TaxTMI 
TaxTMI 
2017 (3) TMI 820
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....(A) is justified in deleting the addition of Rs. 4,50,00,000/- on account of advance against share capital received in FY 2003-04" 3. The solitary issue raised by the Revenue before us is about the addition made by the AO on account of advance received by the assessee in financial year 2003-04 on account of the share capital which was written back during the year and transferred to the capital reserve by the assessee, but treated as income of the assessee of the impugned year by the AO. 4. The brief background and facts of the issue before us is that the assessee company is an investment company and during the year under consideration it sold investments and earned long term capital gain / loss. During the course of assessment proceedings, it was noted by the AO from the notes given in the financial statements (i.e. balance-sheet) filed by the assessee along with return of income that 'capital reserve represents advance against equity of Rs. 4,50,00,000 written back during the year, as the purported allotment of shares has not materialized and the amount is no longer repayable'. In view of the same, the AO asked the assessee to justify as to why the amount transferred to the ....
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....with the submissions of the assessee. It was observed by the AO that the aforesaid amount was offered to tax by Shri M.V.S. Sesagiri Rao, director of JSW Steel Ltd during the course of recording of his statement by the search officials. During the course of search proceedings on JSW Steel Ltd, the said director had admitted an aggregate amount of Rs. 262 crores as additional income and in the break up submitted on 01-06-2011, aforesaid amount of Rs. 4.50 crores was offered as part of income. Thus, under these circumstances, the AO relied upon the judgment of Hon'ble Bombay High Court in the case of Solid Containers Ltd vs DCIT (2002) 255 ITR 510 (Bom) and held that the impugned amount received as advance on account of share capital from M/s Anand Transport, which was subsequently forfeited and credited to capital reserve account was income of the assessee arising out of business activity of the assessee u/s 28(iv) of the Act. 6. Being aggrieved, assessee filed first appeal before Ld. CIT(A) wherein detailed submissions were filed to contest the addition made by the AO. Relevant part of the submissions made by the assessee is reproduced below:- "The facts of the case is that M....
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....sed. Further, it would also be pertinent to note here that the treatment of the same would be as prescribed by law in the books of accounts as well as for Income Tax purposes. The said treatment has been duly meted in the present case. Further, time Learned Assessing Officer has stated that there has been no change in the Authorised Share Capital of the Company since 01.04.2004 and that as on 31.03.2011 also it stood at Rs. 46,00,000/- as against Rs. 4,50,00,0001- received under the Share Application Money. In this regard, it would be pertinent to note that the Authorised Share Capital had been increased during the F.Y. 2003-04 i.e. prior to 01.04.2004 when time amount was to be received and business prospects and understanding being finalized. Since then there has been no change in the Authorised Share Capital. Further, the shares as originally decided were to be issued @ Rs. 100/- including Rs. 90/- per share premium. Hence, 11w Authorised Share Capital was not increased by the amount of the actual amount of Share Application Money received." 7. The assessee also placed reliance on the following judgments before the Ld. CIT(A) in support of its claim that the impugned amoun....
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....re application money being received against contribution to equity capital, even after forfeiture, continues to be capital in nature. The decision of Hon'ble Supreme Court in CIT vs T V Sundaram lyenger (supra) relied upon by the I'S on different set of facts wherein the assessee transferred time barred unclaimed deposits received from customers during normal course of business to profit and loss account and claimed the same as capital receipt. The Hon'ble Court deciding in favour of the revenue held that If the amount is received in the course of trading transactions, even though it is not taxable in the year of receipt as being of capital character, the amount changes its character when the amount becomes the assessees own money because of limitation or by any other statutory or contractual right. In the case of Solid Containers Ltd (supra) the issue before Honourable Bombay High Court was taxability of waiver of loan taken for trading activity in its business. The court held that assessee became richer in its trading activity by crediting such amount to profit and loss account and therefore the sum was chargeable to tax as business income. 8. In the impugned ca....
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....ed as income of the assessee for the year under consideration. He reiterated the arguments made before the Ld. CIT(A) and also relied upon the judgments considered by the Ld. CIT(A). In addition to that, he placed reliance on the following judgements:- CIT vs Xylon Holdings Pvt Ltd (Income Tax Appeal No.3704 of 2001) dated 13-09-2012 CIT vs Softworks Computers Pvt Ltd 354 ITR 16 (Bom) Skraemeco Regent Ltd vs CIT 331 ITR 317 (Mad) 10. In addition to the above, the Ld. Counsel drew our attention on the statement of Shri M.V.S. Sesagiri Rao in the capacity of Director of JSW Steel Ltd recorded on oath at time of search upon the aforesaid company as well as break-up of the surrender made by Shri M.V.S. Sesagiri Rao at the time of search which have been also made the basis by Ld. AO for making the impugned addition. Our attention was drawn upon the break- up submitted by Shri M.V.S. Sesagiri Rao and it was argued that the surrender was not made on facts. It was merely mentioned that writingback of the advance towards subscription to share capital was included in the income surrendered. Thus, no surrender has been made on facts showing any suppression of income, factually. If th....
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....en place on JSW group of companies wherein statement of Shri M.V.S. Sesagiri Rao was recorded wherein he had allegedly made a surrender of an aggregate amount of Rs. 262 crores which comprises of the amount of Rs. 4.50 crores on account of write-back of the share application money. We have gone through the statement recorded of Shri Rao as well as the break-up of the aforesaid sum, subsequently provided by Mr Rao. It is noted that statement of Shri Rao was recorded u/s 132(4) on 17-03-20121 by the DDIT(Inv), Unity-IX(3), Mumbai on the occasion of search carried out at the premises of JSW group. In response to the question with regard to connection with the JSW group, it was replied that Shri Rao was managing director and group CEO of JSW group of companies and was incharge of steel business of JSW Steel Ltd. It appears that said statement was given by Mr Rao in the capacity of director of JSW Steel Ltd. In the entire statement, at no place, name of the assessee company has been mentioned. There is no mention in the entire statement whether the statement was being given by Shri Rao on behalf of the assessee company also. Further, we have also gone through the question and answers wi....
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....s noted that nowhere it has been mentioned that the impugned amount was bogus or non-genuine. It has nowhere been admitted that the aforesaid amount represents undisclosed income of the assessee. Thus, there is no admission on facts by anyone to the effect that impugned amount could be treated as undisclosed income of the assessee. What has been offered is that '...writing back of the advance received towards subscription to share capital may be treated as income of the assessee...' 16. Thus, it is a case of purely a legal issue. It is settled law that on legal issue, the assessee cannot be always made bound by its 'admissions'. If a particular item or receipt or transaction is taxable as per the provisions of the Act, then it is, and if it is not, then it is not. The position of law remains unchanged and the legal position is not altered even on the basis of consent of an assessee especially when the consent is subsequently withdrawn. It is because of the fact that as per the constitutional framework of our country, no tax can be collected except as per authority of law, as has been clearly laid down under Article 265 of Constitution of India. Various courts have time to time c....
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.... income in the hands of the assessee should be decided purely on its merits and strictly in accordance with the provisions of Income-tax Act, 1961. 18. As far as merits of this issue are concerned, it is noted that the facts are undisputed that the assessee had received the impugned amount on account of share application money which has been written-back as the shares were not allotted. Now question arises, whether this amount could be treated as part of income of the assessee and that too, of the year under consideration. It is brought to our notice that this issue is no more res-integra as Hon'ble Bombay High Court has already decided this issue in many judgments. Ld. Counsel of the assessee has placed reliance upon the judgment of Hon'ble Bombay High Court in the cases of Softworks Computers Pvt Ltd (supra) and Xylon Holdings Pvt Ltd (supra) wherein it is held that the amount received on account of share capital can neither be treated as taxable either u/s 41(1) or u/s 28(iv) if the same is written-back in the books of account. We shall discuss hereunder the judgment in the case of Xylon Holdings Pvt Ltd (supra) wherein one of the questions raised by the Revenue before the Ho....
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....the matter of Mahindra & Mahindra Ltd.(supra), no substantial question of law arises and both the questions are dismissed." 19. From the above, it may be noted that Hon'ble High Court has considered its earlier judgment in the case of Solid Containers (supra) as well as the judgment of Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd (supra) and held that the amount received on account of share application money cannot be brought to tax as income u/s 41(1) or u/s 28(iv). 20. It is further noted that similar view has been taken by Hon'ble Madras High Court in the case of Skraemeco Regent Ltd (312 ITR 317) wherein detailed discussion was made on section 28(iv) as well as section 41(1) and it was held that amount received for the purpose of acquiring capital asset did not constitute trading liability, and therefore, the same was not taxable u/s 41(1) or section 28(iv) of the Act. It is further noted that Hon'ble Delhi High Court in the case of CIT vs Tosha International Ltd 331 ITR 440 adopted the same view after considering the judgment of Hon'ble Bombay High Court in the case of Mahindra & Mahindra Ltd (supra). Thus, from the aforesaid legal discussion and....