Income Tax Department vs. M/S Ayush Ajay Tolls Pvt. Ltd.

I.T.A.No.42/2014 08.04.2015 Shri R.L.Jain, learned senior counsel with Ms. Veena Mandlik, learned counsel for the appellant. Heard on admission. The only grievance of the Revenue relates to deleting the addition of Rs.76,89,300/- on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 merely on the ground that this amount represented share application money. The assessing Officer observed that assessee has shown a receipt of Rs.82,09,300/- from M/s Ayushajay Construction Pvt. Ltd. The assessee is share holder in M/s Ayushajay Construction Pvt. Ltd., And holding 5,03,000 equity shares out of total issued share capital of 54,82,913 equity shares which are 9.17% of the total capital which is below 10% thus Section 2 (22)(e) is not applicable in this case and rejected the plea of the assessee and held that the amount received was in the nature of loans and advances and made an addition under Section 2(22)(e) of the Income Tax Act, 1961. The assessee/respondent challenged the aforesaid order by filing an appeal before the Commissioner of Income Tax (Appeals). The learned Commissioner gave a finding in favour of the assessee and rejected the contention of the Assessing Officer by allowing the appeal filed by the respondent/assessee. Relevant part of finding recorded by the CIT(A) reads as under :- “Through this ground the assessee has challenged the addition of Rs. 76,89,300/- u/s 2(22)(e). The facts as discussed in the assessment order on this issue are that the assessee company is substantial holder (having equity share over 10 %) of the company Ayush Ajay Construction Pvt Ltd; that the assessee company had shown receipt of Rs. 82,09,300/- from that company ( i.e. Ayush Ajay Construction Pvt Ltd): the assessee had claimed that receipt as share application money. The AO however did not agree with the assessee's claim as regards to the nature of such receipts, The AO was of the view that the amount was in the nature of loans and advances and accordingly he added the same treating that as deemed dividend u/s 2(22)(e) of the I T Act. During assessment proceedings, the assessee had claimed for having less than 10 % equity shares of Ayush Ajay Construction Pvt Ltd and on that ground also pleaded that section 2(22)(e) was not applicable. As regards to the nature of receipts. the AO has based his reasoning onto the accounts of the assessee appearing the books of Ayush Ajay Construction Pvt Ltd in which the entries starts from opening balance and subsequent entries were made on dates ranging from 24.04.06 to the year end. The AO noted that in all 12 entries were made in that account; and out of which 7 entries were journal entries which could not carry the intention of investment. For that reason the AO was of the view that the name given to the account as 'Share: application money was just an after thought'. 4.2.1 During the appeal proceedings, the detailed submissions have been made which find place in para 3 above. My attention was also drawn to the relevant entries in the balance sheets of assessee company (Ayush Ajay Tolls Pvt. Ltd) and that of Ayush Ajay Construction Pvt. Ltd for the relevant year (i.e. 31st March 2007). The amount of Rs. 82,06,000/- is shown in the assessee's balance sheet as received on account of 'share application money'. The details / breakup in this regard is given in para 2.3, 2.4 and 2.5 of assessee's submission (which is already reproduced in para 3 above). For ready reference, the same is reproduced hereunder : - "2.3] That during the year assessee company has received Share Application Money of Rs. 76,86,000/- from M/s. Ayush Ajay Construction (P) Ltd. Details of share Application account is summarized as under :- Opening Balance 520,000 Add: Share Application Money received during the year 7,686,000 Closing Balance of share application account (As per Audited Balance Sheet) 8,206,000 2.4] In addition to that company is also received Rs.3,300/- on account of share application money however since application for allotment was not received in the prescribed format in the stipulated time so that company has accounted the said amount as Current liability under the schedule-7 of the Audited Balance Sheet. 2.5] Copy of Audited Balance Sheet of our company as on 31.03.07 duly highlighting the Share application money received of Rs. 82,06,000/- and Rs.3,300/- under the head current liabilities is enclosed herewith." 1. Moreover schedule - VII of the balance sheet of Ayush Ajay Construction Pvt Ltd also reflects the investment of Rs. 82,09,300/- of that company as application money of private companies. Both the balance sheet are audited as on 31.08.2007 and 03.09.2007 respectively by the chartered accountant Shri Sanjay Mehta of M/s Sanjay Mehta & Associates. The assessee had also furnished copies of relevant share applications. It is also pleaded that lateron the assessee company had also allotted share of Rs. 82,09,300/- to M/s Ayush Ajay Construction Pvt. Ltd A copy of return of allottment filed before the ROC in this respect has also been submitted. The date of allottment as mentioned there is 01.10.2009. Having considered the facts of the case and the nature of receipts as shown in the audited balance sheet of both the companies and the fact that shares were also ultimately allotted, I do not approve the Assessing Officer’s view that the amounts were received as loans and advances and lateron shown as share application money as a result of after thought. In the facts of the case nature of the receipts is to be regarded as of 'Share application money' only and therefore the provisions of section 2(22)(e) would not be applicable onto those receipts. In the circumstances addition was not warranted. Whether the assessee company happened to be substantial shareholder of the company M/s. Ayush Ajay Construction Pvt. Ltd or not is not' relevant in the facts of the case as the receipts are considered in the nature of share application money and not loan and advances for which section 2(22)(e) would be applicable. In the result, the entire addition of Rs. 76,89,300/- is deleted. Accordingly assessee's ground stands allowed. ” The learned Tribunal on due consideration of the reasonings assigned by the Appellate Authority, so also the record found that the assessee has filed copy of the relevant share application money, account of share application money, copy of the Board's resolution for allotment of shares, copy of form no.2 with ROC for allotment of shares and held that the documentary evidence clearly establishes that the money so received was on account of share application money and dismissed the appeal. On due consideration of the reasonings assigned by the learned Income Tax Appellate Tribunal, we are of the view that the finding recorded by the learned Tribunal is based on appreciation of material on record. No case for interference in the aforesaid order, as prayed for by the Department, is made out. No substantial question of law arises in this appeal. Appeal filed by the department has no merit and is accordingly dismissed. C.C.as per rules. ( P.K.JAISWAL) ( ALOK VERMA) JUDGE JUDGE RJ