO CONVERT THE WARRANT TO EQUITY SHARES COULD NOT CHANGE THE CHA RACTER OF RECEIPT; THAT THE SAME REFLECTED IN THE BOOKS UNDER THE HEA D CAPITAL RESERVE AND THIS FACT HAS ALSO BEEN REFERRED BY TH E AUDITORS IN THEIR REPORT. HE SUBMITTED THAT ASSESSING OFFICER IN HIS ORDER HAS ADDED THE AFORESAID SUM OF RS. 5,75,00,000/- BY INVOKING THE PROVISIONS OF SECTION 28(IV) OF THE I.T. ACT BY HOLDING THAT THE SAME IS COLORABLE ITA NO. 3756/DEL/2010 7 DEVICE. HE SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO LOOK INTO THE TRANSACTION AND HIS ATTEMPT THOUGH UNSUPPO RTED BY ANY MATERIAL TO LOOK THROUGH THE TRANSACTION IS ALSO CONTRARY TO LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF VODAF ONE INTERNATIONAL HOLDINGS BV VS. UNION OF INDIA 341 IT R 129. HE FURTHER SUBMITTED THAT THERE IS NO MATERIAL FOR THE ASSESS ING OFFICER TO HOLD THAT THE TRANSACTION BY THE ASSESSEE IS A COLORABLE DEVICE. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE PLACED DECISION OF THE HONBLE APEX COURT IN THE CASE OF AZADI BACHAO ANDOLAN VS. UOI 263 ITR 706. 6.1 THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMIT TED THAT THE ASSESSING OFFICER HAS INVOKED THE PROVISION OF SECT ION 28(IV) OF THE I.T. ACT. HE SUBMITTED THAT SUCH SECTION IS NOT AP PLICABLE IN THIS CASE. HE ALSO SUBMITTED THAT THE AFORESAID PROVIS ION IS APPLICABLE IN RESPECT OF THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINE SS OR THE EXERCISE OF A PROFESSION. HE SUBMITTED THAT IN THE INSTANT C ASE THE AMOUNT FORFEITED IS NOT ON ACCOUNT OF EXERCISE OF THE BUSI NESS OR PROFESSION BUT IS TOWARDS THE ISSUE OF THE SHARE CAPITAL AND IS A CAPITAL RECEIPT. HE FURTHER SUBMITTED THAT THE MAIN REASON WHY THE PROVISIONS OF SECTION 28(IV) WOULD NOT BE APPLICABLE TO THE INST ANT CASE IS THAT THE BENEFIT DID NOT ARISE TO THE ASSESSEE ON ITS REVENU E ACCOUNT. HE FURTHER SUBMITTED THAT EVEN ACCORDING TO THE GENER AL COMMERCIAL PRINCIPLES AND VARIOUS DECISIONS OF DIFFERENT COU RTS, THE AMOUNT RECEIVED ON ACCOUNT OF CAPITAL RECEIPTS CANNOT BE T AXED UNDER SECTION 28(IV) OF THE ACT. FOR THE PURPOSE OF APPL ICABILITY OF SECTION 28(IV), THE BENEFIT OR PERQUISITE MUST RELATE TO TH E REVENUE ACCOUNT OF THE ASSESSEE. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE SEVERAL CASE LAWS AS UNDER:- - CIT VS. CHAND RATAN BAGRI REPORTED IN 36 DTR 244 (DEL.) ITA NO. 3756/DEL/2010 8 - SUNITA GUPTA SHARE BORKERS LIMITED VS. ACIT IN IT A NO. 4188/DEL/2010 VIDE ORDER DATED 7.12.2011. - EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1 - TI DIAMOND CHAIN LTD. VS. CIT REPORTED IN 151 TA XMAN 69. - PRIVY COUNCIL IN RALLI ESTATES LTD. VS. CIT (19 61) 1 WLR 329 (PC). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. IN THIS CASE IT IS UNDISPUTED THAT THE AMO UNT OF RS. 5,75,00,000/- HAD BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF FORFEITURE OF OPTIONALLY CONVERTIBLE WARRANTS WHICH HAD BEEN SHOWN AS CAPITAL RECEIPTS BY THE ASSESSEE. THE COMPANY HAD SOLD WARRANTS DURING THE FINANCIAL YEAR 2003-04 ON ACCOU NT OF WHICH THE INITIAL AMOUNT OF RS. 5.75 CRORES HAD BEEN RECEIVED BY THE COMPANY AND SINCE THE INVESTORS WERE UNABLE TO PAY THE SUBS EQUENT AMOUNTS, THE ASSESSEE COMPANY FORFEITED THE OPTION ALLY CONVERTIBLE WARRANTS AFTER GIVING A FINAL SHOW CAU SE TO THEM. THE ASSESSING OFFICER HAD PROVIDED OPPORTUNITY TO THE ASSESSEE TO EXPLAIN AS TO WHY THE GAIN ON ACCOUNT OF FORFEITU RE OF WARRANTS SHOULD NOT BE TREATED AS A BUSINESS PROFIT UNDER S ECTION 28(IV) OF THE I.T. ACT. THE ASSESSING OFFICER HAS HIGHLIGHT ED THAT TWO INVESTORS WHO HAD PAID THE AMOUNT OF RS. 5.75 CRORE S WERE MR. CR BAGRI, WHO WAS THE MANAGING DIRECTOR OF THE ASSESSE E COMPANY AND M/S BLB LIMITED WHICH IS ONE OF THE ASSOCIATED CONC ERNS OF THE ASSESSEE COMPANY. IT WAS HIGHLIGHTED BY THE ASSESSI NG OFFICER THAT THE LOSS ON ACCOUNT OF THIS FORFEITURE HAD RESULTED IN A GAIN TO THE TWO INVESTORS I.E. SH. CR BAGRI AND M/S BLB LIMITED . ACCORDINGLY, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THI S AMOUNT OF RS. 5.75 CRORES SHOULD BE TREATED AS INCOME OF THE ASSE SSEE. ITA NO. 3756/DEL/2010 9 8. THE ASSESSING OFFICER HAS ALSO INVOKED THE PROV ISION OF SECTION 28(IV) OF THE I.T. ACT. WE FIND THAT SECTION 28(IV ) PROVIDES THAT FOLLOWING AMOUNT SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION, THE VA LUE OF ANY BENEFIT OR PERQUISITE CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION. WE FAIL TO UNDERSTA ND AS TO HOW SECTION 28(IV) IS APPLICABLE ON THE FACTS OF THE C ASE. SECTION 28(IV) COVERS ONLY THE VALUE OF ANY BENEFIT OR PERQUISITE AND NOT ANY CASH BENEFIT, WHICH IS THE CASE IN THE PRESENT CONTEXT. IN OUR CONSIDERED OPINION, ASSESSING OFFICER COULD NOT RESORT TO THIS PROVISION AS THE RECEIPT WAS OF CAPITAL NATURE. HENCE, WE HOLD THAT THIS SECTION CANNOT BE APPLIED FOR TAXING THIS AMOUNT. 9. WE FURTHER FIND THAT IT IS NOT CLEAR AS TO HOW T HE RECEIPT ON ACCOUNT OF FORFEITURE OF WARRANTS HAS BEEN TREATED AS A BUSINESS TRANSACTION ON THE BASIS OF WHICH THE AMOUNT HAS B EEN TREATED AS BUSINESS INCOME. IT IS UNDISPUTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF PART PAYMENT OF CONVERTI BLE WARRANTS. FROM THE NATURE OF THE RECEIPT IT IS ABUNDANTLY CLE AR THAT THE AMOUNT WHICH HAS BEEN RECEIVED IS IN THE NATURE OF CAPITAL RECEIPTS. 