GRAVISS HOSPITALITY LTD, MUMBAI v. DCIT RG 1(1), MUMBAI

ITA 3542/MUM/2013 | 2009-2010
Pronouncement Date: 21-11-2014 | Result: Partly Allowed

Appeal Details

RSA Number 354219914 RSA 2013
Assessee PAN AAACT0048E
Bench Mumbai
Appeal Number ITA 3542/MUM/2013
Duration Of Justice 1 year(s) 6 month(s) 15 day(s)
Appellant GRAVISS HOSPITALITY LTD, MUMBAI
Respondent DCIT RG 1(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 21-11-2014
Assessment Year 2009-2010
Appeal Filed On 06-05-2013
Judgment Text
G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI B.R. BASKARAN ACCOUNTANT MEMBER & SHRI AMIT SHUKLA JUDICIAL MEMBER ./ I.T.A. NO. 3542 / MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 M/S GRAVISS HOSPITALITY LTD. 135 NETAJI SUBHASH ROAD MARINE DRIVE MUMBAI 400 020. / VS. THE DY. CIT RANGE 1(1) AAYAKAR BHAVAN MUMBAI 400 20. ./ PAN : AAACT0048E ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.4801/MUM/2013 ( / ASSESSMENT YEAR : 2008-2009 THE DY. CIT RANGE 1(1) AAYAKAR BHAVAN MUMBAI 400 20. / VS. M/S GRAVISS HOSPITALITY LTD. 135 NETAJI SUBHASH ROAD MARINE DRIVE MUMBAI 400 020. ./ PAN : AAACT0048E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI R.N. DSOUZA ! ' / DATE OF HEARING : 16-10-2014 #$% ! ' / DATE OF PRONOUNCEMENT : 21-11-2014 & '( / O R D E R PER AMIT SHUKLA J.M . : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL AS REVENUE AGAINST ORDER DATED 31-03-2013 PASSED BY THE LD. CIT(A) -1 MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 FOR A.Y. 2009-10. 2 ITA 3542/M/13 & 4801/M/13 2. FIRST WE SHALL TAKE UP THE ASSESSEES APPEAL IN ITA NO. 3542/MUM/2013 FOR THE A.Y. 2009-10 VIDE WHICH THE FOLLOWING FOUR ISSUES HAVE BEEN RAISED IN VARIOUS GROUNDS OF APPEAL. IN G ROUND NO. 1 AND SUB- GROUNDS THE ASSESSEE HAS CHALLENGED THE DISALLOWAN CE OF RS. 30 98 264/- U/S 14A BEING 0.5% OF THE AVERAGE INVESTMENT COMPUTED U NDER RULE 8-D OF THE INCOME TAX RULES 1962; IN GROUND NO. 2 THE ASSESS EE HAS CHALLENGED THE DISALLOWANCE OF RS. 94 79 290/- U/S 35D OF THE ACT IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 8 50 00 889/- CONFIRMED BY THE LD. CIT(A) BY TREATING THE FORFEITURE OF SHARE APPLICAT ION MONEY FOR EQUITY WARRANTS AS TAXABLE INCOME IGNORING THE CLAIM OF THE ASSESS EE THAT SUCH FORFEITURE OF APPLICATION MONEY IS IN THE NATURE OF A CAPITAL REC EIPT LASTLY AND IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE U/S 14A WHICH HAS BEEN MADE WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 3. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE SHRI VIJAY MEHTA SUBMITTED THAT GROUND NO. 2 VIDE WHICH DISALLOWANC E OF RS. 94 79 290/- U/S 35D OF THE ACT WAS RAISED THE SAME IS NOT PRESSED . THIS HAS BEEN STATED VIDE LETTER DATED 14-10-2013 FILED BY THE ASSESSEE. THU S GROUND NO. 2 OF ASSESSEES APPEAL IS TREATED AS DISMISSED AS NOT PRESSED. 4. NOW COMING TO THE ISSUE OF DISALLOWANCE U/S 14A WE FIND THAT THE REVENUE IS ALSO AGGRIEVED BY THE ORDER OF THE LD. C IT(A) INSOFAR AS THE DISALLOWANCE RELATING TO INTEREST MADE U/R 8-D HAS BEEN DELETED BY THE LD. CIT(A). THUS THE ENTIRE ISSUE OF DISALLOWANCE U/S 14A IS BEING DISCUSSED HEREIN BELOW. 5. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF HOTEL CATERING AND BANQUETING. IT IS MAINLY RUNNING A HOTEL NAMED AS INTERCONTINENTAL MARINE DRIVE MUMBAI. THE ASSESSEE HAS CREDITED DIVIDEND I NCOME OF RS. 4 21 34 042/- WHICH WAS CLAIMED AS EXEMPT INCOME. IN THE COMPUTAT ION OF INCOME FILED THE 3 ITA 3542/M/13 & 4801/M/13 ASSESSEE HAS MADE DISALLOWANCE OF RS. 2 LACS U/S 14 A ON ACCOUNT OF INDIRECT EXPENSES FOR THE PURPOSE OF EARNING EXEMPT INCOME. IN RESPONSE TO THE SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S 14A SHOULD NOT BE MADE AS PER RULE 8-D THE ASSESSEE SUBMITTED THAT IT HAD HUGE SURPLUS FUN DS AVAILABLE WITH IT FOR THE PURPOSE OF INVESTMENT IN SHARES AND MUTUAL FUNDS AN D THAT IS WHY NO EXPENSE WAS DEBITED FOR EARNING OF EXEMPT INCOME IN P&L ACC OUNT. HOWEVER FOR INDIRECT EXPENSES IT HAS MADE DISALLOWANCE OF RS. 2 LACS BY ESTIMATING THE TIME SPENT BY THE EMPLOYEES WHICH CAN BE SAID TO BE RELATING T O THE