ITO 7(2)(3), MUMBAI v. SHUBHMANGAL CREDIT CAPITAL P. LTD, MUMBAI

ITA 7238/MUM/2008 | 2005-2006
Pronouncement Date: 19-01-2010 | Result: Dismissed

Appeal Details

RSA Number 723819914 RSA 2008
Assessee PAN AAACS7156A
Bench Mumbai
Appeal Number ITA 7238/MUM/2008
Duration Of Justice 1 year(s) 27 day(s)
Appellant ITO 7(2)(3), MUMBAI
Respondent SHUBHMANGAL CREDIT CAPITAL P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 19-01-2010
Date Of Final Hearing 24-12-2009
Next Hearing Date 24-12-2009
Assessment Year 2005-2006
Appeal Filed On 23-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI. BEFORE SHRI SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMB ER AND SMT. ASHA VIJAYRAGHAVAN JUDICIAL MEMBER. I.T.A. NO. 72 38/MUM/2008 ASSESSMENT YEAR : 2005-06. THE INCOME TAX OFFICER M/S S HUBHMANGAL CREDIT CAPITAL 7(2)(3) MUMBAI. VS. P. LTD. 3 AMBA BHAVAN 29 SION CIRCLE SION (W) MUMBAI 400 022. PAN : AAACS7156A. APPELLANT RESPONDENT . APPELLANT BY :SHRI MOHAMED USMAN & SHRI AJAY SRI VASTAVA. RESPONDENT BY : S/S HRI SOHRAB DASTUR/ NITESH JOSHI/ RAJNIKANT CHANIYARI/ DHARINI SHAH. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-VII MUMBAI DATED 24-10-2 008 ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.4 42 00 000/- MADE U/S 2(22)(E) OF T HE I.T. ACT 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT ISSUED SHARES EVEN IN THE IMMEDIATE FOLLOWING YEAR AND THE AMOUNT WAS SHOWN IN THE BALANCE SHEET AS ADVANCE WHICH GOES TO SHOW T HE INTENTION OF THE ASSESSEE. 2 2. FACTS OF THE CASE: THE ASSESSEE IS A COMPANY AND IS ENGAGED IN INVES TMENT ACTIVITIES. IT CLAIMED THAT IT HAS RECEIVED SHARE A PPLICATION MONEY OF RS.4.42 CRORES FROM OPTIMUM STOCK TRADING CO. PVT. LTD. IN THE MONTH OF FEBRUARY 2005. THE FIRST AMOUNT OF RS.1.92 CROR ES WAS RECEIVED ON 18 TH FEB. 2005 AND THE SECOND AMOUNT OF RS.2.50 CRORES WAS RECEIVED ON 28 TH FEB. 2005 IN COMPLIANCE WITH THE PROVISIONS OF TH E COMPANIES ACT. THE ASSESSEE CLAIMS THAT SHARE APPLICATION MONEY WA S TAKEN BY THE ASSESSEE COMPANY WITH AN INTENTION TO ISSUE EQUITY SHARES AND PREFERENCE SHARES AND HENCE IT WAS REFLECTED UNDER THE HEAD S HARE APPLICATION MONEY IN THE ASSESSEES AUDITED BALANCE SHEET. THE ASSESSEE STATES THAT IN THE ASSESSMENT ORDER THE AO ERRONEOUSLY STATED THAT THE ASSESSEE COMPANY WAS THE REGISTERED SHARE HOLDER OF OPTIMUM STOCK TRADING CO. PVT. LTD. WHICH IS HOLDING 10% OF THE VOTING POWER WHEREAS THE FACT IS THAT THE ASSESSEE COMPANY DOES NOT HOLD ANY SHARES IN OPTIMUM STOCK TRADING CO. PVT. LTD. IT IS FURTHER STATED THAT THE ASSESSEE COMPANY HAS ALLOTTED PREFERENCE SHARES OF RS.2 CRORES AGAINST T HE AFORESAID SHARE APPLICATION MONEY DURING THE MONTH OF SEPTEMBER 20 05. IT IS FURTHER SUBMITTED THAT SINCE THE PARTIES COULD NOT REACH AT AN AGREEMENT ON THE TERMS AND CONDITIONS FOR ISSUE OF EQUITY SHARES TH E BALANCE SHARE APPLICATION MONEY WAS RETURNED. THE AO HELD THAT TH ESE COMPANIES ARE GROUP CONCERNS OF THE ASSESSEE AND MR. DHANESH SHA H AND MRS. SONAL SHAH AND OTHER FAMILY MEMBERS ARE DIRECTORS AND SHA RE HOLDERS CONTROLLING THE MANAGEMENT