ASST CIT CEN CIR 20, MUMBAI V. PAREKH ALUMINEX LTD, MUMBAI

ITA 5022/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3719 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.5022/MUM/12 ( / ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 20 ROOM NO.402, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 / VS. M/S. PAREKH ALUMINEX LTD. 601, AUTO COMMERCE HOUSE, NANA CHOWK, KENNEDY BRIDGE, MUMBAI - 400007 ./ ./ PAN/GIR NO. : AAACP4696C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 10.12.2015 /DATE OF PRONOUNCEMENT: 11.03.2016 !' / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 21.05.2012 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-39, MUMBAI [HEREINAFTER REFERRED TO AS TH E CIT(A)] FOR THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF ALUMINIUM CONTAINERS. THE ASSESSEE FILED ITS RETUR N OF INCOME FOR A.Y.2009-10 ON 27.08.2010 ADMITTING INCOME AT RS.16 ,16,04,820/- ASSESSEE BY: SHRI PRAKASH PANDIT DEPARTMENT BY: SHRI SHIDDARAMAPPA K. NAVAR I.T.A. NO.5022/MUM/12 A.Y. 2009-10 2 THE ASSESSING OFFICER DISALLOWED THE FORFEITURE MON EY OF RS.2,54,15,000/- AND DELAYED PAYMENT OF EMPLOYEES C ONTRIBUTION TO PF OF RS.39,248/. FEELING AGGRIEVED ASSESSEE FI LED APPEAL BEFORE LEARNED CIT(A) AND LEARNED CIT(A) HELD THAT AN AMOU NT OF RS.2,54,15,000/- BEING FORFEITED AMOUNT ON ACCOUNT OF SHAREHOLDER WARRANT WAS OF THE CAPITAL RECEIPT. THEREFORE, THE PRESENT APPEAL HAS BEEN FILED BEFORE US. 3. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEA RNED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECOR D CAREFULLY. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LEARNED C IT(A) HAS TREATED AN AMOUNT OF RS.2,54,15,000/- AS CAPITAL RECEIPT. THE ASSESSEE IS LIMITED COMPANY LISTED ON BOMBAY STOCK EXCHANGE (BS E) AND NATIONAL STOCK EXCHANGE (NSE) AND DURING THE YEAR E NDED ON 31.03.2009, THE COMPANY DECIDED TO ISSUE 30,00,000 WARRANTS AGAINST EXCHANGEABLE AGAINST EQUITY SHARES OF THE C OMPANY OF FACE VALUE OF RS.10/- EACH AT A PREMIUM OF RS.105/- AGGR EGATING TO RS.34,50,00,000/- ON PREFERENTIAL BASIS. IT WAS DE CIDED THAT THE SAID WARRANTS WILL BE ISSUED AS THE PROVISION OF PR EFERENTIAL ISSUE Q.I.P./A.I.B GUIDELINES UNDER CHAPTER XIIIA OF SEBI DIP GUIDELINES WITH THE RIGHT TO EXCHANGE THE SAME WITH IN THE PERIOD OF NOT EXCEEDING 18 MONTHS FROM THE DATE OF ISSUE OF P UBLIC ALLOTMENT. AT THE TIME OF PASSING OF SAID RESOLUTION THE COMPA NYS EQUITY SHARE WAS AT RS.200/- (AS ON 17.07.2007). THE ASSE SSEE SUBMITTED THAT AS PER THE SAID SCHEME FOLLOWING 6 PERSONS APP LIED AND PAID 10% OF THE ISSUE PRICE BY CROSS-ORDER CHEQUE. I.T.A. NO.5022/MUM/12 A.Y. 2009-10 3 SR. NO. NAME OF THE HOLDER AMOUNT 1 MANISH H. MARU 15,41,000.00 2 ARUN PAREKH 80,50,000.00 3 WHITECITY TRADING