INVESTMENTS. OTHERWISE THERE IS NO DIRECT NEXUS BETWEEN THE INT EREST EXPENSES AND OTHER EXPENSES INCURRED FOR THE PURPOSE OF EARNING THE DI VIDEND INCOME AS ITS MAIN BUSINESS ACTIVITY IS RUNNING OF HOTEL. HOWEVER TH E A.O. HELD THAT THE ASSESSEE COMPANY HAS NOT PROVED ANY NEXUS BETWEEN THE INVEST MENT IN SHARES AND ITS OWN FUNDS SO AS TO PROVE THAT BORROWED FUNDS HAVE N OT BEEN USTILISED FOR THE PURPOSE OF MAKING THE INVESTMENT. HE ALSO NOTED THA T THOUGH THE ASSESSEE HAS SUBMITTED A CHART IN WHICH IT HAS GIVEN THE DETAILS OF LOAN AMOUNT AND THE PURPOSE OF WHICH IT HAS BEEN UTILIZED HOWEVER EXA CT FUND FLOW HAS NOT BEEN MADE AVAILABLE ALONG WITH THE SUPPORTING DOCUMENTS. RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. DDCIT 328 ITR 81 HE MADE DISALLOWANCE U/S 14A IN THE FOLLOWING MANNER:- PARTICULARS AMOUNT AMOUNT I)DIRECT EXPENDITURE RELATING TO EXEMPT INCOME NIL II)AMOUNT COMPUTED AS PER RULE 8D(2)(II) [AXB/C] A= INTEREST EXPENSES 3 30 59 947 B= AVERAGE OF INVESTMENTS 61 96 52 831 C=AVERAGE OF TOTAL ASSETS 314 77 64 095 III)0.5% OF AVERAGE INVESTMENT (0.5% X RS.36 65 96 041 (RULE 8D (2)(II)] 30 98 264 TOTAL DISALLOWANCE AS PER RULE 8D(I+II+III) 96 06 277 4 ITA 3542/M/13 & 4801/M/13 SINCE THE ASSESSEE HAD ALREADY DISALLOWED AN AMOUNT OF RS. 2 LACS THEREFORE HE SUSTAINED THE DISALLOWANCE UP TO RS. 96 06 277/- U/ S 14A. 6. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED DE TAILED SUBMISSION WHICH HAS BEEN INCORPORATED BY THE LD. CIT(A) FROM PAGES 6 TO 14 OF HIS ORDER. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT IT HAD A H UGE SURPLUS FUND IN THE BALANCE SHEET AS ON 31-3-2009 AND ALSO AS ON 31-3-2 008 THE DETAILS OF AVAILABILITY OF SUCH FUNDS WERE GIVEN IN THE FOLLOW ING MANNER:- PARTICULAR 1.3.2009(RS.) 31.3.2008(RS.) NET OWN FUND SHARE CAPITAL RESERVES & SURPLUS [SHARE CAPITAL + RESERVES & SURPLUS] LESS: INVESTMENTS (B) OWN FUNDS-INVESTMENTS(A-B) 17 28 90 120 256 18 19 063 273 47 09 183 54 42 06 259 219 05 02 924 17 28 90 120 239 99 11 579 257 28 01 699 69 15 21 403 188 12 80 296 THEREAFTER THE ASSESSEE ALSO GAVE THE DETAILS OF LO AN AND NATURE OF UTILIZATION OF LOAN ON INTEREST PAID. THESE WERE GIVEN IN THE FOL LOWING MANNER :- DETAILS OF INTEREST PAID NATURE OF UTILIZATION OF LOAN AMT (RS.) AXIS BANK TERM LOAN FOR CONSTRUCTION AND RENOVATION OF HOTEL BUILDING 24 453 VIJAYA BANK VFRL & TERM LOAN INTEREST REPAIRS OF BANQUETS 20 077 332 VIJAYA BANK TERMS LOAN FOR CONSTRUCTION AND RENOVATION OF HOTEL BUILDING 11 182 836 KWALITY FROZEN FOODS PVT. LTD. LOAN OBTAINED FOR CAPITAL EXPENDITURE 82 464 TML FINANCIAL SERVICES PVT. LTD. CAR LOAN 24 115 TATA CAPITAL CAR LOAN 44 342 KOTAK MAHINDRA BANK LTD. CAR LOAN 52 187 ICICI BANK CAR LOAN 21 671 INTEREST ON FIXED DEPOSIT FIXED DEPOSITS ACCEPTED IN 13 931 5 ITA 3542/M/13 & 4801/M/13 EARLIER YEARS IHG LOAN WORKING CAPITAL LOAN 36 616 TOTAL 33 059 947 THUS IT WAS SUBMITTED THAT SO FAR AS THE INVESTMENT S IN SHARES ARE CONCERNED THEY WERE MADE OUT OF SURPLUS FUNDS THEREFORE NO I NTEREST SHOULD BE DISALLOWED. REGARDING INDIRECT EXPENSES IT WAS SUB MITTED THAT IT HAS GIVEN A DETAILED WORKING OF THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE FOR ITS BUSINESS AND ALSO THE AMOUNT OF EXPENSES WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF THE EXEMPT INCOME. 7. THE LD. CIT(A) HOWEVER HELD THAT THE ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) IN A.Y. 2008-09 WHEREIN WITH REGARD TO INDI RECT EXPENSES THE MATTER WAS DECIDED AGAINST THE ASSESSEE I.E BY TAKING 0.5% OF THE AVERAGE INCOME. THE LD. CIT(A) ACCORDINGLY GAVE DIRECTION TO THE A.O. I N THE FOLLOWING MANNER:- 6.3.1 HOWEVER IN THIS YEAR THE AO STATES THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DOCUMENTS INCLUDING THE BANK STATEME NT HIGHLIGHTING THE FUND FLOW IN SUPPORT OF ITS CLAIM. DURING THE COURSE OF HEARING THE AR FURNISHED THE DETAILS OF THE SHARE CAPITAL WHICH HAVE BEEN INVEST ED IN TAX FREE INVESTMENTS. AS THESE DETAILS WERE NOT FURNISHED BEFORE THE AO THE AO IS DIRECTED TO EXAMINE THESE DETAILS AND COMPUTE THE DISALLOWANCE STRICTLY IN ACCORDANCE WITH RULE-8D IN TERMS OF THE JURISDICTIONAL HIGH COURT JUDGMENT IN GODREJ & BOYCE MFG. CO. (SUPRA). HOWEVER AS REGARDS THE DISALLOWANCE MADE UNDER CLAUSE-C OF RULE 8-D AT 0.5% OF THE AVERAGE INVESTMENT OF RS.366596041/- AT RS.30 98 264/- THE SAME IS SUSTAINED. THIS GROUND OF APPEAL IS ACCORDI NGLY PARTLY ALLOWED. 8. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SHR I VIJAY MEHTA SUBMITTED THAT SO FAR AS THE DISALLOWANCE OF INTEREST IS CONC ERNED WHICH IS THE SUBJECT MATTER OF GROUND RAISED BY THE DEPARTMENT THE ASSE SSEE HAD GIVEN THE DETAILS OF NOT ONLY THE AVAILABILITY OF HUGE SURPLUS FUNDS FOR THE PURPOSE OF INVESTMENT BUT ALSO THE UTILIZATION OF LOAN WHICH WAS MAINLY FOR THE BUSINESS PURPOSE AND THEREFORE NO INTEREST COMPONENT CAN BE DISALLOWED U /R 8-D. BESIDES THAT ONCE THE ASSESSEE HAS GIVEN THE DETAILS OF ACTUAL ALLOCA BLE EXPENSES BEFORE THE A.O. 6 ITA 3542/M/13 & 4801/M/13 THEN THE A.O. WITHOUT RECORDING HIS SATISFACTION AS REQUIRED IN SUB-SECTION (2) OF SECTION 14A CANNOT PROCEED TO DETERMINE THE AMOUNT OF EXPENDITURE AS PER RULE 8-D. THE ASSESSEE HAS PRODUCED THE ENTIRE BOO KS OF ACCOUNTS NATURE OF EXPENSES WHICH WERE UTILIZED FOR THE PURPOSE OF BUS INESS AND ALSO GAVE WHAT COULD HAVE BEEN THE ALLOCABLE EXPENSES WITH REGARD TO THE INDIRECT EXPENSES FOR THE PURPOSE OF SECTION 14-A. THE A.O. WITHOUT EXAMI NING THE VERACITY OF ACCOUNTS AND ALSO THE ALLOCATION OF EXPENSES COULD NOT RESORT TO DISALLOWANCE OVER AND ABOVE WHAT HAS ALLOCATED. IN SUPPORT OF HI S CONTENTION HE RELIED UPON VARIOUS DECISIONS OF THE ITAT MUMBAI BENCHES WHICH HAS BEEN GIVEN IN A SEPARATE COMPILATION OF PAPER. 9. ON THE OTHER HAND THE LD. D.R. STRONGLY RELIED UPON THE ORDER OF THE A.O. AND SUBMITTED THAT THE ASSESSEE HAS TO ESTABLI SH THE NEXUS BETWEEN THE LOAN AND ITS UTILIZATION. AS REGARDS THE DISALLOWAN CE ON ACCOUNT OF INDIRECT EXPENSES BY TAKING 0.5% OF AVERAGE INVESTMENT HE S UBMITTED THAT RULE 8-D IS MANDATORY AND ANY DISALLOWANCE WHICH IS REQUIRED TO BE MADE HAS TO BE MADE IN ACCORDANCE WITH THE SAID RULE ONLY. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE IMPUGNED ORDERS OF AUTHORITIES BELOW AND ALSO THE MATERIAL P LACED ON RECORD. THE ASSESSEE IS MAINLY ENGAGED IN THE HOTEL BUSINESS. IT HAS MA DE INVESTMENT IN THE SHARES AND MUTUAL FUNDS ON WHICH IT HAS EARNED DIVIDEND IN COME OF RS. 4 21 34 042/-. IN RESPONSE TO THE SHOW CAUSE NOTICE FOR DISALLOWAN CE U/S 14A IT HAS SUBMITTED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF HUGE SUR PLUS FUNDS WHICH WERE INTEREST FREE IN THE FORM OF RESERVES AND SURPLUS A ND SHARE CAPITAL WHICH AGGREGATED TO RS. 2 73 47 09 183/-. AS AGAINST THIS THE TOTAL INVESTMENT STOOD AT RS. 54 42 06 259/-. THUS SURPLUS FUNDS WERE SUFF ICIENT TO COVER THE INVESTMENTS. NOT ONLY THAT THE ASSESSEE HAS ALSO GIVEN THE NATURE OF UTILIZATION OF LOAN AND DETAILS OF INTEREST PAID WHICH HAS BEEN INCORPORATED AS ABOVE. FOR THE PURPOSE OF INDIRECT EXPENSES THE ASSESSEE HAS GIVEN THE CALCULATION OF 7 ITA 3542/M/13 & 4801/M/13 EXPENDITURE FROM ITS ACCOUNT WHICH CAN BE SAID TO B E ATTRIBUTABLE FOR THE PURPOSE OF EARNING OF THE EXEMPT INCOME. THESE DET AILS WERE AS FOLLOWS:- ACTUAL ALLOCABLE EXPENSES: ACCOUNTANT SALARY (NITIN MORE) 60 000 CONVEYANCE (500PM) 3 600 TELEPHONE EXP (600PM) 4 800 PEON SALARY (BALARAM CHOUDHARI 4000 PM) 36 000 PROFESSIONAL FEES 84 000 OTHER MISC 5 000 TOTAL B 193 400 ROUNDED OFF TO 200 000 ========= 11. ONCE ALL THESE DETAILS WERE MADE AVAILABLE ALON G WITH THE ENTIRE ACCOUNTS OF THE ASSESSEE THE A.O. WAS REQUIRED TO RECORD HIS SATISFACTION OR SATISFIED HIMSELF THAT HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE DEBITED I S NOT CORRECT AND THERE COULD HAVE BEEN CERTAIN OTHER EXPENDITURES WHICH CAN BE S AID TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. THE DI SALLOWANCE U/S 14A (1) CAN ONLY BE TRIGGERED ONCE THE CONDITIONS UNDER SUB SE CTION (2) ARE SATISFIED. TO WORK OUT THE DISALLOWANCE U/R 8-D THE A.O. HAS TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THE CORRECTNESS OF THE CLAIM AN D THEN IF HAVING REGARD TO SUCH ACCOUNTS AND THE CLAIM HE IS NOT SATISFIED WIT H EITHER THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE OR MADE A CLAIM THAT NO EXPENDITURE AT ALL HAS BEEN INCURRED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME THEN ONLY HE CAN RESORT TO RULE 8-D. IN THE PRESENT CASE WE FIND T HAT THE A.O. HAS STRAIGHT- AWAY PROCEEDED TO APPLY RULE 8-D FOR THE PURPOSE OF DISALLOWANCE U/S 14A WITHOUT SATISFYING OR COMPLYING WITH THE MANDATORY REQUIREMENT OF SECTION 14A(2) OR RULE 8-D(1). ONCE THE A.O. HAS FAILED TO COMPLY THE STATUTORY REQUIREMENT THEN HE CANNOT PROCEED TO MAKE THE DIS ALLOWANCE U/S 14A(1) AND ACCORDINGLY THE DISALLOWANCE MADE BY THE A.O. AND PARTLY SUSTAINED BY 8 ITA 3542/M/13 & 4801/M/13 THE LD. CIT(A) OVER AND ABOVE THE DISALLOWANCE MAD E BY THE ASSESSEE IS DELETED. IN THE RESULT GROUND NO. 1 OF THE DEPARTM ENTS APPEAL IS DISMISSED WHEREAS THE ASSESSEES GROUND NO. 1 IS TREATED AS A LLOWED. 12. GROUND NO. 2 OF THE DEPARTMENTS APPEAL AND GRO UND NO. 4 OF THE ASSESSEES APPEAL ARE COMMON THAT IS RELATING TO THE DISALLOWANCE U/S 14A WHILE CALCULATING THE BOOK PROFIT U/S 115JB OF THE ACT. 13. AS ADMITTED BY BOTH THE PARTIES ONCE THE DISAL LOWANCE U/S 14A HAS BEEN MADE THEN THE SAME DISALLOWANCE SHALL ALSO FO RM PART OF THE COMPUTATION WHILE CALCULATING THE BOOK PROFIT U/S 1 15JB OF THE ACT. THUS THE DISALLOWANCE AS MADE BY THE ASSESSEE IN ITS COMPUTA TION OF INCOME WILL BE THE DISALLOWANCE WHILE COMPUTING THE BOOK PROFIT U/S 11 5JB. ACCORDINGLY GROUND NO. 2 OF THE DEPARTMENTS APPEAL AS WELL AS GROUND NO. 4 OF THE ASSESSEES APPEAL ARE DECIDED IN THE AFORESAID MANNER THAT IS BOTH THE GROUNDS ARE TREATED AS PARTLY ALLOWED. 14. THE NEXT MAJOR ISSUE IN GROUND NO. 3 OF THE ASS ESSEES APPEAL RELATES TO TAXING OF SHARE APPLICATION MONEY FOR EQUITY WARRAN T OF RS. 8 50 00 889/- AS REVENUE RECEIPT WHICH WAS TREATED BY THE ASSESSEE AS CAPITAL RECEIPT. 15. BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT TH E ASSESSEE IN THE BALANCE SHEET HAD TRANSFERRED AN AMOUNT OF RS. 8 50 00 889/ - TO THE WARRANT FORFEITURE ACCOUNT AND WERE TAKEN TO CAPITAL RESERV E. AS PER THE FACTS SUBMITTED BEFORE THE AUTHORITIES BELOW IT WAS STAT ED THAT THE ASSESSEE COMPANY HAD ALLOTTED 29 99 114 EQUITY WARRANTS TO T HE NON-PROMOTER GROUP IN PURSUANCE OF THE SEBI GUIDELINE 2000 TO BE CONVERT ED INTO EQUITY SHARES. THE PREFERENTIAL ALLOTMENT OF EQUITY WARRANTS WERE APPROVED BY THE SHAREHOLDERS OF THE COMPANY AT AN EXTRA ORDINARY GE NERAL MEETING HELD ON 6-6-2007. SUCH AN APPROVAL WAS ALSO GRANTED BY THE BOMBAY STOCK EXCHANGE. 9 ITA 3542/M/13 & 4801/M/13 THE ALLOTTEES/HOLDER OF EACH WARRANT WAS ENTITLED T O APPLY AND OBTAIN ALLOTMENT OF ONE EQUITY SHARE AGAINST EACH WARRANT AT THE RATE OF RS. 283.42 PER SHARE. ON APPLICATION THE ASSESSEE COMPANY WAS TO RECEIVE ONLY RS. 28.34 AGAINST EACH WARRANT BEING 10% OF ALLOTMENT MONEY. AS PER THE PROVISIONS OF SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINE 2000 THE WARRANT HOLDER HAD TO EXERCISE THE RIGHT FOR CONVERSION OF WARRANT S INTO EQUITY SHARES WITHIN 18 MONTHS FROM THE DATE OF ALLOTMENT I.E. WITHIN 18 MONTHS FROM THE DATE OF ALLOTMENT BY PAYING THE BALANCE AMOUNT. OUT OF THE FIVE ALLOTEES WHO HAD SUBSCRIBED TO THE EQUITY WARRANTS ONLY ONE ALLOTTE E HAD EXERCISED THE OPTION AND IN LIEU OF THAT 44 10 462 EQUITY SHARES WERE I SSUED IN THE FINANCIAL YEAR 2007-08. THE REMAINING FOUR ALLOTTEES HAD ONLY PAI D THE APPLICATION MONEY IN THE FOLLOWING MANNER :- NAME OF ALLOTEE NO. OF SECURITIES TO BE ALLOTTED APPLICATION MONEY (RS.) AMOUNT INSHEILD INSURANCE CONSULTANTS PRIVATE LIMITED 900 000 28.342 2 55 07 800 CONROE FINANCE LIMITED 700 000 28.342 1 98 39 400 WILLASTON FINANCE LIMITED 500 000 28.342 1 41 71 000 ANCHOR ICE & PLASTICS PRIVATE LIMITED 899 114 28.342 2 54 82 689 TOTAL 29 99 114 8 50 00 889 16. THIS AMOUNT RECEIVED BY THE ASSESSEE WAS SHOWN UNDER SHARE APPLICATION MONEY IN SCHEDULE A-1 OF THE ASSESSEE S AUDITED ACCOUNT FOR THE FY 2006-07. THE ASSESSEE DID NOT RECEIVE ANY REQUES T FROM THE AFORESAID FOUR ALLOTTEES/WARRANT HOLDERS TO EXERCISE THE RIGHT FOR CONVERSION OF EQUITY SHARES TILL