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2025 (9) TMI 522
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....e Ld. AO to the assessee and was duly served on the assessee. In response to the statutory notices issued, the Authorized Representative (in short, "Ld. AR") attended from time to time and filed the details called for. The Ld. AO after perusal of the details filed during the assessment proceeding made an addition of Rs. 3,00,00,000/- being share application money forfeited (Including Share Premium) by invoking the provisions of section 68 of the Act. The Ld. AO also restricted the claim of expenditure on adhoc basis to Rs. 50,000/- and disallowed the expenditure amount to Rs. 332,784/- due to no business transaction carried out by the assessee and added back interest income of Rs. 57,334/- as "Income from Other Sources". Being aggrieved by the aforesaid additions / disallowance, the assessee has filed appeal before the Ld. CIT(A). The Ld.CIT(A) partly allowed the appeal filed by the assessee. Being aggrieved the revenue filed an appeal before us against the order of Ld. CIT(A). 3. The revenue has taken the following grounds of appeal: "This is with reference to the appellate order passed by the CIT(A), Mumbai in the case of M/s Vatika Rayons Private Limited. (PAN: AADCV....
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....er this head of income. The assessee has shown a forfeiture amounting to Rs. 58,75,000/-, which actually totals to Rs. 3,00,00,000/-, when we include all the amounts due the action of forfeiture during the year, which will get covered under the latest provisions of Section 56, applicable for the year. 26. The law is also being evolved in this regard. In the proposed Direct Taxes Code, 2010, such forfeited sums may get taxed as income from other sources (residuary head). Clause (t) of section 58(2) is worded in a manner to rope in. Forfeited receipts even if they have capital character. It reads as below: "It any amount accrued, or received, on account of the cessation, termination or forfeiture of any agreement entered by the person, if the amount is not included under the head (Income from business. 27. Reference is also made to assessee's submission during the prior year (AY.2013-14) scrutiny assessment proceedings, which also had the similar facts and issues and is noted as under:- "With regards to justification regarding forfeiture of shares and claim as capital loss, we would like to submit hereby to your goodself that a binding contract....
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.... position, even as on date, is that the money is still with the assessee, not even a small part of such funds have been returned by the assessee. The position, even as on date, is that the assessee has made the case that the other person has defaulted on payment of the call money when the assessee company had the full money towards the claimed value of the share at the first instance only, as per assessee's own balance sheet and the bank statement. It is also a fact that the assessee company has grossly defaulted on bringing out any business project and has not utilized any of the money towards the business purpose. The assessee was also requested to provide the details of the assets, plant and machinery with the details where such assets are located and installed. However such details were lacking in assessee's submissions. 30. The present position of the affairs of the company, the lack of framework, absence of the agreements & permissions, lack of infrastructure, reflects the lack of credibility on the stated business proposition, purpose for existence of the company and consequently the nature of the funds bought in the company stating it as share capital and s....
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....hare application money or as a loan are completely different and gives altogether the different rights and meaning to the transactions. The transactions cannot be classified on its own choice but have a set principle for their classification in the books of accounts. 36.1 The interesting thing is that both the parties in the transaction have shown the indifference to and still are indifferent to the stated transaction. The amount involved is not a small amount that is let go by a person. While the assessee company is claiming that the amounts received through share application money towards share capital and share premium is forfeited while the fact is that the assessee company has allotted shares to the respective persons which implies that those persons are already holding voting rights of more than 50% and consequently the decision to make a call on pending share money rested with the persons whose monies are, ironically, forfeited. 36.2 Even if such decision making power is ignored for once, the money that these persons had already provided, would have earned them the controlling stake in the first instance itself. This proposition is just beyond any reasonabl....
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.... in the submissions, is a transaction in the nature of commercial transaction which involves an interaction between two or more parties in which goods, services or something of value is exchanged for some type of consideration. Some aspects of commercial transactions, such as truthful representation and contract provisions, are governed by law, and in which, business judgment rule cannot he ignored. 39. The business judgment rule is a presumption that in making a business decision, a person acted on an informec basis, in good faith and in the honest belief that the action taken was in the best interests. 40. The business judgment rule specifies that the court will not review the business decisions of directors who performed their duties (1) in good faith, (2) with the care that an ordinarily prudent person in u like position would exercise under similar circumstances; and (3) in a manner the person business decisions of directors who performed their duties (1) in good-faith; 40. The business judgment rule specifies that the court will not review the (2) with the care that an ordinarily prudent person in a like position would exercise under similar circums....
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....ts, it is logical to draw an inference that the credit entries represent income taxable in the hands of the assessee. It is not for of the Assessing Officer to locate the exact source of the cash credits. As to the issue of genuineness of transaction, the transaction is not genuine, simply because the transactions are by cheque. The burden to identify the source lies upon the assessee and he is required to explain the genuineness of the transaction. 46. Any sum found credited in the books of the taxpayer, for which he offers no explanation about the nature and source thereof or the tax authorities are not satisfied by the explanation offered by the taxpayer, is treated as cash credit. Considering the submissions, circumstances, and preponderance of human probabilities on undertaking a financial transaction of considerable value which is left unattended, and considering the present situation/facts that the assessee has already used the amount for purpose which does not show any business and above all, the other party to the transaction, which is providing the funds to the assessee, is just not bothered about its money or the returns on such funds, and considering the discus....
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....the final call money, and the assessee decided to forfeit the money received. The record shows that on 27.08.2013, the assessee received an amount of Rs. 1,00,00,000 from Ms. Shreya Jain for investment in shares. Subsequently, the assessee returned Rs. 50,00,000 to her on 22.10.2013, as she opted to reduce her investment. This fact was duly intimated to the Ld. AO vide submission dated 16.12.2016. Along with the submissions dated 28.11.2016, the assessee also produced relevant extracts of bank statements and ledger accounts before the Ld. AO. As per agreed terms, the assessee allotted 1,25,000 shares to Ms. Shreya Jain at Rs. 40 per share, comprising Rs. 5 per share as partly paid up and Rs. 35 towards share premium. The assessee also issued share certificates reflecting that the shares were partly paid up. It was further submitted that the shares were issued at Rs. 50 per share (face value Rs. 10, with Rs. 40 received as call money). In total, the assessee issued 7,50,000 shares, of which 1,25,000 were issued to Ms. Shreya Jain. She was unrelated to the assessee, and this fact was corroborated by her own submissions dated 08.12.2016 filed before the Ld. AO. A subsequent share c....
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....und pertains to treatment of interest income of Rs. 57,334/- as 'business income'. The Ld. AO treated it as "Income from other sources". On appeal, the Ld.CIT(A) directed the Ld.AO to treat the same as income from business. 8. The Ld. DR argued & relied on the impugned assessment year. 9. We have heard the rival submissions and perused the documents placed on record. The Ld. CIT(A) allowed the ground of the assessee by holding as under:- "6.2 I have carefully considered the facts and evidences on record. During the year under consideration, the appellant has received interest income amounting to Rs. 57,334 from unutilized funds of business parked into fixed deposits as the business as projected couldn't take off. The appellant treated such interest income as business income being the business funds. The AO concluded that since the appellant is neither banking company nor it is non banking financial company and therefore, interest income is not business income and treated the same under Income from other sources. 6.3 I find that the funds parked as fixed deposits were funds raise to carry out textile business of the appellant. This fact is not disputed by....