ACIT Vs Dewanchand Ramsaran Industries Pvt. Ltd. (ITAT Mumbai)
The ITAT Mumbai addressed an appeal by the Revenue against the CIT(A)’s decision to delete an addition of Rs. 10,17,05,000 made by the AO under Section 28(iv) of the Income Tax Act. This addition pertained to share application money received by Dewanchand Ramsaran Industries Pvt. Ltd. from its existing shareholders. The AO had invoked Section 28(iv), arguing that the pending allotment of shares represented a benefit or perquisite for the assessee, taxable as business income, even though the genuineness of the transaction, the identity, and the creditworthiness of the investors were not questioned under Section 68.
However, the CIT(A) granted relief to the assessee, a decision upheld by the ITAT. A crucial fact supporting the assessee’s case was that the shares against the application money were ultimately issued and allotted to the respective shareholders in a subsequent financial year. This established that the initial receipt was on capital account, not a benefit or perquisite arising from business. The ITAT relied on jurisprudence, including decisions from the Bombay High Court and the Supreme Court, which held that amounts received towards share capital, including share application money, are capital receipts and cannot be taxed as business income under Section 28(iv). The Tribunal found no reason to interfere with the CIT(A)’s order, dismissing the Revenue’s appeal.