THE EXPIRY OF 18 MONTHS I.E. THE TIME STIPULAT ED UNDER THE PREFERENTIAL ISSUE GUIDELINES. AFTER THE EXPIRY OF THE SAID PRESCRIBED TIME LIMIT THE ASSESSEE 10 ITA 3542/M/13 & 4801/M/13 TRANSFERRED THE SAME TO WARRANT FORFEITURE ACCOUNT . AS THE FORFEITURE WAS OF EQUITY WARRANT APPLICATION MONEY WHICH WAS IN THE N ATURE OF CAPITAL RECEIPT THE ASSESSEE TRANSFERRED THE FORFEITURE AMOUNTS TO THE CAPITAL RESERVE. HENCE IN THE NOTES AND ACCOUNTS OF THE AUDITED STATEMENT FOR THE YEAR ENDING 31 ST MARCH 2009 I.E A.Y. 2009-10 THE SAID AMOUNT WAS N OT OFFERED TO TAX IN THE RETURN OF INCOME AND IT WAS TREATED AS CAPITAL RECE IPT. 17. IN THE COURSE OF ASSESSMENT PROCEEDINGS IN RES PONSE TO THE SHOW CAUSE AS TO WHY THE AMOUNT RECEIVED ON ACCOUNT OF FORFEIT URE SHOULD NOT BE TREATED AS INCOME OF THE ASSESSEE THE ASSESSEE SUBMITTED T HAT EQUITY WARRANTS ARE ISSUED FOR THE PURPOSE OF OBTAINING FINANCE FOR THE EXPANSION OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE WAS NOT IN THE BUSINE SS OF RAISING MONEY THROUGH ISSUE OF SHARE WARRANTS BUT IN THE HOTEL BU SINESS THEREFORE IT HAS NOT TAKEN THE SHARES FORFEITURE AMOUNT TO THE P&L ACCOU NT BUT IN THE CAPITAL RESERVE IN THE BALANCE SHEET. THE A.O. HELD THAT I T IS AN INCOME TAXABLE UNDER THE ACT BECAUSE ANY INCOME RECEIVED BY THE ASSESSEE IF IT IS NOT EXEMPT UNDER ANY OTHER PROVISIONS OF THE I.T. ACT THEN THE SAME IS TAXABLE INCOME. FOR ARRIVING THIS CONCLUSION HE REFERRED TO THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF EMIL WEBBER VS. CIT [1993] 200 ITR 4 83. HE FURTHER RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F T.V. SUNDARAM IYENGAR & SONS 222 ITR 344 AND HELD THAT THE ISSUE INVOLVED IN THE PRESENT CASE IS COVERED BY THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT WHEREIN IT WAS HELD THAT EVEN THOUGH THE DEPOSITS WERE CAPITAL IN NATURE AT THE POINT OF TIME OF RECEIPTS HOWEVER THEY CAN CHANGE THE CHAR ACTER BY AFFLUX OF TIME AND CAN ATTAIN THE CHARACTER OF TRADING RECEIPTS. HE A LSO STRONGLY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SOLID CONTAINERS VS. DCIT [2009] 308 ITR 417 (BOM) WHEREIN THE ASSESSEE COMPANY HAD TAKEN A LOAN FOR THE BUSINESS PURPOSE WHICH WAS WRITTEN BAC K IN THE RELEVANT ASSESSMENT YEAR AND THE SAID LOAN WAS TREATED AS CA PITAL RECEIPT. THE 11 ITA 3542/M/13 & 4801/M/13 DEPARTMENT TREATED THE SAID AMOUNT AS INCOME U/S 41 (1) AND ON THIS BACK GROUND HONBLE HIGH COURT HELD THAT THE LOAN TAKEN FOR TRADING ACTIVITY AND ULTIMATELY UPON WAIVER OF THE AMOUNT WHICH HAS BEEN RETAINED IN THE BUSINESS BY THE ASSESSEE THEN THE AMOUNT WAS ASSESSABLE AS INCOME WHICH IS TAXABLE. THUS AFTER ANALYZING ALL THE JUDGMENTS AND THE FAC TS HE CONCLUDED THAT THE AMOUNT WHICH WAS FORFEITED BY THE ASSESSEE WAS ULTI MATELY USED FOR THE EXTENSION OF THE BUSINESS WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSE HAS CLAIMED HUGE REVENUE EXPENSES U/S 37 NOT ONLY IN TH E EARLIER YEARS BUT ALSO IN THE CURRENT YEAR FOR ITS BUSINESS PURPOSE AND THERE FORE SUCH FORFEITURE AMOUNT IS NOTHING BUT REVENUE RECEIPT. THIS ANALYSIS HAS DONE BY THE A.O. AT PAGES 11 & 12 OF THE ASSESSMENT ORDER. 18. BEFORE THE LD. CIT(A) THE ASSESSEE MADE DETAIL ED SUBMISSIONS AND ALSO RELIED UPON CERTAIN TRIBUNAL DECISIONS WHEREIN THE HONBLE SUPREME COURT DECISION IN THE CASE OF T.V. SUNDARAM IYENGAR & SON S LTD. (SUPRA) WERE DISCUSSED. THE ASSESSEES MAIN RELIANCE WAS ON THE DECISION OF ITAT MUMBAI IN THE CASE OF PRISM CEMENT LIMITED VS. JCIT [2006] 101 ITD 103 (MUMBAI) AND IN THE CASE OF DCIT VS. BRIJLAXMI LEASING & FIN ANCE LTD. [2009] 118 ITD 546 (AHD). THE ASSESSEES SUBMISSIONS AND CASE LAWS RELIED UPON BY IT HAS BEEN INCORPORATED BY THE LD. CIT(A) AT PAGE 37 TO 4 3 OF THE APPELLATE ORDER. THE LD. CIT(A) AFTER ANALYZING THE DECISIONS RELIED UPO N BY THE ASSESSEE HELD THAT THE SAME ARE NOT APPLICABLE ON THE FACTS OF THE ASS ESSEES CASE. FURTHER ON PERUSAL OF THE BALANCE SHEET FILED BY THE ASSESSEE HE NOTED THAT THE AMOUNT RECEIVED ON FORFEITURE OF SHARES WAS NOT SPENT TO A CQUIRE ANY FIXED ASSETS AND THEREFORE HE CAME TO THE CONCLUSION THAT THOUGH THE ASSESSEE HAD RECEIVED FORFEITURE AMOUNT WHICH WERE IN THE NATURE OF CAPIT AL RECEIPT AT THE TIME OF RECEIPT HOWEVER THESE AMOUNTS WERE EXPENDED ON RE VENUE ACCOUNT AND THEREFORE THEY PARTAKE THE CHARACTER OF REVENUE REC EIPTS. THUS HE HELD THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SOLID CONTAINERS (SUPRA) 12 ITA 3542/M/13 & 4801/M/13 WILL SQUARELY APPLY TO THE FACTS OF THIS CASE AND A CCORDINGLY UPHELD THE ORDER OF THE A.O. BY TREATING THE SAID AMOUNT AS REVENUE EXP ENDITURE. 19. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SH RI VIJAY MEHTA AFTER EXPLAINING THE ENTIRE FACTS SUBMITTED THAT WHAT AS SESSEE HAS RECEIVED ON ACCOUNT OF FORFEITURE OF SHARE APPLICATION MONEY I S IN THE NATURE OF CAPITAL RECEIPT ONLY. THE SHARE APPLICATION MONEY IS ALWAYS A CAPITAL RECEIPT AND ANY AMOUNT FORFEITED ON ACCOUNT OF SUCH SHARE APPLICATI ON MONEY IS AGAIN A CAPITAL RECEIPT AND IT CANNOT PARTAKE THE CHARACTER OF A REVENUE RECEIPT. EVEN UNDER THE COMPANIES ACT THE FORFEITURE OF SHARE AP PLICATION MONEY IS NOT CREDITED TO P&L ACCOUNT. HERE IT IS NOT A CASE OF A NY WAIVER OF LOAN OR ANY DEPOSITS FOR THE TRADING PURPOSE WHICH HAS BEEN FOR FEITED AS WERE THE CASE IN THE JUDGMENTS RELIED UPON BY THE A.O. AND LD. CIT(A ). IN THE CASE OF SOLID CONTAINERS (SUPRA) THE ISSUE WHICH HAS ARISEN FOR CONSIDERATION WAS ON ACCOUNT OF WAIVER OF LOAN TAKEN BY THE ASSESSEE FOR TRADING ACTIVITY. THE SAID AMOUNT WAS TRANSFERRED TO P&L ACCOUNT AND ON THESE FACTS IT WAS HELD THAT IT IS ASSESSABLE U/S 41. THE FACTS AS WELL AS THE PRI NCIPLE LAID DOWN IN THE CASE OF SOLID CONTAINERS ARE TOTALLY DIFFERENT FROM THE ASSESSEES CASE. EVEN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T. V. SUNDARAM IYENGAR & SONS (SUPRA) IS ALSO NOT APPLICABLE HERE IN THIS CA SE BECAUSE IN THAT CASE THE AMOUNT WAS RECEIVED AS DEPOSITS FROM CUSTOMERS DURI NG THE COURSE OF TRADING TRANSACTION WHICH WAS NOT TAXABLE IN THE YEAR OF RE CEIPT. HOWEVER SUCH AN AMOUNT IN THE FORM OF DEPOSITS WERE NOT CLAIMED BY THE CUSTOMERS AND THE CLAIM HAD BECOME BARRED BY LIMITATION AND THEREFORE SUCH AND UNCLAIMED BALANCE WHICH WAS TRANSFERRED TO THE P&L ACCOUNT WA S TREATED AS ASSESSABLE INCOME. ADMITTEDLY THESE ARE NOT THE FACTS OF THE PRESENT CASE. ON THE CONTRARY THE DECISIONS OF THE TRIBUNAL IN THE CASE OF PRISM CEMENTS LTD. (SUPRA) AND BRIJLAXMI LEASING & FINANCE LTD. (SUPRA ) ARE SQUARELY APPLICABLE ON THE FACTS WHICH WERE ON ACCOUNT OF FORFEITURE OF SHARE APPLICATION MONEY. 13 ITA 3542/M/13 & 4801/M/13 IN THESE CASES THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) WAS DISCUSSED. THUS THE SAID AMOUNT CANNOT BE TREATED AS REVENUE RECEIPT. HE FURTHER CL ARIFIED THAT THE OBSERVATION MADE BY THE LD. CIT(A) IN PARA 10.7 TO 10.9 IS NOT CORRECT TO THE EXTENT THAT FORFEITED AMOUNT WAS NOT UTILIZED FOR FIXED ASSETS BECAUSE FROM THE PERUSAL OF THE BALANCE SHEET AND SCHEDULE OF FIXED ASSETS IT C AN BE SEEN THAT THERE HAS BEEN ADDITION IN FIXED ASSETS OF MORE THAN RS. 15.7 3 CRORES IN ANY CASE SUCH AN OBSERVATION DOES NOT HAVE BEARING ON THE ISSUE I NVOLVED. 20. ON THE OTHER HAND THE LD. D.R. STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AS WELL AS THE A.O. AND SUBMITTED THAT THE S HARE APPLICATION MONEY WAS FOR THE PURPOSE OF EXTENSION OF BUSINESS ONLY AND A NY FORFEITURE OF SUCH SHARE APPLICATION MONEY IS NOTHING BUT REVENUE RECEIPTS. HE STRONGLY RELIED UPON THE DECISIONS REFERRED BY THE LD. CIT(A). 21. WE HAVE HEARD THE RIVAL CINTENTIONS AND PERUSED THE RELEVANT FINDING GIVEN BY THE AUTHORITIES BELOW AND ALSO MATERIAL PL ACED ON RECORD. FOR THE PURPOSE OF ADJUDICATING THE ISSUE INVOLVED THE REL EVANT FACTS ARE BEING REITERATED AGAIN TO UNDERSTAND THE NATURE OF CONTRO VERSY. IT IS AN UNDISPUTED FACT THAT DURING THE FINANCIAL YEAR 2007-08 THE AS SESSEE COMPANY HAD ISSUED EQUITY WARRANTS CONVERTIBLE INTO EQUITY SHARES UNDE R PREFERENTIAL ISSUE TO THE PUBLIC IN ACCORDANCE WITH SEBI GUIDELINES 2000. S UCH PREFERRED ALLOTMENT OF EQUITY WARRANTS HAVE ALSO BEEN APPROVED BY THE SHAR EHOLDERS OF THE COMPANY AND APPROVAL WAS ALSO GRANTED BY BSE. FIVE ALLOTTE ES SUBSCRIBED TO THE EQUITY SHARE AGAINST EACH WARRANT @ RS. 283.42 PER SHARE. AT THE TIME OF APPLICATION ALLOTTEES HAD TO PAY 10% OF THE VALUE I.E RS. 28.34 PER SHARES. THE BALANCE AMOUNT AS PER THE SEBI GUIDELINES HAD TO BE PAID WI THIN THE PERIOD OF 18 MONTHS I.E THE WARRANT HOLDER HAD TO EXERCISE THE R IGHT FOR CONVERSION OF WARRANTS INTO EQUITY SHARES WITHIN 18 MONTHS FROM T HE DATE OF ALLOTMENT BY PAYING THE BALANCE AMOUNT. OUT OF THE FIVE ALLOTTEE S ONLY ONE ALLOTTEE HAD 14 ITA 3542/M/13 & 4801/M/13 EXERCISED THE OPTION TO WHOM EQUITY SHARES WERE ISS UED IN THE FINANCIAL YEAR 2007-08 ITSELF. THE REMAINING FOUR ALLOTTEES HAD O NLY PAID 10% OF APPLICATION MONEY AS PER THE DETAILS WHICH HAS BEEN INCORPORATE D ABOVE. SUCH AN AMOUNT AGGREGATED TO RS. 8.50 CRORES. THE AMOUNT WHICH WA S RECEIVED BY THE ALLOTTEES WERE SHOWN AS SHARE APPLICATION MONEY FOR THE SAI D FINANCIAL YEAR THAT IS IT WAS TREATED AS CAPITAL RECEIPT IN THE BALANCE SHEET . ONCE THE FOUR ALLOTTEES DID NOT EXERCISE THE RIGHT FOR CONVERSION OF WARRANT IN TO EQUITY SHARES TILL THE EXPIRY OF 18 MONTHS (I.E. WITHIN THE STIPULATED TIM E) THE ASSESSEE HAS TRANSFERRED THE SAID AMOUNT AS WARRANT FORFEITURE ACCOUNT. AS THE FORFEITURE OF EQUITY WARRANT APPLICATION WAS IN THE NATURE OF CAPITAL RECEIPT THE ASSESSEE HAS TRANSFERRED THE FORFEITURE AMOUNT TO ITS CAPITA L RESERVE. THUS THE ASSESSEE TREATED IT AS CAPITAL RECEIPT AND THEREFORE IT WAS NOT OFFERED AS INCOME. 22. NOW ON THESE FACTS WE HAVE TO EXAMINE WHETHER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF SOLID CONTAINERS (SUPRA) ARE APPLICABLE OR NOT ON WHICH HEAVY RELIA NCE HAS BEEN PLACED BY THE DEPARTMENT. IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) THE ITO FOUND THAT THE ASSESSEE HAD TRANSFERRED AN AMOU NT OF RS. 17381/- TO THE P&L ACCOUNT FOR THE YEAR ENDING 31-3-1982 AND RS. 3 8975/- FOR THE YEAR ENDING 31-3-1983. THESE AMOUNTS WERE NOT INCLUDED I N THE INCOME OF THE ASSESSEE. IT WAS STATED BY THE ASSESSEE THAT THESE ARE CREDIT BALANCES STANDING IN FAVOUR OF CUSTOMERS WHICH WERE NOT CLAIMED BY TH EM AND THEREFORE THE AMOUNTS WERE TRANSFERRED TO THE P&L ACCOUNT. IT WA S NOT IN DISPUTE THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN THE COURSE O F TRADING TRANSACTION. THE ITO ADDED IT AS AN INCOME OF THE ASSESSEE FOR THE P URPOSE OF INCOME TAX ASSESSMENT. THE LD. CIT(A) HELD THAT SUCH AN AMOUNT CANNOT BE TREATED AS INCOME EITHER U/S 41(1) OR U/S 28 OF THE ACT. THE TRIBUNAL ALSO UPHELD THE VIEW OF THE LD. CIT(A). ON THESE FACTS THE HONBL E SUPREME COURT HELD THAT 15 ITA 3542/M/13 & 4801/M/13 THE MONEY WAS RECEIVED BY THE ASSESSEE IN THE COURS E OF CARRYING ON THE BUSINESS AND ALTHOUGH IT WAS TREATED AS DEPOSITS AN D WAS IN THE NATURE OF CAPITAL RECEIPT AT THAT POINT OF TIME HOWEVER BY E FFLUX OF TIME MONEY HAS BECOME OWN MONEY OF THE ASSESSEE BECAUSE THE CLAIM OF THE CUSTOMERS HAVE BECOME BARRED BY LIMITATION. SINCE THE ASSESSEE ITS ELF HAS TREATED ITS OWN MONEY AND TAKEN THE MONEY INTO P&L ACCOUNT THEREFO RE IT WAS HELD THAT BY ASSESSEES OWN ADMISSION IT HAS BECOME INCOME OF TH E ASSESSEE. THE RATIO DECINDI LAID DOWN BY THE HONBLE SUPREME COURT WILL NOT BE APPLICABLE ON THE PRESENT CASE FIRSTLY THE ASSESSEE HAS NOT RECEIVE D ANY DEPOSITS DURING THE COURSE OF TRADING TRANSACTION FROM THE CUSTOMERS BU T IN THE FORM OF WARRANT CONVERTIBLE INTO EQUITY SHARE WHICH WAS A CAPITAL A CCOUNT; SECONDLY THE ASSESSEE HAS NOT FORFEITED THE AMOUNT AND TRANSFERR ED TO THE P&L ACCOUNT BUT DIRECTLY TO THE CAPITAL RESERVE UNDER THE HEAD WAR RANT FORFEITED ACCOUNT. THE ASSESSEE IS DEFINITELY NOT IN THE BUSINESS OF RAISI NG MONEY THROUGH ISSUE OF SHARE WARRANT AND IT IS NOT A RECEIPT IN THE NORMAL COURSE OF BUSINESS. IF A PARTICULAR AMOUNT IS NOT RECEIVED AS TRADING RECEIP T OR DURING THE COURSE OF TRADING TRANSACTION IT CANNOT BE LATER ON TREATED AS ARISING OUT OF TRADING TRANSACTION SO AS TO HOLD AS REVENUE RECEIPT. THUS THE DECISION OF THE HONBLE SUPREME COURT CANNOT BE HELD TO BE APPLICABLE ON TH E FACTS OF THE ASSESSEES CASE. 23. NOW COMING TO THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF SOLID CONTAINERS (SUPRA). THE FACTS OF THIS CASE WA S THAT THE ASSESSEE HAD TAKEN LOAN OF RS. 6 86 071/- FOR THE BUSINESS PURPO SE WHICH WAS WRITTEN BACK AS A RESULT OF CONSENT TERMS ARRIVED AT IN A SUIT. THE ASSESSEE HAS CLAIMED THIS AMOUNT AS CAPITAL RECEIPT EVEN THOUGH IT HAD OFFERE D INTEREST ON THE SAID LOAN AS ITS INCOME BY CREDITING THE SAME TO ITS P&L ACCO UNT. THE A.O. HAD MADE THE ADDITION ON THE GROUND THAT IT WAS ARISING OUT OF THE BUSINESS ACTIVITY AND THEREFORE THE SAME WAS TAXABLE U/S 28(IV) OF THE AC T. THE HONBLE BOMBAY 16 ITA 3542/M/13 & 4801/M/13 HIGH COURT ON THESE FACTS HELD THAT THE LOAN WAS TA KEN FOR THE TRADING ACTIVITY AND ULTIMATELY UPON WAIVER OF THE AMOUNT IT WAS RET AINED AND UTILIZED FOR THE BUSINESS PURPOSE AND THEREFORE SUCH AN AMOUNT IS N OTHING BUT TRADING OPERATION TRANSFERRED TO P&L ACCOUNT WHICH IS TO BE HELD AS INCOME OF THE ASSESSEE. FOR ARRIVING TO THIS CONCLUSION THE HON BLE BOMBAY HIGH COURT HAS APPLIED THE PRINCIPLE LAID DOWN IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA). THE PRINCIPLE LAID DOWN BY THE HONBL E BOMBAY HIGH COURT IS AGAIN NOT APPLICABLE ON THE FACTS OF THE PRESENT CA SE FIRSTLY IT IS NOT A CASE OF LOAN TAKEN FOR THE BUSINESS PURPOSE AND IT HAS NOT ARISEN OUT OF ASSESSEES OWN TRADING ACTIVITY. ONCE THE AMOUNT RECEIVED OR F ORFEITED IS ON ACCOUNT OF TRADING OPERATION THEN SUCH AN AMOUNT CAN ONLY BE T REATED AS ASSESSABLE INCOME U/S 41(1) OR SECTION 28(IV) OF THE ACT. ANY AMOUNT WHICH IS TO BE HELD AS ASSESSABLE U/S 28(IV) HAS TO BE IN THE NATURE O F BENEFIT OR PERQUISITE OR MONEY ARISING FROM BUSINESS OR PROFESSION CAN ONL Y BE TREATED AS BUSINESS INCOME. IN OTHER WORDS MONEY MUST ARISE FROM BUSIN ESS CARRIED ON BY THE ASSESSEE. HERE IN THIS CASE THE SHARE APPLICATION M ONEY AND SUBSEQUENT FORFEITURE OF SAID MONEY IS NEITHER ANY BENEFIT NOR PERQUISITE ARISING OUT OF ASSESSEES BUSINESS AS THE ASSESSEE IS NOT IN THE B USINESS OF RAISING MONEY THROUGH ISSUE OF SHARE WARRANT. THE ASSESSEE HAS NO T TAKEN SHARES FORFEITED AMOUNT TO ITS P&L ACCOUNT. THE FORFEITED AMOUNT ALS O CANNOT BE TAXED U/S 41(1) BECAUSE IT IS NOT IN THE NATURE OF TRADING LI ABILITY OR DURING THE COURSE OF TRADING TRANSACTION. IT IS A TRITE LAW THAT ALL THE RECEIPTS IN THE HANDS OF THE ASSESSEE WOULD NOT NECESSARILY BE INCOME OR DEEMED TO BE INCOME FOR THE PURPOSE OF INCOME TAX BECAUSE IT WILL DEPEND UPON THE NATURE OF RECEIPT AND TRUE SCOPE AND EFFECT OF THE RELEVANT TAXING PROVIS ION. IF ADMITTEDLY THE AMOUNT OF RECEIPT BY ITS NATURE ITSELF IS A CAPITAL RECEIPT THEN IT CANNOT BE TREATED AS A TRADING RECEIPT UNLESS SUCH A RECEIPT HAS BEEN RECEIVED UNDER A TRADING TRANSACTION. THE SHARE APPLICATION MONEY BY ITS NATURE ITSELF IS ON CAPITAL ACCOUNT AND IT REMAINS IN THE NATURE OF CAP ITAL EVEN IF IT HAS BEEN 17 ITA 3542/M/13 & 4801/M/13 FORFEITED DUE TO CERTAIN CIRCUMSTANCES BECAUSE IT HAS NOT ARISEN OUT OF TRADING TRANSACTION OR DURING THE COURSE OF BUSINESS. SUCH A CAPITAL RECEIPT CANNOT BE CONVERTED INTO REVENUE RECEIPT UNLESS IT IS FOUND T HAT RECEIVING SHARE APPLICATION MONEY IS THE BUSINESS OF THE ASSESSEE A ND HAS ARISEN OUT OF ITS BUSINESS OPERATION. THUS WE HOLD THAT THE AMOUNT O F FORFEITED SHARE APPLICATION MONEY TRANSFERRED TO WARRANT FORFEITU RE ACCOUNT IN THE CAPITAL RESERVE IS A CAPITAL RECEIPT ONLY AND CANNOT BE TA XED AS INCOME OF THE ASSESSEE EITHER U/S 28(IV) OR U/S 41(1) OF THE ACT . ACCORDINGLY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 24. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS ALSO PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER 2014. '( ! #$% )'* 21-11-2014 $ ! + SD/- - SD/- (B.R. BASKARAN) ( AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER & MUMBAI; )' DATED 21-11-2014 . . ./ RK SR. PS & & & & & & & & & 18 ITA 3542/M/13 & 4801/M/13 & '( ! '-. /.%' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 0' ( ) / THE CIT(A) 1 MUMBAI 0' / CIT 1 MUMBAI 5. . 1+ ' / DR ITAT MUMBAI G BENCH 6. +23 4 / GUARD FILE. '( / BY ORDER .' ' //TRUE COPY// 5 / 6 7 (DY./ASSTT. REGISTRAR) / ITAT MUMBAI