TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 390
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....ttention to a petition for condonation of delay in filing the appeal and also invited our attention to the affidavit filed by the Assessing Officer duly notarized and signed, narrating therein the reason for delay in filing of the appeal. It was submitted that due to the retirement of the then Assessing Officer, the appeal could not be filed due to inadvertence mistake and during the course of handing over the charge, the Assessing Officer was not communicated about the pendency of filing of any appeal and it was only in the month of January, 2017, during the compiling of dossier report, the deponent came to know that the appeal as authorized by the Pr. CIT, Lucknow could not be filed within the prescribed time. Therefore, the delay of 158 days has occurred which may be condoned. Learned A. R. had no objection to the condonation of delay in filing the appeal and finding the reason for delay in filing the appeal as plausible, the delay was condoned and Learned D. R. was asked to proceed with his arguments. 3. Learned D. R. submitted that in this case the assessee had issued share capital to four companies at a premium and had forfeited the share application money and therefore, the....
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....ch letters addressed to investors were placed. It was submitted that when again no payment was received then in terms of resolution passed by the Board held on 24/09/2011, the aforesaid application money paid by them has been forfeited in terms of Article-23 of Articles of Association and the forfeited amount was transferred to Reserve and Surplus and in this respect our attention was invited to pages 46 - 56 of the paper book where a copy of balance sheet and profit & loss account of the company was placed. Our attention was also invited to pages 57-68 of the paper book where a copy of Memorandum and Articles of association was placed. It was submitted that the Assessing Officer did not doubt the creditworthiness of the investors and the Assessing Officer made the addition only on the basis that the investors initially had declared the investment in assessee company as unsecured loans and the reason given by them was since the assessee had not allotted shares therefore, the same were reflected under the head unsecured loans was not acceptable to the Assessing Officer. It was submitted that the mere fact that such amount was classified as unsecured loans by the investors cannot cha....
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....nts is placed at pages 25 to 33 of the paper book. After receiving share application money, the assessee, vide letter dated 07/08/2011, asked the investor companies to pay the balance amount on or before 7th September, 2011, a copy of such notice is placed at pages 34 to 37 of the paper book. Then again on 8th September 2011, the assessee reminded the investor companies to pay the balance amount on or before 23rd September, 2011, a copy of such reminder is placed at pages 38 to 41 of the paper book. Even then the assessee did not receive the balance amount against allotment of shares and therefore, vide letter dated 26th September, 2011, the assessee conveyed to the investors that in terms of Article 23 of Articles of Association, the share application money has been forfeited and a copy of such communication is placed at pages 42 to 45 of the paper book. A copy of Articles of Association is placed at pages 57 to 68 of the paper book. Chapter-6 of Article of Association is regarding forfeiture of shares and the clause runs from clause 21 to 31. For the sake of completeness, the provisions contained under the head 'forfeiture of shares' is reproduced below: "21. If a member fails ....
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....ransferee shall not be bound to see the application of the purchase money if any, nor shall his title to be share be affected by any irregularity of invalidity in the proceedings in reference to the forfeiture, sale of disposal of the share. 31. The provision of these regulations as to forfeiture shall apply in case of non-payment sun which, by the term of issue of a share, become payable at fixed time, whether on account of nominal value of the share or by of premium, as if the same had been payable by call duly made and notified." 5.1 The above provisions, contained in the Article of Association of assessee company, clearly states that in the event of non payment of allotment money or call money, the amount already paid will be forfeited and therefore, the assessee company having powers under Article 23 had forfeited the above said money. Now the above said forfeited money is a capital receipt which is not liable to tax as per the provisions of I.T. Act and therefore, was not rightly offered to tax by the assessee company and was rightly credited to reserve and surplus. The Assessing Officer, during the assessment proceedings, did not doubt the creditworthiness of investor and....
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.... was not on account of any security deposit or advance for performance of any contract which has ultimately been forfeited. d. The amount forfeited by the appellant could not be distributed among shareholders in terms of sec. 78 and 205 of the Companies Act 1956. e. The amount forfeited is not covered by the definition of income as defined in section 2(24) of the Income Tax Act, 1961. Besides this, the appellant has placed its reliance on various authorities wherein it has been held that the share application money which had been forfeited ion account of default of payment as per the terms of issue of shares was capital receipt, therefore not assessable in the hands of the appellant. It has been held in Asiatic Oxygen Ltd. vs. DCIT (1994) 49 ITD 355 (TTAT, Calcutta) that amount forfeited from shareholders for default of payment of call money was capital receipt. In the case of DCIT vs. Brijlaxmi Leasing & Finance Ltd. (2009) 118 ITD 546 (IT AT, Ahmedabad) it was held that the share application which had been forfeited as per the terms of the prospectus could not be treated as a receipt in the normal course of the business of the assessee, which was engaged in financing an....
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....edings the appellant has furnished the acknowledged copies of share application forms, terms of issue of such shares, intimation for making payment of allotment money, reminder for payment of allotment money, information regarding forfeiture of application money paid by all the applicants, Articles of Associations of the appellant consisting of relevant clause under which it is empowered to forfeit such share application money etc. which were also furnished before the Ld. Assessing Officer on 28.10.2014 during assessment proceedings and also mentioned at first paragraph of page no. 2 of the assessment order itself. On account of these documents which were duly available on record, it could not be inferred that the appellant has not adequately followed the procedure laid down in the Companies Act, 1956 before forfeiting the share application money paid by four corporate applicants. The AO has gathered certain information directly from such corporate applicants or their respective jurisdictional Assessing Officers to verily the transactions made by them with the appellant and it has been revealed from such information that they have shown the money paid by them to appellant as unse....
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.... of assessment order passed by the AO, it is very much evident that the AO has although, gathered certain information directly from such corporate applicants or their respective jurisdictional Assessing Officer to verify the transactions made by them with the appellant and the information lead to some controversies also but neither such information was furnished to the appellant nor offered for cross-examination. The appellant has also submitted that an explanation given has to be considered objectively before the Assessing Officer takes a decision to accept it or reject it, i.e. department cannot convert a good proof into no proof on mere ipse dixit. Besides this, it has also been submitted by the appellant that neither it is a prerogative of the appellant nor it was responsible at all to take care of the authenticity or legitimacy of accounting entries made in the books of account of such applicants and the manner in which they have shown the transactions in their respective financial statements particularly when no opportunity of cross-examination of them was given to the appellant. Considering this peculiar fact, I hold that no addition can be made on this account and no such....
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....onations were bogus without examining the donors and subjecting those donors to cross-examination who had been examined. g) It was held in the case of M/s Shree Barkha synthetics Ltd. vs. ACIT (2006) 55 Taxman 289 (Raj) that "where assessee company had received share application money from a company from and individual investor through banking channel and had furnished confirmation of investment in share capital by said company and had also proved existence of said individual investor, it could be said that the assessee had proved genuineness of said. AO cannot make any additions, it could be said application money by treating the same as unexplained cash credit u/s 68." h) CIT vs. Kandhenu Steels & Alloy Ltd. (2012) 248 ITR 33 (Delhi) In addition to above, the appellant has also submitted that applicant companies were not fictitious and their existence or identity was never disputed. Moreover, such companies were also having bank accounts and payments were received by the appellant through banking channel. Therefore, the inference that the genuineness of transaction was questionable is not acceptable in view of decision of Hon'ble Supreme Court in the case of CIT vs. Lov....