10. SEVERAL JUDICIAL PRONOUNCEMENTS WERE RELIED UPO N BY THE LD. COUNSEL OF THE ASSESSEE AND THE LD. CIT(A) FOR THE PROPOSITION THAT RECEIPT ON ACCOUNT OF FORFEITURE HAS TO BE CONSID ERED ONLY AS A CAPITAL RECEIPT: - CIT VS. CHAND RATAN BAGRI REPORTED IN 36 DTR 244 (DEL.) - SUNITA GUPTA SHARE BORKERS LIMITED VS. ACIT IN IT A NO. 4188/DEL/2010 VIDE ORDER DATED 7.12.2011. - EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1 ITA NO. 3756/DEL/2010 10 - TI DIAMOND CHAIN LTD. VS. CIT REPORTED IN 151 TA XMAN 69. - PRIVY COUNCIL IN RALLI ESTATES LTD. VS. CIT (19 61) 1 WLR 329 (PC). - ACIT VS. OM OILS SEEDS EXCHANGE LTD. 152 ITR 55 2, - ASIATIC OXYGEN VS. DCIT 49 ITD 359 - MAHINDRA AND MAHINDRA VS. CIT 265 ITR 501 11. THE ABOVE CASE LAWS AMPLY SUPPORT THE PROPOSITI ON THAT AMOUNT RECEIVED AS A CAPITAL RECEIPT TOWARD FINANCI AL INSTRUMENTS LIKE WARRANTS, SHARE CAPITAL ETC. CANNOT BE TREATED AS BUSINESS RECEIPTS. SINCE THE ASSESSEE COMPANY IS NOT IN THE BUSINESS OF SELLING OF SHARES. IT HAS BEEN HELD IN THE JUDICIAL PRONOUNCEMENTS THAT IN THE CASE OF ANY SUCH FORFEITURE MADE, THE S AME CANNOT BE TAXED AS A REVENUE RECEIPT IF THIS AMOUNT HAS BEEN TRANSFERRED TO THE CAPITAL RESERVE ACCOUNT IN THE BALANCE SHEET. IN THE PRESENT SET OF FACTS IT IS OBSERVED THAT THE VARIOUS FACTS RELA TED TO ISSUE OF WARRANT PART PAYMENT OF THE AMOUNTS BY THE INVESTOR S, NOTICE FOR FORFEITURE ETC. HAVE NOT BEEN DISPUTED BY THE ASSES SING OFFICER. THE BASIC NATURE OF THE TRANSACTION RELATES TO RAISING OF CAPITAL THROUGH CONVERTIBLE WARRANTS. THE AMOUNT FORFEITED ON ACCO UNT OF NON PAYMENT OF SUBSEQUENT AMOUNTS CANNOT BE TREATED AS A BUSINESS INCOME OF THE ASSESSEE IN VIEW OF THE VARIOUS JUDI CIAL PRONOUNCEMENTS AS WELL AS THE BASIC NATURE OF THE R ECEIPT. THUS, WE HOLD THAT AMOUNT RECEIVED ON ACCOUNT OF FORFEITURE OF AMOUNT DUE TO NON PAYMENT TOWARDS WARRANTS ISSUE HAS TO BE TREATE D AS CAPITAL RECEIPT AND SINCE THE ASSESSEE HAS ALSO TRANSFERRED IT TO THE CAPITAL RESERVE ACCOUNT IN THE BALANCE SHEET, THE AMOUNT CA NNOT BE TAXED AS INCOME OF THE RELEVANT FINANCIAL YEAR. ITA NO. 3756/DEL/2010 11 12. WE FURTHER FIND THAT ASSESSING OFFICER HAS MADE ALLEGATION OF TAX AVOIDANCE AND EVASION ON THE PART OF THE ASSESS EE COMPANY. THIS IS ON ACCOUNT OF THE FACT THAT TWO INVESTORS VIZ. SH. CR BAGRI AND M/S BLB LIMITED WERE CLOSELY RELATED TO THE ASS ESSEE COMPANY. LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED BEFORE TH E LD. CIT(A) THAT THIS ALLEGATION OF THE ASSESSING OFFICER IS NOT C ORRECT. SINCE IN THE CASE OF M/S BLB LTD. THE TOTAL AMOUNT HAS BEEN DECL ARED AS INCOME AND NO BENEFIT HAS BEEN DERIVED OUT OF THIS FORFEIT URE. THE SHORT TERM CAPITAL GAIN OR LOSS DEPENDS UPON VAGARIES OF THE MARKET AND THE ALLEGATION OF THE ASSESSING OFFICER THAT TAX PL ANNING COULD BE DONE ON THE BASIS OF SUCH VAGARIES DOES NOT APPEAR TO BE LOGICAL. THUS, WE FIND THAT TAX AVOIDANCE/ TAX EVASION HAS N OT BEEN