CO. PVT. LTD. 1,38,00,000.00 4 SUJATHA SAI KRISHNA CHOWDHRY 5,86,500.00 5 SACHIN KAMATH 2,87,500.00 6 AJITSINGH GAKALDAS KHIJMI 11,50,000.00 3.1 THE ASSESSEE SUBMITTED THAT THE ABOVE SAID PERS ONS ALONGWITH THE APPLICATION FORM DID GIVE THEIR ALL R EQUISITE DETAILS INCLUDING THEIR DEPOSITORY ACCOUNTS DETAILS, WHICH WERE MANDATORY. THE ASSESSEE SUBMITTED THE CERTIFIED TRUE COPIES OF ALL SUBSCRIBERS WHO HAVE SUBSCRIBED TO THE SAID WARRANTS. THE ASSE SSEE SUBMITTED THAT IN THE MEAN TIME THE COMPANYS SHARE STARTED S HOWING DECLINING TREND AND IN THE MANDATORY PERIOD, THE AB OVE SAID SHARE WAS FLUCTUATED AT BOMBAY STOCK EXCHANGE BSE AS WELL AS A NATIONAL STOCK EXCHANGE (NSE) MUCH BELOW THE ISSUE PRICE OF RS.115/-. THE ASSESSEE SUBMITTED THAT ALL THE SUBS CRIBERS DECIDED NOT TO SUBSCRIBE FURTHER WITHIN THE SAID MANDATORY PERIOD OF 18 MONTHS. THE COMPANY IN ITS BOARD OF DIRECTORS MEET ING DATED 18.03.2009 DECIDED TO FORFEIT THE SAID AMOUNT OF RS .2,54,15,000/- AND TRANSFER IT TO RESERVE AND SURPLUS ACCOUNT. TH E ASSESSEE I.T.A. NO.5022/MUM/12 A.Y. 2009-10 4 SUBMITTED THAT IN MARCH 2009, THE COMPANYS SHARE W ERE BETWEEN 50/- TO RS.55/- ON BSE AND NSE AND ONE OF THE PROMO TER OF THE COMPANY SHRI ARUN PAREKH DECIDED NOT TO SUBSCRIBE F URTHER TO THE SAID ISSUE OF WARRANT EXCHANGEABLE AGAINST EQUITY S HARES. THE APPELLANT SUBMITTED THAT THE MONEY RECEIVED BY THE COMPANY FROM THE VARIOUS PERSONS IS CAPITAL RECEIPT AND THE COMP ANY HAS RIGHTLY FORFEITED THE SAID AMOUNT AS THE SAID PERSONS FAIL TO MAKE THE BALANCE PAYMENTS WITH THE MANDATORY PERIOD OF 18 MO NTHS. 3.2 THE ASSESSING OFFICER HAS NOT ACCEPTED THE APPE LLANTS SUBMISSIONS. THE ASSESSING OFFICER OBSERVED THAT TH E DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.2.54 CRORES (APPROX) AS A 10% OF THE ISSUE PRICE CONSIDERATION FOR ISSUING SHARE WARRANTS AT THE FACE VALUE OF RS. 10 AND AT A PREMIUM OF RS.105 ON PREFERENTIAL BASIS. THE COMPA NY FORFEITED THIS AMOUNT PAID BY SIX PERSONS AS MENTIONED ABOVE ON ACCOUNT OF THE FACT THAT THEY DID NOT FULFIL THE TERMS AND CON DITIONS OF SUBSCRIPTION OF SHARES WITH THE MANDATORY PERIOD OF 18 MONTHS. THE ASSESSING OFFICER STATED THAT WHEN THE COMPANY FORFEITS THIS AMOUNT THEN IT DOES NOT HAVE ANY CAPITAL LIABILITY TO BE DISCHARGED AT A LATER PERIOD. IN A NORMAL SITUATION, WHEN THE COMPANY RECEIVES SHARE PREMIUM IT ALLOTS SHARES TO THE SHAREHOLDERS. THIS AMOUNT OF SHARE PREMIUM ALONG WITH THE SHARE PRICE GOES TO TH E RESERVES AND SURPLUS ACCOUNT AS A CAPITAL RECEIPT BECAUSE THE CO MPANY HAS TO IN PRINCIPLE PAYBACK TO ITS SHAREHOLDERS IN THEIR SHAR E HOLDING RATION IN THE EVENTUALITY OF THE LIQUIDATION OF THE COMPANY. I.T.A. NO.5022/MUM/12 A.Y. 2009-10 5 3.3 THE ASSESSING OFFICER STATED THAT IN THE PRESEN T