TaxTMI 
TaxTMI 
2018 (7) TMI 1610
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.... that the Preference Shares cannot be reversed or redeemed in violation of provisions of Companies Act, 1956." 3. "Whether in the facts and circumstances of the case and in law, the Id. CIT(A) is justified in allowing that even otherwise the reductgion in Preference Shares Capital is on capital account and cannot be treated as Business Income of the previous year." 2. The brief facts of the case are that the assessee is a private limited company, engaged in the business of trading in shares and securities, leasing out property held as investment, etc., filed its return of income for AY 2011-2 u/s 139(1) on 20-09-2011 declaring Nil income. A search and seizure action was carried out u/s 132 of the Income-tax Act, 1961 in JSW group of cases on 16-03-2011. During the course of search, books of account and documents belonging to the assessee company were found and seized. During the course of search, the assessee gave declaration of income in a group of cases as per which, an amount of Rs. 8.75 crores towards write back of preference shares has been offered as undisclosed income in assessee's case. However, the assessee has not admitted any income in respect of undisclosed ....
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....ments of the assessee before the Ld.CIT(A) was that at no stretch of imagination, a capital receipt being redeemable non cumulative preference shares can be considered as benefit derived out of business connection and is taxable u/s 28(iv) of the Income-tax Act, 1961. 5. The Ld.CIT(A), after considering relevant submissions of the assessee and also relying upon the decision of Hon'ble Bombay High Court in the case of Vodafone India Services Ltd (WP) No.871 of 2014 held that preference share capital received in financial year 2003-04 is capital in nature and cannot be taxed u/s 28(iv) of the Income-tax Act, 1961. The relevant portion of the order of CIT(A) is extracted below:- 6.6 The oral and written arguments made by the appellant's AR have been considered. It is undisputed fact that appellant received share application money of Rs. 8.75 crores FY 2003-04 from South India Investment Limited in FY 2003-04, The appellant company had allotted 87,50,000 2.5% redeemable non-cumulative shares of face value 10/- to said investor on 2.06.2003. A copy of share certificate has been seized during search action. As per terms of preference shares, the same are redeemable at the....
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....gh Court in the case of Xylon Holdings Pvt Ltd (supra), Mahindra and Mahindra Ltd (supra), and other High court and Tribunal rulings which have held that the provisions of section 28(iv) apply to the value of benefit or perquisites whether convertible into money or not, arising from business, but does not apply for benefit received in cash or money as a result of the waiver of principal amount of loan. 6.8 The Honourable Bombay High Court in its recent decision in the case of Vodafone India Services Pvt Ltd (WP No 871 of 2014) held that the amounts received on issue of share capital including the premium is undoubtedly on capital account. Dwelling on this issue, Hon'ble Court observed in para 25 of order dated 10.10.2014 as follows: "...,T\ie word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act* In such a case, Capital Gains chargeable to tax under Section 45 of the Act ....
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....e's name towards write back of preference shares for which necessary journal entries have been passed in the books of account. The Ld.CIT(A) ignored all evidences to delete addition made by the AO. In this regard, he relied upon the decision of Hon'ble Kerala High Court in the case of CIT vs Abdul Razzak (2013) 350 ITR 71 (Ker). 7. On the other hand, the Ld.AR for the assessee submitted that the issue is squarely covered in favour of the assessee, by the decision of ITAT, Mumbai Bench in assessee's own group case in M/s Nalwa Chrome Pvt Ltd in ITA No.238/Mum/2015 dated 08-03-2017 wherein, under similar set of facts, the ITAT held that receipt in the nature of capital receipt cannot be taxed u/s 28(iv) or u/s 41(1) merely on the basis of admission of the assessee during the course of search. The Ld.AR further submitted that the company has issued redeemable non cumulative preference shares in the financial year 2003-04 and such preference shares is redeemable on or before 2023 and as per provisions of section 80 of the Companies' Act, 1956, these shares cannot be written back in the books of account of the company and compulsorily redeemable; even otherwise, said receipt is capit....
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....up company of assessee in connection with a search conducted on M/s JSW group on 16-03-02011. The co-ordinate bench, after considering relevant facts and also taking into account admission of the assessee, in the statement recorded from Shri MVS Seshagiri Rao, Managing Director and Group CFO of M/s JSW group of companies and also the letter filed by the assessee on 01-06-2011 held that addition cannot be made towards capital receipts on the basis of admission of the assessee. The relevant portion of the order is extracted below:- 12. We have gone through the orders passed by the lower authorities as well as submissions made and judgements placed before us by both the sides. We are required to decide the issue whether the amount received on account of share application money could be treated as income of the assessee, if the same is written-back in the books of account, either u/s 41(1) or 28(iv) of the Income-tax Act, 1961. But before that we came across another facet viz. the AO had relied upon the statement made by Shri M.V.S. Sesagiri Rao for making impugned addition, wherein aforesaid amount has been allegedly offered to tax on behalf of the assessee before us. Therefo....
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.... has been made voluntarily." 14. It is seen that in the aforesaid statement, name of the assessee company has nowhere specifically mentioned while offering the additional income of Rs. 262 crores. Our attention was also drawn upon the break-up of the aforesaid amount which was claimed to be provided by Shri Rao. Relevant part of the same reads as under:- Nalwa Chrome 2011-12 4,50,000/- Writing back of the advance towards subscription to share capital. (Relevant entry passed in the books of accounts) In addition to the above, our attention was also drawn upon the following journal voucher which was passed by the assessee company dated 31-03- 2011:- Particulars - Dr. Cr. Advance against Equity - 4,50,00,000 Capital Reserve - 4,50,00,000 (On account of : Entry to transfer advance against equity received from Anand Transport to Capital Reserve on account of basis of discussion with Income-tax Authorities) 15. We have carefully gone through the entire exercise of making this statement and furnishing of this break-up of offer of additional income. It is noted that nowhere it has be....
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....income as income from "other sources". The only reason for making the addition is that it was not entered in the register of the company, for which, the assessee is not responsible specially when she has discharged the burden of proof by disclosing all the transactions in the return, as per the ratio laid down by the Punjab & Haryana High Court in the case of CIT vs. Sudarshan Gupta, 2008 (10) DTR 134 (P&H). Hence, we are of the view that the surrender letter will have to be ignored. Thus, we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein." 17. Thus, from the above, it may be noted that Hon'ble High Court has relied upon the circular of the Board wherein it has been clearly guided by the Board to its revenue officers that they should not take undue advantage of ignorance of assessee. Thus, from the evidences brought before us and the legal position as discussed above, we find that the AO could not have adopted the aforesaid offer as the sole basis to make addition in the hands of assessee. Therefore, in our considered view, the taxability of this amount as income in the hands of ....
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.... loan was received by the assessee for carrying on its business and therefore, not a loan taken for the purchase of capital assets. Consequently, the decision of this Court in the matter of Mahindra and Mahindra Limited (supra) was distinguished as in the said case the loan was taken for the purchase of capital assets and not for trading activities as in the case of Solid Containers Limited (supra). In view of the above, the decision of this Court in the matter of Solid Containers Limited (supra) will have no application to the facts of the present case and the matter stands covered by the decision of this Court in the matter of Mahindra & Mahindra Limited (supra). The alternative submission that the amount of loan written off would be taxable under Section 28(iv) of the Act also came up for consideration before this Court in the matter of Mahindra & Mahindra Limited (supra) and it was held therein that Section 28(iv) of the Act would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. 9) In view of the issue arising in this appeal being covered by the decision of this Court in the matter of Mahindra & Mahin....