SUBSTANTIATED BY THE ASSESSING OFFICER IN TERMS OF WHO HAS AVOIDED THE TAX AND IN WHAT MANNER. IN ANY CASE, THERE IS NO EVIDENCE WHATSOEVER THAT ASSESSEE COMPANY HAS RESORTED TO AN Y TAX AVOIDANCE TO MAKE ANY CLANDESTINE GAIN. 13. WE FURTHER FIND THAT ASSESSING OFFICER HAS OBS ERVED IN THE ASSESSMENT ORDER THAT THIS ADDITION SHOULD BE TREA TED AS PROTECTIVE IN NATURE. IT IS ALSO NOT CLEAR AS TO WHAT WAS THE REASON FOR TREATING THIS AMOUNT AS PROTECTIVE. LD. DEPARTMENTAL REPRE SENTATIVE ALSO COULD NOT THROW ANY LIGHT ON THIS ASPECT. IT SOLE LY INDICATES THAT ASSESSING OFFICER WAS NOT CERTAIN ABOUT THE NATURE OF THESE RECEIPTS. THUS, WE COME TO THE CONCLUSION THAT THE NATURE OF RECEIPT IN THIS CASE IF RS. 5.75 CRORE HAS CLEARLY BEEN ES TABLISHED AS BEING THE CAPITAL RECEIPT. THE PROVISION OF INCOME TAX ACT DOES NOT PROVIDE FOR TAXATION OF SUCH CAPITAL RECEIPT, EVEN IF IT IS FORFEITURE OF AMOUNT. ACCORDINGLY, IN THE BACKGROUND OF THE AFO RESAID DISCUSSIONS AND PRECEDENTS, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME . ITA NO. 3756/DEL/2010 12 14. APROPOS ISSUE OF DELETION OF ADDITION ON ACCO UNT OF CLAIM OF COMPUTER PERIPHERALS. ON THIS ISSUE, ASSESSING OFFICER DISALLOWED THE C LAIM OF DEPRECIATION @ 60% ON COMPUTER ACCESSORIES AND PER IPHERALS. HE ALLOWED ONLY 15% AND MADE ADDITION OF RS. 9366/-. 15. UPON ASSESSEES APPEAL LD. CIT(A) DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT ON COMPUTER PERIPHE RALS DEPRECIATION @ 60% BE ALLOWED AND DELETED THE ADDIT ION MADE BY THE ASSESSING OFFICER. 16. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 17. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORDS. WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE. IN THIS REGARD, WE DRAW SUPPORT FROM THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF C.I.T. VS. BSES YAMUNA POWERS LTD. IN ITA NO. 1267/ 2010 VIDE ORDER DATED 31.8.2010 WHEREIN IT WAS HELD AS UNDER:- WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINT ERS, SCANNERS AND SERVER ETC. FORM AN INTEGRAL PART OF T HE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PER IPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY , AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTIT LED TO DEPRECIATION AT THE HIGHER RATE OF 60%. ITA NO. 3756/DEL/2010 13 17.1 ACCORDINGLY, FOLLOWING THE RATIO FROM THE ABOV E DECISION OF THE HONBLE DELHI HIGH COURT, WE UPHOLD THE ORDER OF T HE LD. COMMISSIONER OF INCOME TAX (A) ON THIS ISSUE AND ALLOW THE DEPRECIA TION @ 60% ON THE PRINTERS AND UPS & COMPUTER PERIPHERALS TO THE ASSE SSEE. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2013. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/12/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 3756/DEL/2010 14