SITUATION THE COMPANY HAS ACQUIRED AN AMOUNT BUT HAS NOT ISSUED A NY SHARES AGAINST IT. THEREFORE, THE COMPANY HAS NOT CREATED ANY LIABILITY TO BE PAID IN FUTURE BY THIS TRANSACTION. HENCE THE A MOUNT RECEIVED BY THIS TRANSACTION HAS TO BE A REVENUE RECEIPT TO BE TAKEN TO THE PROFIT AND LOSS ACCOUNT AND NOT A CAPITAL RECEIPT DIRECTLY TAKEN TO RESERVE AND SURPLUS. IN VIEW OF THE ABOVE AN AMOUNT OF RS. 2,54,15,000/- IS TREATED AS REVENUE RECEIPT AND ADDED TO THE TOTAL I NCOME OF THE ASSESSEE BY THE ASSESSING OFFICER. 3.4 SUBSEQUENTLY, THE LEARNED CIT(A) HAS ARRIVED AT THIS CONCLUSION THAT AN AMOUNT OF RS.2,54,15,000/- IS IN NATURE OF CAPITAL RECEIPT WHILE ARRIVING AT THIS CONCLUSION T HE LEARNED CIT(A) HAS PLACED RELIANCE UPON THE ORDER PASSED BY THE IN COME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN CASE PRISM CEME NT LTD. VS. JOINT COMMISSIONER OF INCOME TAX EXTRACT OF THE SAI D IS HEREBY MENTIONED BELOW:- IN THE LIGHT OF THE RATIO LAID DOWN BY THE APEX COURT AND THE VARIOUS HIGH COURTS, FOR INVOKING THE PROVI SIONS OF SECTION 41(1) AN ALLOWANCE OR DEDUCTION MUST HAVE BEEN GRAN TED DURING THE COURSE OF ASSESSMENT FOR ANY YEAR IN RESPECT OF LOS S, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBS EQUENTLY, DURING ANY PREVIOUS YEAR, THE ASSESSEE OBTAINS, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER OR ANY AMOUNT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. UNLESS AND UNTIL THE LIABILITY, WHICH HAS BEEN CEASED OR R EMITTED DURING THE I.T.A. NO.5022/MUM/12 A.Y. 2009-10 6 IMPUGNED ASSESSMENT YEAR, HAS BEEN DEBITED AND CLAI MED TO THE PROFIT AND LOSS ACCOUNT AND ALLOWED IN EARLIER YEAR , IT CANNOT BE TREATED TO BE AN INCOME UNDER SECTION 41(1). IF TH AT LIABILITY WAS NOT ALLOWED OR ITS DEDUCTION WAS NOT GRANTED IN EAR LIER YEARS, IT WOULD NOT ASSUME A CHARACTER OF INCOME CHARGEABLE T O TAX IN THE YEAR IN QUESTION BY VIRTUE OF SECTION 41(1). IN TH E INSTANT CASE, THE NCDS WERE ISSUED TO RAISE A CAPITAL OF THE ASSESSEE BEFORE COMMENCEMENT OF THE BUSINESS AND WHATEVER EARNEST M ONEY OR ADVANCE WAS RECEIVED ON ACCOUNT OF ISSUANCE OF NCD S WAS KEPT IN SEPARATE ACCOUNT AND WAS SHOWN AS LOAN LIABILITY UP ON THE ASSESSEE AND THAT LIABILITY WAS NEVER DEBITED TO THE PROFIT AND LOSS ACCOUNT NOR WAS ITS DEDUCTION CLAIMED IN THE RELEVANT ASSES SMENT YEAR. SINCE THE NCDS WERE ISSUED IN ORDER TO BORROW THE F UNDS TO RAISE THE CAPITAL, THE AMOUNT RECEIVED IN LIEU THEREOF HA D ASSUMED THE CHARACTER OF CAPITAL RECEIPT IF AT ALL NOT TREATED TO BE A LOAN LIABILITY, IN AS MUCH AS OF NCDS WAS NOT A BUSINESS OF THE ASS ESSEE. THUS, THE EARNEST MONEY OR AN ADVANCE AMOUNT RECEIVED ON ACCOUNT OF ISSUANCE OF NCDS, IF FORFEIT ED ON ACCOUNT OF NON-PAYMENT OF CALL MONEY, THE LOAN LIABILITY WOULD ONLY