Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit, (Osd)-I, Circle-4, , Ahmedabad vs Mahalaxmi Rubtech Ltd., , Ahmedabad on 6 March, 2017
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, Vs. Mahalaxmi Rubtech Ltd.,
Ahmedabad. 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
ORDER
PER Manish Borad, Accountant Member.
This appeal of Revenue for Asst. Year 2010-11 is directed 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 20/06/2012 by ACIT(OSD)-1, Circle -4, Ahmedabad. Revenue has raised following grounds :
1. The Ld.CIT(A) has erred in law and on facts in deleting 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 2
Asst. Year 2010-11
2. On the facts and in the circumstances of the case, 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 above extent.
2. Briefly stated facts of the case are that assessee is a limited company engaged in the business of manufacturing and export of rubber and textile products. Income-tax return declaring total income at Rs.3,92,98,770/- was filed on 29.09.2010. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act dated 25.8.2011 followed by notice u/s 142(1) of the Act were issued and duly served on the assessee. Necessary information were called for and submitted. During the course of assessment proceedings ld. Assessing Officer observed that assessee filed a letter dated 6.5.2012 requesting to exclude a sum of Rs.94.80 lacs from the total income as it was received for forfeiture of application money received by way of issue of share warrants and claimed it to be a capital receipt. Assessee requested that as the amount received is not from the business activities it cannot be termed as revenue receipt and it should be reduced from the total income. However, the contentions of assessee were not acceptable to the ld. Assessing Officer and he rejected the application of assessee by treating the amount of Rs.94.80 lacs as revenue receipt by observing as follows :-
4,1 The submission of the assessee has been considered carefully. The contention of the assessee is not acceptable. The application money received by the assessee by way of issue of share warrants has been received during 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 3 Asst. Year 2010-11 is provided under the Act in respect of such receipts. The definition of 'income' u7s. 2(24) is inclusive one and anything which can properly be descried as income is taxable under the Act unless exempt under one or other provisions of the Act. Even if the mount received on forfeiture of shares is treated as capital receipt, all capital receipts are not exempt from taxation. In view of the above, the contention of the assessee to treat the above receipts as capital receipts is hereby rejected.
3. Aggrieved, assessee went in appeal before ld. Commissioner of Income Tax(A) and succeeded in full as ld. Commissioner of Income Tax(A) following the decision of the Co-ordinate Bench, Ahmedabad in the case of DCIT (OSD), Ahmedabad vs. Brijlaxmi Leasing and Finance Ltd. 118 ITD 546(Ahd) allowed assessee's ground by accepting Rs.94.80 lacs as capital receipt by observing 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 on 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 account. Initially the amount was shown as a revenue receipt in the profit and loss account however subsequently, during the course of assessment proceedings, the appellant claim that it was a capital receipt and should not be considered as part of the total income earned from the business activity. The AO did not accept the claim of the appellant regarding treatment of forfeiture of share application money as capital receipt.
During the course of appellate proceedings the appellant has submitted that share application money which was forfeited is clearly in the nature of capital receipt and should therefore be excluded. It also placed reliance on the judgement of Ahmedabad ITAT in the case of Brijlaxmi 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 received by the appellant in terms of prospect and credited to capital reserve account 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 4 Asst. Year 2010-11 was credited to shareholders fund in the balance sheet. These applicants made part payment in pursuance to the share application. 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 the 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 observed from the documents given by the appellant during the course of appellate proceedings 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 Brijlaxmi 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 Tribunal. Ld. Departmental Representative vehemently argued supporting the order of Assessing Officer and submitted that assessee in its return of income has treated the amount of Rs.94.80 lacs as revenue receipt and it was an after-thought action of the assessee to claim it to be a capital receipt and ld. Assessing Officer, therefore, 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 DCIT (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 Representative and perusing the available record.
ITA No. 1190/Ahd/2014 5Asst. Year 2010-11
6. We have heard the contentions of ld. Departmental Representative and gone through the records placed before us as well as the decision of the Co-ordinate Bench, Ahmedabad in the case of DCIT(OSD) vs. Brijlaxmi Leasing & Finance Ltd.(supra). Solitary grievance of the Revenue through this appeal 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 account 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 dispute from the side of Revenue to the established fact that assessee received the application money of Rs.94.80 lacs for technical textile project as per Security Exchange Board of India and Bombay Stock Exchange guidelines and with the necessary approval for issuing 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 application money had been forfeited during the relevant year.
6.1 We further observe that similar issue dealing with similar facts relating to forfeiture of share application money to be treated as capital receipt or revenue receipt came up before the Co-ordinate Bench, Ahmedabad in the case of DCIT(OSD) vs. Brijlaxmi Leasing & Finance Ltd. (supra) and Revenue's appeal was dismissed 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. In the instant case the assessee was to receive call money in respect of share as per the terms of prospectus and ITA No. 1190/Ahd/2014 6 Asst. Year 2010-11 the allotment letters, but the same were not received from some of the shareholders. In this case, the share application money 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 above 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 Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) for his contention that forfeited amount is taxable as revenue receipt. However, we find that the facts of the case that were before the Hon'ble Supreme Court are distinguishable from the facts before us. In the instant case no security deposit or advance received for performance of the contract was forfeited. In fact, 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 course 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 the same in capital reserve account. In the above facts, in our cons idered opinion the decision of the Tribunal in the case of Prism Cement Ltd. (supra) is 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 received 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 regular business of the asses see as evident from the facts of the case. Assessee's main business is of cement and it was in the process of set up of cement 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 character of capital receipt which earlier was shown as a loan liability in the books of account of the assessee. If we consider this receipt 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 aforesaid decision of the Mumbai Bench of the Tribunal we find no reason to interfere 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-ordinate Bench in the above case, we find that the facts dealt in this case are similar to ITA No. 1190/Ahd/2014 7 Asst. Year 2010-11 those in the case of assessee and ld. Commissioner of Income Tax(A) has allowed assessee's appeal in a right perspective by treating the amount of Rs.94.80 lacs received as share application money for issuing of share warrants as capital receipt and not revenue receipt as it was not earned from regular business 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 dismissed.
8. Other grounds of general nature, which need no adjudication.
Order pronounced in the open Court on 6th March, 2017 Sd/- sd/-
(S. S. Godara) (Manish Borad)
Judicial Member 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 8
Asst. Year 2010-11
1. Date of dictation: 06/03/2017
2. Date on which the typed draft is placed before the 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 the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. 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: