TMI Blog2018 (7) TMI 1610X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 - - - Dated:- 18-7-2018 - Shri Joginder Singh(JUDICIAL MEMBER) And Shri G Manjunatha (ACCOUNTANT MEMBER) For The Appellant : Shri Saurabh Kumar Rai For The Respondent : Shri Rakesh Joshi ORDER Per G Manjunatha, AM : This appeal filed by the revenue is directed against the order of the CIT(A)-36, Mumbai dated 16-10-2014 and it pertains to AY 2011-12. The revenue has raised the following grounds of appeal:- 1. Whether in the facts and circumstances of the case and in law, the Id. CIT(A) is justified in deleting the addition of ₹ 8,75,00,0007- on account of Redeemable Non Cumulative Preference Shares issued on 02/06/2003, holding the same as benefit arising out of business activity chargeable to tax u/s, 28(iv) of the Income Tax Act, 1961, especially when the same is offered to tax as additional income during search operation. 2. Whether in the facts and circumstances of the case and in law, the Id. CIT(A) is justified in allowing that the Preference Shares cannot be reversed or redeemed in violation of provisions of Companies Act, 1956. 3. Whether in the facts and circumstances of the case and in law, the Id. CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al receipt cannot be taxed u/s 28(iv) of the Income-tax Act, 1961. 3. The AO, after considering relevant submissions of the assessee and also taking into account materials collected during the course of search, including statement recorded u/s 132(4) and subsequent declaration letter filed by the assessee dated 01-06-2011 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. 4. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A, assessee has filed elaborate written submissions which has been reproduced by the Ld.CIT(A) at para 5 on pages 4 to 9 of his order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) was that at no stretch of imagination, a capital receipt being redeemable non cumulative preference shares can be considered as benefit derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumed, that the sum is no more payable, still the up share capital can neither be reversed in books nor redeemed without being sourced from accumulated profits or proceeds of fresh issue of equity shares due to fetters imposed of Companies Law. I am bound to agree with argument of the appellant that even in case of redemption, this is a case of money going out and not coming in so as to derive any income from the same. For the sake of argument, howsoever illogical, even if it is presumed that the said preference share capital could be written back in the year under consideration, still it being a sum received on capital account cannot be charged to tax. While the AO has sought to charge the preference share capital which in his opinion is no more repayable as business income u/s 28(iv) of the Act as the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession , there are a series of authorities including jurisdictional High Court in the case of Xylon Holdings Pvt Ltd (supra), Mahindra and Mahindra Ltd (supra), and other High court and Tribunal rulings which have held that the provisions of section 28(iv) app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout appreciating the fact that the assessee itself has admitted that such share capital is no longer payable and hence, it is a kind of benefit derived out of business connections which is chargeable to tax u/s 28(iv) of the Income-tax Act, 1961. The Ld.CIT(A) completely ignored the fact that the assessee has admitted such undisclosed income in his statement recorded u/s 132(4) and such statement has been recorded from Shri MVS Seshagiri Rao, Managing Director and Group CFO of M/s JSW group of companies, who is well qualified. Therefore, the statement given by the assessee cannot be ignored merely for the reason that the receipt is in the nature of capital receipts. The Ld.DR referring to the letter filed by the assessee before the Deputy Director of Income-tax (Inv) on 01-06-2011, submitted that the assessee has categorically stated that he has agreed for undisclosed income in various companies name amounting to ₹ 260 crores out of which, an amount of ₹ 8.75 crores was offered in assessee s name towards write back of preference shares for which necessary journal entries have been passed in the books of account. The Ld.CIT(A) ignored all evidences to delete addition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... South India House Investments Ltd by debiting to share capital account and crediting to capital reserve account. The assessee claims that redeemable preference shares has been issued in financial year 2003-04 and as per the provisions of section 80 of the Companies Ac, 1956 such redemption should be compulsorily made as per the terms of issue and it cannot be written back in the books of account of the assessee. The assessee further contended that redeemable preference shares is a capital receipt and it cannot be considered as benefit derived out of business activity which is taxable u/s 28(iv) of the Income-tax Act, 1961. The assessee has relied upon various judicial precedents, including the decision of Hon ble jurisdictional High Court in the case of Vodafone India Services Ltd (supra). 9. Having heard both the sides and considered material on record, we find that the co-ordinate bench of ITAT, H-Bench, Mumbai in the case of M/s Nalwa Chrome Pvt Ltd vs DCIT (supra) has considered identical issue in the group company of assessee in connection with a search conducted on M/s JSW group on 16-03-02011. The co-ordinate bench, after considering relevant facts and also taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to so called offer / surrender of aggregate amount of ₹ 262 crores made by Shri Rao and the same is reproduced hereunder for the sake of ready reference:- Do you want to say anything else? Answer: No. I have briefly gone through the seized materials and various statements recorded at this premises during the course of the search and seizure proceedings. On perusal of the same, it appears that there are certain discrepancies 'with regard to expenses, cash payments etc. On the basis of these discrepancies and to cover any other discrepancies that may arise during the course of analysis of the seized material and the books of account of the group companies and to buy peace of mind and avoid litigation, I offer a sum of ₹ 262 crores as additional income of the group. Detailed assessee-wise and year-wise break-up of the additional income i.e. ₹ 262 crores will be given within a week's time. I request you not to initiate penalty and prosecution proceedings on account of the fact that the disclosure has been made voluntarily. 14. It is seen that in the aforesaid statement, name of the assessee company has nowhere specifically mentioned while offeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Article 265 of Constitution of India. Various courts have time to time clarified this position. Therefore, assessment of income must be done only within the four corners of provisions of the Income-tax Act, 1961. Ld. Counsel of the assessee placed reliance in this regard upon the judgment of Hon ble Allahabad High Court in the case of CIT vs Malti Mishra (supra) wherein legal position in this regard has been clarified. Relevant part of the judgment is reproduced hereunder, for the sake of ready reference:- 13. In the instant case, there is no concealment on the part of the assessee regarding the transactions. All the transactions were duly disclosed. If the income as per law is exempted, then the offer of the assessee is meaningless as the law will prevail and will supersede the offer made by the assessee. In the instant case, surrender was to buy the peace as the assessee is not an expert in income tax matter. The Department cannot take the advantage of the ignorance of the assessee as per CBDT Circular No.14(XL35)/1955 dated 01.04.1955 mentioned in 150 ITR 105 (Kar). 14. In the instant case, the statement was recorded of the broker, who had confirmed the sale a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt Ltd (supra) wherein one of the questions raised by the Revenue before the Hon ble High Court was whether the amount received on account of share application money and written-back in the books of account can be brought to tax u/s 41(1) of the Act or u/s 28(iv) of the Act as business income . Hon ble High Court discussed the entire law in this regard and held the same in the negative by observing as under:- 8. We have considered the submissions. The issue arising in this case stands covered by the decision of this Court in the matter of Mahindra Mahindra (supra). The decision of this court in the matter of Solid Containers (supra) is on completely different facts and inapplicable to this case. In the matter of Solid Containers (supra) the assessee therein had taken a loan for business purpose. In view of the consent terms arrived at, the amount of loan taken was waived by the lender. The case of the assessee therein was that the loan was a capital receipt and has not been claimed as deduction from the taxable income in the earlier years and would not come within the purview of Section 41(1) of the Act. However, this Court by placing reliance upon the decision of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd (supra). Thus, from the aforesaid legal discussion and facts of the case before us, we find that the order passed by the Ld. CIT(A) is well reasoned and based on correct legal position and, therefore, no interference is called for in his order. Thus, the same is upheld. Ground raised by the Revenue is dismissed. 19. From the above, it may be noted that Hon'ble High Court has considered its earlier judgment in the case of Solid Containers (supra) as well as the judgment of Hon'ble Supreme Court in the case of T.V. Sundaram lyengar Sons Ltd (supra) and held that the amount received on account of share application money cannot be brought to tax as income u/s 41(1) or u/s 28(iv). 20. It is further noted that similar view has been taken by Hon'ble Madras High Court in the case of Skraemeco Regent Ltd (312 ITR 317) wherein detailed discussion was made on section 28(iv) as well as section 41(1) and it was held that amount received for the purpose of acquiring capital asset did not constitute trading liability, and therefore, the same was not taxable u/s 41(1) or section 28(iv) of the Act. It is further noted that Hon'ble Delhi High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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