CONVERT INTO A CAPITAL RECEIPT . IT WOULD NOT BE ASSUME A CHARACTER OF REVENUE RECEIPT OR BUSINESS RECEIPT BECAUSE NCDS WERE NOT ISSUED IN TH E COURSE OF REGULAR BUSINESS OF THE ASSESSEE AS EVIDE NT FROM THE FACTS OF THE CASE. ASSESSEES MAIN BUSINE SS WAS OF CEMENT AND IT WAS IN THE PROCESS OF SET UP O F I.T.A. NO.5022/MUM/12 A.Y. 2009-10 7 CEMENT MANUFACTURING PLANT DURING THE IMPUGNED ASSESSMENT YEAR. HENCE, THE AMOUNT RECEIVED BY THE ASSESSEE IN LIEU OF ISSUANCE OF NCDS, WHICH WERE FORFEITED LATER ON ACCOUNT OF NON-PAYMENT OF CALL MONEY, ASSUMED CHARACTER OF CAPITAL RECEIPT WHICH EARLIER WAS SHOWN AS A LOAN LIABILITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IF ONE WOULD CONSIDER THA T RECEIPT TO BE A BUSINESS RECEIPTS, EVEN THEN IT WOU LD NOT BE TAXABLE TO TAX UNDER THE PROVISIONS OF SECTI ON 41(1) IN AS MUCH AS THERE WAS NO ALLOWANCE OR DEDUCTION OF THAT LIABILITY IN THE EARLIER YEARS. THERE IS ALSO NO PROVISION IN THE ACT ACCORDING TO WHICH SUC H TYPES OF RECEIPTS ARE CHARGEABLE TO TAX. THEREFORE , THE REVENUE WAS NOT JUSTIFIED IN TREATING THAT RECEIPTS AS REVENUE RECEIPT. THEREFORE, THE ORDER OF THE COMMISSIONER (APPEALS) WAS TO BE SET ASIDE AND THE IMPUGNED ADDITION WAS TO BE DELETED. IN THE RESULT, THE APPEAL OF THE ASSESSEE WAS TO BE ALLOWED. 3.5. THE FACTS OF THIS CASE ARE ALMOST IDENTICAL TO THE FACTS IN THE CASE OF PRISM CEMENTS. RESPECTFULLY FOLLOWING THE HONBLE ITATS DECISION, I HOLDS THAT FORFEITURE AMOUNT IS A CAPITAL RECEIPT AND CANNOT BE TAXED AS INCOME AS PER THE PROVISIONS OF THE I.T.ACT. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.2,5 4,15,000/- I.T.A. NO.5022/MUM/12 A.Y. 2009-10 8 3.6 BY GOING THROUGH THE ORDER OF LEARNED CIT(A) AN D THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN C ASE OF PRISM CEMENT LTD. VS. JOINT COMMISSIONER OF INCOME TAX WE ARE OF THE VIEW THAT THE ISSUE IN QUESTION HAS RIGHTLY BEEN AD JUDICATED BY THE LEARNED CIT(A) WHICH DOES NOT REQUIRED TO BE INTERF ERE AT THIS APPELLATE STAGE NO WHERE THIS ISSUE HAS ALREADY DEA LT BY THE MUMBAI BENCH IN CASE OF PRISM CEMENT LTD. (SUPRA). IN VIEW OF THE ABOVE MENTIONED CIRCUMSTANCES WE ARE OF THE VIE W THAT THE LEARNED CIT(A) HAS DECIDED THE MATTER OF CONTROVERS Y RIGHTLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERE AT THIS APPELLATE STAGE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH , 2016. SD/- SD/- (D.KARUNAKARA RAO) (AMARJIT SINGH) ! / ACCOUNTANT MEMBER $% ! /JUDICIAL MEMBER & ' MUMBAI; (! DATED : 11 TH MARCH, 2016 MP MP MP MP I.T.A. NO.5022/MUM/12 A.Y. 2009-10 9 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+, %%-. , -. , & ' / DR, ITAT, MUMBAI 6. ,/0 1 / GUARD FILE. / BY ORDER, * % //TRUE COPY// % / & ' (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI