Case Law Details
It is a fairly settled law that forfeiture of share application money which has been duly received by the appellant in terms of prospect and credited to capital reserve account was a capital receipt.
Brief Facts
Briefly stated facts of the case are that assessee is a limited company engaged in the business of manufacturing and export of rubber and textile products. Income-tax return declaring total income at Rs.3,92,98,770/- was filed on 29.09.2010. Case was selected for scrutiny assessment and notice u/s 143(2) of the Act dated 25.8.2011 followed by notice u/s 142(1) of the Act were issued and duly served on the assessee. Necessary information were called for and submitted. During the course of assessment proceedings ld. Assessing Officer observed that assessee filed a letter dated 6.5.2012 requesting to exclude a sum of Rs.94.80 lacs from the total income as it was received for forfeiture of application money received by way of issue of share warrants and claimed it to be a capital receipt. Assessee requested that as the amount received is not from the business activities it cannot be termed as revenue receipt and it should be reduced from the total income. However, the contentions of assessee were not acceptable to the ld. Assessing Officer and he rejected the application of assessee by treating the amount of Rs.94.80 lacs as revenue receipt.
Held by ITAT
We have heard the contentions of ld. Departmental Representative and gone through the records placed before us as well as the decision of the Co-ordinate Bench, Ahmedabad in the case of DCIT(OSD) vs. Brijlaxmi Leasing & Finance Ltd.(supra). Solitary grievance of the Revenue through this appeal is against the order of ld. Commissioner of Income Tax(A) deleting the addition of Rs.94.80 lacs by treating the amount received on account of forfeiture of share application money by way of issue of share warrants as capital receipts as against ld. Assessing Officer ‘s order treating it to be revenue receipt. We observe that there is no dispute from the side of Revenue to the established fact that assessee received the application money of Rs.94.80 lacs for technical textile project as per Security Exchange Board of India and Bombay Stock Exchange guidelines and with the necessary approval for issuing share warrants. This sum of Rs.94.80 lacs has been shown in the audited balance sheet under the head “share-holders fund.” As the shares were to be allotted before 24.2.2009 but the share warrant applicants failed to give the balance amount, the warrant application money had been forfeited during the relevant year.6.1 We further observe that similar issue dealing with similar facts relating to forfeiture of share application money to be treated as capital receipt or revenue receipt came up before the Co-ordinate Bench, Ahmedabad in the case of DCIT(OSD) vs. Brijlaxmi Leasing & Finance Ltd. (supra) and Revenue’s appeal was dismissed by observing as follows :-
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