ASSTT. COMMISSIONER OF INCOME TAX-6(1)(1), MUMBAI, MUMBAI vs. DEWANCHAND RAMSARAN INDUSTRIES PVT. LTD., MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWALAssessment Year: 2017-18
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2023-24/1061827856(1), dated 06.08.2024, passed against the assessment order by Assessing Officer, Circle 6(2)(1), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 25.12.2019, for Assessment Year 2017-18. 2. Grounds taken by the Revenue are reproduced as under:
2
Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in granting relief to the assessee company by deleting the disallowance/addition of Rs.10,17,05,000/- made by the A.O u/s 28(iv) of the Income tax Act, despite the fact that though the share premium was received in the F.Y. 2011-12 & 2012-13, no shares were allotted against them as late as March 2021. 2. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 3. Brief facts as culled out from records are that assessee carries on its business activity in the field of charter hiring of drilling rigs and work over rigs. It obtained secured loans in foreign currency to finance the purchase of rigs, which were employed into its business. However, it went into financial trouble when one of its contracts, for which it had purchased additional rigs got cancelled much before the end of its contract period due to recession in the oil industry, and assessee did not have sufficient funds to finance the loan repayment. Assessee had to sell its rigs in order to service the interest and principal payment on these loans. Owing to this financial crisis, business came to standstill. 3.1. Assessee filed its return of income on 31.03.2018, reporting total income at Nil after setting off of the business loss and unabsorbed depreciation. In the course of assessment proceedings, ld. Assessing officer asked assessee, inter alia, to show cause as to why share application money of Rs. 10,17,05,000/- should not be added to the total income. Assessee filed its reply wherein, inter alia, confirmation from all parties from whom share application money was received along with their balance sheets as at 31s March, 2017 and Income Tax Return filed acknowledgments were submitted. Details furnished for each of the share applicant is tabulated as under:
3
Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
Name of the Party
PAN
Address
Amount (Rs.)
Shorilal
Dewanchand
Makad
(Legal Heir Swarnakanta S
Makad)
AAFPM9646R
216, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder. Junction, Mumbai-
400009. Confirmation enclosed Annexure I
1,00,00,000/-
Swarnakanta S Makad
AAFPM9641J
215, 2nd Floor, Navratan
Building, 69, P.D. Mello
Road,
Carnac
Bunder
Junction, Mumbai-400009. Confirmation enclosed. Annexure II
35,00,000/-
Rajesh Makad
AAFPM9640K
216, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder Junction, Mumbai-
400009. Confirmation enclosed.
Annexure III
95,00,000/-
Gopal S Makad
AAFPM7322J
216, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder Junction, Mumbai-
400009. Confirmation enclosed.
Annexure IV
75,00,000/-
Mamta Rajesh Makad
AAFPM9642M
216, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder Junction, Mumbai-
400009. Confirmation enclosed.
Annexure V
35,00,000/-
Poona
Rubber
Manufacturing Pvt Ltd
AABCP7930N
216, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder Junction, Mumbai-
400009. Confirmation enclosed.
Annexure VI
77,00,000/-
Dewanchand
Ramsaran
Corporation Pvt Ltd
AACCD9550F
218, Navratan Building, 69,
P.D.Mello
Road,
Carnac
Bunder Junction, Mumbai-
400009. Confirmation enclosed.
Annexure VII
6,00,05,000/-
Total
10,17,05,000/-
2. Assessee also highlighted the details shareholding pattern of its equity share capital as on 31.03.2017 as reported in its audited financial statement to demonstrate that all of them are existing shareholders of the assessee. The details are tabulated below:
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Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
Sr. No.
Name and Residential Address
PAN
No. of Share
Held
% of Shares
Held
Mr. Shorilal Dewanchand Makad 14, Krishna Niketan, Sion Main Road, Mumbai-400022. AAFPM9646R
18,99,620
24,59%
Mr. Rajesh Shorifal. Makad 14, Krishna Niketan, Sion Main Road, Mumbai-400022. AAFPM9640K
18,18,360
54%
Mr. Gopal ShorilaL Makad, 14, Krishna Niketan, Sion Main Road, Mumbai - 400 022. AAFPM7322J
23,61,165
57%
Mrs. Swarnakanta ShorilaL Makad 14, Krishna Niketan, Sion Main Road, Mumbai-400022. AAFPM9641J
6,91,230
95%
Mrs. Mamta Rajesh. Makad
14, Krishna Niketan, Sion Main
Road,
Mumbai-400022. AAFPM9642M
6,76,500
76%
Infrastructure Leasing &
Financial
Services Ltd.
IL&FS Financial Centre, Plot
No. C22,
G Block, B KC, Bandra (E),
Mumbai 051. AAACI0989F
2,78,125
60%
Total No. of Shares
77,25,000
100%
3. In its explanation, as mentioned earlier, it was submitted that assessee went into financial crisis and did not have sufficient funds to meet its interest payments on secured loans. Hence, it obtained share application money from its existing members and their related parties in 5 Dewanchand Ramsaran Industries Pvt. Ltd. A.Y. 2017-18
order to finance the interest payments. These monies were not taken from any outside third party, but from existing members and parties belonging to the same group. The said amounts were paid by them to the assessee out of their own personal funds which was corroborated by the respective balance sheets and confirmation letters placed on record.
According to the assessee, the Makad family infused money in the form of share application money which assessee could not refund, resulting into pendency of allotment of shares. Assessee could not complete the RoC formalities which also resulted in the pendency of issue and allotment of shares. All the parties being existing shareholders were aware of this fact and hence did not claim their investment even after lapse of six years, nor initiated any action against the company.
3.4. However, ld. Assessing Officer completed the assessment by making the addition, inter alia, of Rs.10,17,05,000/- as business income u/s 28(iv) towards share application money, pending for allotment by holding that it represents the value of benefit accruing to the assessee arising from business.
4. Aggrieved, assessee went in appeal before the ld. CIT(A) and reiterated the above stated submission along with corroborative documentary evidences. According to the assessee, impugned share application money is of a capital nature and neither a benefit, nor a perquisite is received by it. Addition so made of share application money u/s. 28(iv) of Rs. 10,17,05,000/- is unsustainable. Before the ld. CIT(A), assessee brought on record vital fact relating to the impugned transaction that it had completed the formalities of allotting the equity shares in the Financial Year 2020-21, to all the concerned parties from 6
Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
whom it had received the share application money of Rs 10,17,05,000/-.
In this respect, it furnished the following documents:
a. Letter dated 25.03.2021 written by Company Secretary JHR &
Associates informing payment of Stamp Duty of Rs 5,086 /- and affixing the same to the respective share certificates issued to the parties from whom the shares application money of Rs
10,17,05,000/- was received, along with copy of the challan of Rs
5086/-.
b.
Photo
Copies of the Share
Certificates issued of Rs
10,17,05,000/- to parties from whom share application money has been received (equity share of Rs 10/- each), for which details are:
i.
Rajesh Makad
Rs 95,00,000/- [9,50,000 Shares) ii.
Mamta Makad
Rs 35,00,000/- [3,50,000 Shares) iii.
Swarnakanta S Makad
Rs 1,35,00,000/- [13,50,000 Shares) iv.
Gopal Makad
Rs 75,00,000/- [7,50,000 Shares) v.
Dewanchand Ramsaran
Corporation Pvt Ltd
Rs 6,00,05,000/- [60,00,500 Shares]
vi.
Poona Rubber Manufacturers Pvt
Itd
Rs 77,00,000/- [7,70,000 Shares)
1. Assessee thus, based on above stated factual position, claimed, now that shares have been issued and allotted to the persons from whom the company has received share application, no addition is called for under Section 28(iv). 4.2. In addition, it placed reliance on the following decisions which covers the case of the assessee: 4.2.1. DCIT v. Inex Infotech Pvt. Ltd [2016] (11) TMI 1463 ITAT Nagpur, dated 25.11.2016, wherein it was held in para 28 that -
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Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
"28. From the above it is evident that the share capital and share application money with premium received by the assessee company is an amount received on capital account. From the above case laws, it is quite evident that sums received on capital account cannot be treated as income. Once it is held that the share capital and share application money with premium are received on capital account, such receipts cannot be added as income from business and profession u/s 28 of the I.T or for that matter u/s 28(iv) of the I.T. Act. In this regard even at the risk of repetition we find that section 28(iv) provides that following amount shall be chargeable to income-tax under the head profits and gains from business or profession, "the value of any benefit or perquisite convertible into money or not arising from business or the exercise of a profession. In this regard we fail to understand as to how section 28(iv) is applicable on the facts of the present case where share application money has been received by the Company. Section 28(iv) covers the value of any benefit or perquisite and not sums received on capital account which is the case in the present context."
Hence in our considered opinion the AO could not resort to this provision as the receipt was of capital nature."
4.2.2. PCIT Vs Apeak Infotech and others 2017 (9) TMI 1590
wherein Hon’ble juri ictional High Court Bombay upheld the decision of Inex Infotech (supra) by ITAT Nagpur. It was held by the Hon’ble High
Court that amount received towards share capital cannot be treated as income.
5. We have heard both the parties and perused the material on record. We have also perused the orders of the authorities below for the observations and findings given by them on the issue in hand before us.
Admittedly, it is a fact on record that assessee received share application money in the financial year 2011-12 and 2012-13 against which shares could not be issued and allotted to the investors. It is also a fact on record that investors are the same existing shareholders who have infused their funds in the assessee company for the purpose of mitigating financial crisis faced by it. Identity and creditworthiness of the investors is not doubted and also there is no question on the genuineness of the transaction in this respect. Assessee could not 8
Dewanchand Ramsaran Industries Pvt. Ltd.
A.Y. 2017-18
comply with certain requirements with