TMI Blog2013 (12) TMI 1555X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law, the order of the Ld.CIT(A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside. ii) The Ld.CIT(A) has erred in law and on facts in deleting addition of ₹ 5.75,00,000/- made on account of forfeiture of warrants ignoring the fact that this is clear case of tax avoidance whereby the assessee used co arable device in the nature of stage managed transaction on account of Issue of warrants, payment of part called up money and later forfeiture of warrants on non payment of remaining amount. Reliance is placed on the decisions of the Hon ble Supreme Court in Juggilal Kamlapat vs. CIT (1969) 73 ITR 702; and M/s McDowell Co. Vs. ITO (1985) 154 ITR 148. iii) The Ld.CIT(A) has erred in aw and on facts in deleting addition of ₹ 9366/- made on of account of disallowance of extra depreciation claimed by the assessee on computer peripherals ignoring the fact that as per Income Tax Rules depreciation @ 60% is allowable only on computer and not on the accessories. iv) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is the Managing Director of M/s CNB Finwiz Ltd. and is also major share holder in this company. M/s BLB Ltd. which is one of the associated concerns of the assessee Co. Further, this company is a closely held company and its affairs are managed by Mr. C.R. Bagri and his family. There is hardly any share holding /stake in this co. of any outside party. In such a situation it is not at all difficult for the assessee to stage-manage the whole process resulting in an artificial and fictional loss shown by Sh. C.R. Bagri in his return. Thus in a way the whole affairs are manipulated in such a way that there is a capital loss in the hands of Mr. C.R. Bagri which has been set off with the short term capital gain on sale of shares for the year under consideration and on the other hand the co. after forfeiting the warrants has treated it as capital receipt and therefore its financial needs are also met. Thus it is a clear case of tax avoidance whereby the assessee used the colorable device in the nature of stage-managed transaction on a/c of issue of warrants, payment of part called up money and later forfeiture of warrants on non payment of remaining amount. In the case of tax avoidan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is directed to delete this addition of ₹ 5.75 crores as the same cannot be treated as a revenue receipt and income of the appellant. These grounds are therefore treated as allowed. 5. Against the above order the Revenue is in appeal before us. 6. We have heard both the counsel and perused the records. Ld. Departmental Representative relied upon the order of the Assessing Officer. Ld. Counsel of the assessee submitted that the aforesaid amount received on the issue of optionally convertible warrants undisputedly is a capital receipt and the character of such receipt on forfeiture on account of the non exercise of the option to convert the warrant to equity shares could not change the character of receipt; that the same reflected in the books under the head capital reserve and this fact has also been referred by the Auditors in their Report. He submitted that Assessing Officer in his order has added the aforesaid sum of ₹ 5,75,00,000/- by invoking the provisions of section 28(iv) of the I.T. Act by holding that the same is colorable device. He submitted that the Assessing Officer has failed to look into the transaction and his attempt though unsupported by any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year 2003-04 on account of which the initial amount of ₹ 5.75 crores had been received by the company and since the investors were unable to pay the subsequent amounts, the assessee company forfeited the optionally convertible warrants after giving a final show cause to them. The Assessing Officer had provided opportunity to the assessee to explain as to why the gain on account of forfeiture of warrants should not be treated as a business profit under section 28(iv) of the I.T. Act. The Assessing Officer has highlighted that two investors who had paid the amount of ₹ 5.75 crores were Mr. CR Bagri, who was the Managing Director of the assessee company and M/s BLB Limited which is one of the associated concerns of the assessee company. It was highlighted by the Assessing Officer that the loss on account of this forfeiture had resulted in a gain to the two investors i.e. Sh. CR Bagri and M/s BLB Limited. Accordingly, the Assessing Officer came to the conclusion that this amount of ₹ 5.75 crores should be treated as income of the assessee. 8. The Assessing Officer has also invoked the provision of section 28(iv) of the I.T. Act. We find that section 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to issue of warrant part payment of the amounts by the investors, notice for forfeiture etc. have not been disputed by the Assessing Officer. The basic nature of the transaction relates to raising of capital through convertible warrants. The amount forfeited on account of non payment of subsequent amounts cannot be treated as a business income of the assessee in view of the various judicial pronouncements as well as the basic nature of the receipt. Thus, we hold that amount received on account of forfeiture of amount due to non payment towards warrants issue has to be treated as capital receipt and since the assessee has also transferred it to the capital reserve account in the balance sheet, the amount cannot be taxed as income of the relevant financial year. 12. We further find that Assessing Officer has made allegation of tax avoidance and evasion on the part of the assessee company. This is on account of the fact that two investors viz. Sh. CR Bagri and M/s BLB Limited were closely related to the assessee company. Ld. Counsel of the assessee has submitted before the Ld. CIT(A) that this allegation of the Assessing Officer is not correct. Since in the case of M/s BLB Lt ..... 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