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By Ajay R. Singh, Advocate

1. S.28(iv): Profits chargeable to tax - preference share capital received, could not be treated as income of assessee under section 28(iv)

The assessee is a private limited company, engaged in the business of trading in shares and securities, leasing out property held as investment, etc. A search and seizure action was carried out u/s. 132 of the Act, 1961 in JSW group of cases on 16-03-2011. During the course of search, the assessee gave declaration of income in a group of cases as per which, an amount of ₹ 8.75 crore towards write back of preference shares has been offered as undisclosed income in assessee’s case. However, the assessee has not offered the same, while filing return of income. In assessment, assessee filed detail submissions, as per which the assessee stated that the company has received loan from M/s. South India House Investments Ltd., during the period 19-5-2003 to 30-5-2003 as subscription money towards preference shares. The company has allotted 87,50,000 2.5% redeemable non cumulative preference shares of ₹ 10 paid up each to the said applicant. The said shares were alive and outstanding in the books of VSPL on 16-03-2011 and compulsorily redeemable prior to 1-6-2003. Owing to search action, to buy peace and avoid litigation, the assessee has agreed for disclosure of undisclosed income of ₹ 8.75 crore by writing off redeemable non cumulative preference shares in its books of account. But facts remain that, such redeemable preference shares cannot be redeemed before the specified period, as per provisions of section 80 of Companies’ Act, 1956. The assessee also stated that the said admission during the course of search is of mistaken understanding of facts, therefore, without any further evidence found during the course of search, only on the basis of admission of the assessee, a receipt in the nature of capital receipt cannot be taxed u/s. 28(iv) of the Income-tax Act, 1961.

The AO observed that in principle, the assessee has admitted sum of ₹ 8.75 crores is no longer payable to M/s. South India House Investments Ltd. There has been no retraction by the assessee on this issue till date. Since the amount is no longer payable, it was held that it is a benefit directly arising out of business activity of the assessee and, therefore, chargeable to tax u/s. 28(iv) of the Income-tax Act, 1961.

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 Tribunal found that there is no mention in the entire statement whether the statement was being given by Shri Rao on behalf of the assessee company also. It has nowhere been admitted that the aforesaid amount represents undisclosed income of the assessee. In this case, facts are identical to the case already considered by the co-ordinate bench in the case of Nalwa Chrome Pvt Ltd ITAT, H-Bench. The share capital receipt cannot be taxed either u/s. 28(iv) or 41(1) of the Act. In the result, appeal filed by the revenue was dismissed.

Dy. CIT vs. Vrindavan Services Pvt. Ltd., ITA No. 235/M/2015 dt.18/07/2018, AY 2011-12 (ITAT Mumbai)

Vrindavan Services Pvt. Ltd.

2. S. 68 : Cash credits – Sale of shares–DMAT account and contract note showed the credit details – facts, transactions in shares were to be genuine

The assessee declared long term capital gains of ₹ 42.22 lakhs arising on sale of 2,50,000 shares of M/s. Prraneta Industries Ltd., and claimed the same as exempt u/s. 10(38) of the Act. The return of income was initially accepted but later on the Assessing Officer reopened the assessment by issuing notice u/s. 148 of the Act on 30-7-2009 in order to verify the correctness of the claim of long term capital gains referred above.

The AO noticed that the assessee had sold scrips of Kotak Mahindra, NIIT Ltd. and Steel Authority of India Ltd. on 27-4-2004 through M/s. DPS Shares and Securities P. Ltd. and the same has resulted in net gain of ₹ 47,133/-. On 29-4-2004, the assessee purchased ₹ 25,000 shares of M/s. Prraneta Industries Ltd. for an amount of ₹ 47,040/-, which was adjusted against the profit earned by the assessee. The 25,000 shares were converted into 2,50,000 shares of ₹ 1.00 each. The assessee sold all the shares and earned long term capital gain of ₹ 42.22 lakhs. The AO conducted, enquiries in this regard. The inquiry made by the Assessing Officer with Bombay Stock Exchange revealed that sale of shares of Kotak Mahindra, NIIT Ltd. on 27-4-2004 was genuine, but the BSE informed that there was no trading on 29-4-2004 in the shares of M/s. Prraneta Industries Limited. The Assessing Officer summoned the assessee and also authorised representative of M/s. DPS Shares and Securities P. Limited. A person named Mr. Rajkumar Masalia, Senior Accountant of M/s. DPS Shares and Securities P. Ltd., appeared before the Assessing Officer and confessed that the bills for purchase and sale of shares of M/s. Prraneta Industries Ltd. were not genuine and further submitted that they were given to the assessee for the purpose of providing accommodation entry. However, the assessee maintained his stand that the capital gains earned by him were genuine. The A.O. accordingly, rejected the claim of long term capital gains and assessed the same as income of the assessee. The learned CIT(A) also confirmed the same.

When the matter reached the Tribunal, the assessee filed an affidavit of Shri Pratik C. Shah, who was director of M/s. DPS Shares and Securities P. Limited, the share broker of the assessee. In the affidavit, the above said director confirmed the genuineness of the transactions entered by the assessee in the shares of M/s. Prraneta Industries Limited. Hence, the ITAT restored the matter to the file of the Assessing Officer for examining the claim of the assessee afresh by duly considering the additional evidences furnished by the assessee. In the set aside proceedings, the Assessing Officer confirmed the addition as same. The learned CIT(A) also confirmed the same.

In the second round the ITAT found that the assessee has furnished copies of contract notes in support of the purchase and sale of shares. He has also furnished copies of demat account which shows entry and exit of shares. The assessee has also received payment towards sale of shares though it was received from two other persons on behalf of DPS Shares and Securities P. Limited. The assessee has proved the genuineness of purchase and sale of shares of M/s. Prraneta Industries Ltd., and hence long term capital gains arising on sale of above said shares cannot be doubted with. The AO did not make inquiries with regard to demat account furnished by the assessee and also could not disprove the affidavit filed and statement given by DPS Shares and Securities P. Limited. Hence, decision rendered by Hon’ble Bombay High Court in the case of Shyam R. Pawar ((2015) 229 Taxman 256,) fully supports the case of the assessee. Accordingly, the claim of long term capital gains of ₹ 42.22 lakhs and allow exemption u/s. 10(38) of the Act claimed by the assessee. In the result, appeal filed by the assessee is allowed.

Jaymin Kiritbhai Sanghvi vs. ITO 18(1)(5), ITA No. 6070/M/2016 dated 18-07-2018, (ITAT Mumbai)

Jaymin Kiritbhai Sanghvi

3. S. 43B : Deductions on actual payment - Claim not made in the return [Ss. 139, 154]

The assessee is a company engaged in the business of clearing and forwarding agent. The assessee filed return of income on 20-09-2008 declaring total income of ₹ 4,57,01,174/- and claimed credit for payment of aggregate taxes to the tune of ₹ 1,55,37,327/- out of which, inter-alia, claim of credit of TDS was ₹ 89,44,765/-. The AO issued intimation u/s. 143(1) wherein the AO, inter-alia, granted TDS credit of ₹ 79,05,771/- as against claim of TDS credit of ₹ 89,44,765/- filed by the assessee in the return of income filed with the Revenue.

Aggrieved by the grant of the short TDS credits allowed by the AO in the intimation issued u/s. 143(1), the assessee filed rectification application vide letter dated 24-05-2013 u/s. 154 filed with the AO, inter-alia, for correcting mistake w.r.t. short credit of grant of TDS wherein credit allowed stood at ₹ 79,05,771/- as against the claim for TDS credit of ₹ 89,44,765/- filed by the assessee in its return of income. During the course of aforesaid proceedings conducted by the AO u/s. 154, the assessee vide one letter dated 2-7-2013 filed with the AO filed additional claim for grant of TDS credit of ₹ 9,93,555/- for the first time which was not earlier claimed by the assessee in the return of income filed with the Revenue.

The assessee, however, submitted that the assessee offered corresponding income for taxation to the said TDS of ₹ 9,93,555/- in the return of income filed with the Revenue but the income-tax deducted at source on the said income by the persons responsible for making payments deposited the said income-tax late to the credit of Central Government and consequentially the TDS certificates were also issued late by the said deductors to the assessee which is the main reason for the non claim of the credit of TDS earlier by the assessee in the return of income filed with Revenue and the assessee cannot be held responsible for such delay in filing of the claim as no fault lies with assessee and hence the assessee cannot be penalised for the same.

The Tribunal found that the assessee has raised this claim in the proceedings which were conducted by the AO u/s. 154 otherwise than by filing revised return of income u/s 139(5). If the AO could not have taken cognisance of the fresh claim filed by the assessee which was not filed by filing revised return of income u/s. 139(5), the learned CIT(A) being appellate authority could have always admitted the said fresh claim and thereafter adjudicated the same on merits. Hon’ble Bombay High Court decision in the case of CIT vs. Pruthvi Brokers & Shareholders reported in (2012) 349 ITR 336(Bom) is relevant and binding being jurisdictional High Court. Thus, the assessee could not be denied the said claim of credit of TDS to the tune of ₹ 9,93,555/- but however for limited purposes for verification of contentions raised by the assessee, matter was restored to the file of the AO for necessary verification of the TDS certificates filed by the assessee purported to be received from Elecon Engineering Co. P. Ltd. and Prayas Engineering Ltd. as to the credit of taxes to Central Government and also for verification of offering of the corresponding income by the assessee to taxation in the return of income filed u/s. 139(1) on 20-09-2008, before allowing credit for said TDS amount of ₹ 9,93,555/- . Accordingly appeal of the assessee is allowed.

Express Global Logistics Pvt. Ltd. vs. ACIT, ITA No. 1194/M/2017 dated 11/07/2018, AY 2008-09 (ITAT Mumbai)

Express Global Logistics Pvt. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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