OF THE COMPANY. HE HELD THAT THE AMOUNT IN QUESTION WAS GIVEN AS A LOAN AND ADVANCE AND THE AR RANGEMENT BETWEEN THE DIRECTORS WAS NOT ONLY THE MALAFIDE OF A COLLUS IVE NATURE AND HE TREATED THE AMOUNT AS A DEEMED DIVIDEND AS PER PROV ISION OF SECTION 2(22(E) OF THE ACT. 3 2.1 AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY APPLIED THE DECISION OF T HE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ARDEE FINVEST (P) LTD. 79 I TD 547 (DEL.) AND ON FACTS CAME TO A CONCLUSION THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS SHARE APPLICATION MONEY AND UTILIZED ONLY FOR ACTUA L SHARE ALLOTMENT AND THUS CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD MR. AJAY SRIVASTAVA LEARNED DR A LONG WITH MR. MOHD. USMAN ON BEHALF OF THE REVENUE AND SHRI S OHRAB DASTUR LEARNED SENIOR COUNSEL ALONG WITH NITESH JOSHI ON B EHALF OF THE ASSESSEE. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD RECEIV ED CERTAIN SHARE APPLICATION MONEY AND HAD DISCLOSED THE SAME AS SUC H IN ITS BALANCE SHEET. THE TOTAL AMOUNT RECEIVED AS SHARE APPLICATI ON MONEY WAS RS.4.42 CRORES. OUT OF THIS THE ASSESSEE COMPANY HAD ALLOT TED PREFERENCE SHARES FOR RS.2 CRORES TO M/S OPTIMUM STOCK TRADING CO. PV T. LTD. AGAINST SHARE APPLICATION MONEY RECEIVED. THE BALANCE WAS RETURNE D. THE FIRST APPELLATE AUTHORITY IN OUR CONSIDERED OPINION HAD CORRECTLY DEALT WITH A MATTER AND HELD THAT SHARE APPLICATION MONEY CANNOT BE DEEMED TO BE LOAN OR DEPOSIT. FURTHER HE RIGHTLY OBSERVED THAT THE AO WITHOUT AN Y BASIS HAS STATED THAT THE ASSESSEE WAS A HABITUAL BORROWER. HE HELD THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF A RDEE FINVEST (P) LTD. VS. DCIT 79 ITD 547 WHEREIN IT IS HELD THAT SHARE A PPLICATION MONEY PENDING ALLOTMENT OF SHARES CANNOT BE CONSIDERED AS A LOAN. FURTHER MR. DASTUR RIGHTLY RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. LUCAS T.V.S. LTD. REPORTED IN 2 49 ITR 302 WHEREIN IT IS HELD AS FOLLOWS : 4 HELD AFFIRMING THE DECISION OF THE HIGH COURT TH AT THE LIABILITY OF THE ASSESSEE TO THE FOREIGN COMPANY WAS TO ISSUE EQ UITY SHARES OF A VALUE EQUAL TO THE AMOUNT ADVANCED BY THE FOREIGN C OMPANY FOR THE PLANT AND MACHINERY. IT WAS ONLY IF FOR ANY REASON THE SHARES COULD NOT BE ALLOTTED THAT THE QUESTION OF COMPENSA TING THE FOREIGN COMPANY MIGHT ARISE. IN THESE CIRCUMSTANCES IT COU LD NOT BE SAID THAT THERE WAS A DEBT OWED BY THE ASSESSEE TO THE F OREIGN COMPANY FOR THE PURPOSE OF COMPUTING THE CAPITAL UNDER SECT ION 80J. 4. FURTHER THE FIRST APPELLATE AUTHORITY HAS RECO RDED A FINDING OF FACT THAT THE MONEY TAKEN AS SHARE APPLICATION MONE Y WAS ACTUALLY UTILIZED FOR ALLOTMENT OF SHARES. THIS FACTUAL FIND ING HAS NOT BEEN CONTROVERTED BY THE LEARNED DR WITH ANY EVIDENCE. T HUS IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 19 TH DAY OF JANUARY 2010. SD/- SD/- (ASHA VIJAYRAGHAVAN) (J. SUDHAKARY REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 19 TH JANUARY 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR I-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT MUMBAI BENCHES