ITO 3(2)(3), MUMBAI V. NOUVEAU CAPITAL & FINANCE LTD., MUMBAI

ITA 2942/MUM/2016

AI Insights

The case involves the Income Tax Officer-3(2)(3) as the appellant and M/s. Nouveau Capital & Finance Ltd. as the respondent. The dispute centered on the treatment of Rs.3,31,78,500/- shown as share application money in the assessee's balance sheet, which was outstanding since 2004. The AO assessed this amount as income under section 28 of the Income Tax Act, 1961, considering it as the assessee's own money due to the long period it remained outstanding. However, the Ld CIT(A) reversed this decision, leading to the Revenue's appeal. The tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Mahindra & Mahindra Ltd V/s CIT, which clarified that section 28(iv) does not apply to benefits received in cash, and distinguished share application money from trading advances.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31993 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Other Referred Cases: Mahindra & Mahindra Ltd V/s CIT, Solid Containers Ltd, T V Sundaram Iyengar & Sons Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONIKA H. PANDE
• Assessee Lawyers: HITESH P. SHAH
• Keywords: Capital receipt
• Section: 28

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA No. 2942/Mum/2016 Assessment Year : 2011-12 Income Tax Officer-3(2)(3), 6th Floor, Aayakar Bhavan, M.K.Road, Mumbai vs. M/s. Nouveau Capital & Finance Ltd., 113, Mittal Chambers, Nariman Point, Mumbai PAN : AAACN3638E (Appellant) (Respondent) For Assessee : Shri Hitesh P. Shah For Revenue : Ms. Monika H. Pande Date of Hearing : 27-01-2025 Date of Pronouncement : 06-02-2025 O R D E R PER B.R. BASKARAN, A.M : The Revenue has filed this appeal challenging the order dated 28th January, 2016 passed by the Ld CIT(A)-8, Mumbai and it relates to the Assessment Year (AY.) 2011-12. The Revenue is aggrieved by the decision of the Ld CIT(A) in deleting the addition of Rs.3.32 crores made by the AO u/s 28 of the Income Tax Act, 1961 („the Act‟). 2. The facts relating to the issue are discussed in brief. During the course of scrutiny proceedings, the AO noticed that the assessee has shown liability towards share application money to the tune of Rs.3,31,78,500/- in the Balance Sheet. When enquired about the same, it was submitted that the assessee had received share application money in the past financial years, i.e., from FYs. 1999-2000 to 2003-04. 2 ITA No. 2942/Mum/2016 It was submitted that the above said amount of Rs.3,31,78,500/- is outstanding since 2004. Since this amount was outstanding for about 10 years, the AO took the view that the same has become own money in the hands of the assessee, which is liable to be taxed u/s 28 of the Act. Accordingly, the AO assessed the above said amount as income of the assessee u/s 28 of the Act. 3. In the appellate proceedings, the Ld CIT(A) accepted the contentions of the assessee that the share application money cannot considered as revenue receipt assessable u/s 28 of the Act. He also held that the provisions of sec.41(1) are also not applicable. Accordingly, the Ld CIT(A) deleted the impugned addition and hence the revenue is aggrieved. 4. We heard the parties and perused the record. We noticed that the AO has invoked the provisions of sec.28 of the Act in order to assess the long pending share application money. Presumably, the AO has invoked the provisions of sec.28(iv) of the Act, which states that the value of any benefit or perquisite, whether convertible in money or not, arising from the business or exercise of a profession is chargeable as business income. The assessee has received share application money in the past years in cash. It has been held by the Hon‟ble Supreme Court, in the case of Mahindra & Mahindra Ltd V/s CIT (404 ITR-1) that section 28(iv) does not cover benefit received in cash. Hence, the AO was not right in invoking the provisions of sec.28(iv) of the Act. 5. In the grounds of appeal, the AO has stated that the ratio of the decision rendered by the Hon‟ble Bombay High Court in the case of Solid Containers Ltd (178 Taxman 192)(308 ITR 417)(Bom) would be applicable to the facts of the present case. We are unable to agree with the same. In the case of Solid Containers Ltd (supra), the said assessee had received “trading advance” during the course of carrying on business. Hence, write off of the above said trading advance was held 3 ITA No. 2942/Mum/2016 to be taxable by the Hon‟ble Bombay High Court and in this regard, the Hon‟ble High Court had followed the decision rendered by Hon‟ble Supreme Court in the case of T V Sundaram Iyengar & Sons Ltd (222 ITR 344)(SC). In the above said case, the Hon‟ble Supreme Court has held that the trading advance, even though a capital receipt at the time of receipt, would change its character into revenue receipt if it is found to be not repayable. However, in the instant case, the Share Application money has not been received in the form of “trading advance” during the course of carrying on of the business. Further, there should not be any dispute that Share application money is a capital receipt and it is also shown as liability in the Balance Sheet. Hence, the share application money cannot change the character into revenue receipt. Accordingly, we are of the view that the AO was not right in assessing the share application money, which is outstanding in the books, as income u/s 28(iv) of the Act. 6. In view of the above, we do not find any infirmity in the decision rendered by the Ld CIT(A). Accordingly, we affirm the order passed by the Ld CIT(A). 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 06-02-2025 Sd/- Sd/- (SAKTIJIT DEY) (B.R. BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Date: 06-02-2025 TNMM 4 ITA No. 2942/Mum/2016 Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "