TMI Blog2012 (4) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER H.L.KARWA, VP This appeal filed by the Revenue is directed against the order of CIT(A), Panchkula dated 16.5.2011 relating to assessment year 2002-03. 2. Ground No.1 of the appeal reads as under:- 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) has erred in deleing the addition of ₹ 2,25,87,000/- made on account of forfeiture of shares despite the fact that the amount was a Revenue receipt which the assessee had omitted to show as an income. 3. Briefly stated, the facts of the case are that the assessee i.e. Haryana Financial Corporation was constituted in India under a special enactment known as State Financial Corporation Act, 1951 for promotion of Industry by financing the industrial units being set up in the State of Haryana. The source of income of the assessee is interest from loans and advances to the Industrial units and Equipment lease rentals, application processing fees and sale of investments and dividend earned etc. During the year 1995-96, the Corporation received a sum of ₹ 2,29,76,000/- from 1160 partly paid shareholders against its public issue and there were calls in arrear amounting to ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the business activity of the assessee. The forfeited shares remain intact with the assessee for fresh offer of subscription. The part amount received from the original buyers and now forfeited are not reduced from the cost of shares at which they are offered to future subscribers. The forfeiture of share money is an income in the hands of the assessee and is not passed on to the subsequent subscribers of the forfeited shares. Hence the receipt shown as liability by the assessee in its balance sheet must find its way into the profit and loss account as income even on ordinary commercial principles. As the assessee has not declared ₹ 22,58,70,00/- as income on account of forfeiture of shares, I have reasons to believe that ₹ 22,58,70,00/- has escaped assessment on account of assessee's failure to disclose fully the material facts of its income as it was clubbed under the head 'liabilities' in the balance sheet. The case, therefore, be reopened within the meaning of section 147 of the Income Tax Act, 1961. 4. In response to notice u/s 148 of the Act, the assessee furnished the return of income on 22.4.2009 declaring the same figure of net loss as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the assessee to raise equity. It is categorically denied that it is not the activity of the assessee to raise equity. It is a well settled position that after forfeiture of shares the forfeited shares remains intact with the assessee for fresh offer of subscription and the learned AO has completely failed to cite the law under which what should be the position in case of forfeited shares. That there is no law or rule to show part amount received from original buyers and now forfeited to be reduced from the cost of shares at which they are offered to future subscribers. No entry can be passed on presumptive basis. There can't be any presumption and accounts are never prepared on presumptive basis rather they are prepared on actual basis and presented as per the law for the time being in force to show a true and fair view of the state of affairs of the assessee. The forfeiture of share money is not the income of the assessee rather it is a capital receipt. In support of the forfeited share being a capital receipt and not taxable the following case laws are cited: i) Asiatic Oxygen L td Vs. DCIT (1994) 49 ITD(Cal) 355 ITAT Calcutta E Bench ii) DCIT Vs. Brijlaxmi Leasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee reiterated the submissions made before the lower authorities and also relied on the decisions mentioned in written submissions filed before the CIT(A). 10. We have heard the rival submissions and have also perused the materials available on record. The decisions cited by the parties were also considered. There is no dispute that during the year under consideration, the assessee has received a sum of ₹ 2,25,87,000/- on account of forfeiture of shares which has been shown by the assessee as liability in its balance sheet. The short question before us is as to whether the amount received on account of forfeiture of shares is a capital receipt or a Revenue receipt? In this case, certain shares were forfeited. The case of the Revenue is that forfeited amount is Revenue receipt. On the contrary, the case of the assessee is that forfeiture of shares has been correctly shown under the head Reserve and Surplus in the balance sheet which is always shown in the liabilities side of the balance sheet being part of share capital. Admittedly, the assessee is not in the business of raising finance through offer of equity. The forfeiture of share money is not the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question which fall for our consideration is whether the above forfeiture amount is taxable under the provisions of Income-tax Act, 1961 or not. The learned DR vehemently placed reliance on the decision of the Hon ble Supreme Court in the case of T.V. Sundaram Iyengar Sons Ltd. (supra) for his contention that forfeited amount is taxable as revenue receipt. However, we find that the facts of the case that were before the Hon ble Supreme Court are distinguishable from the facts before us. In the instant case no security deposit or advance received for performance of the contract was forfeited. In fact, the amount received was against issue of shares and issue of shares is not the business of the assessee. The same cannot be treated as receipt in the normal course of the business of the assessee which is engaged in financing and leasing business. Further, the assessee has also not credited the forfeited amount in its profit loss account but in contradistinction to that it has credited the same in capital reserve account. In the above facts, in our considered opinion the decision of the Tribunal in the case of Prism Cement Ltd. (supra) is more applicable which was rendered by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made public issue of shares against which it received part amount to the tune of ₹ 2,29,76,000/- from 1160 shareholders. The share amount was to be paid as per the terms of offer. However, there were calls in arrear against the above offer and, therefore, the assessee forfeited the shares of 1158 shareholders and credited the sum of ₹ 2,25,87,000/- to the Reserves and Surplus in the balance sheet. In our view, the decision of the Hon'ble Supreme Court in the case of CIT Vs T.V. Sundaram Iyengar and Sons Ltd (supra) referred to by the Ld. DR is not applicable to the facts of the present case and hence distinguishable from the facts of present case. In the case of Brijlaxmi Leasing Finance Ltd (supra) the ITAT, Ahmedabad Bench has discussed this aspect of the mater in detail and we fully agree with the view taken by ITAT, Ahmedabad Bench. Respectfully following the decision of the ITAT, Ahmedabad Bench (supra) and also keeping in view the decision of the Hon'ble Supreme Court in the case of Travoncore Rubber and Tea Co. Ltd v CIT (supra), we do not see any infirmity in the order of the CIT(A). Accordingly, we uphold the order of CIT(A) on this issue and dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial facts which are necessary for his assessment, for that assessment year. The second part of the proviso is that if the case falls under the exception mentioned in the proviso to section 147, namely, there is failure on the part of the assessee to disclose fully and truly all material facts which are necessary for his assessment, for that assessment year, then action can be taken beyond four years subject to the issue of notice u/s 148 within the limitation provided u/s 149. Section 149 (1)(b) of the Act provides time limit for notice. Both sections 147 149 of the Act are to be read together. In the instant case, the CIT(A) without appreciating the provisions of proviso to section 147 held that notice u/s 148 issued by the Assessing Officer was barred by time. In the instant case, the case of the Revenue falls under the exception mentioned in the proviso to section 147 namely there was failure on the part of the assessee to disclose fully and truly all material facts which were necessary for his assessment, for that assessment year. In the reasons recorded for reopening of the assessment, the Assessing Officer categorically stated that I have reasons to believe that ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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