Book entry transfer of share application money to capital reserve account not benefit u/s 28(iv) – ITAT

Book entry transfer of share application money to capital reserve account could not be regarded as benefit or perquisite arising in course of business u/s.28(iv) – ITAT

Book entry transfer of share application money to capital reserve 

ABCAUS Case Law Citation:
ABCAUS 2047 (2017) (08) ITAT

The Grievance:
The present appeal was preferred by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting 

Assessment Year :  2012-13

Brief Facts of the Case:

The assessee company was engaged in the business of investment in shares, properties and finance related activities. The Assessing Officer (AO) perused the balance sheet filed by the assessee and observed that the assessee, during the relevant year, had transferred Rs.44,25,000/- from the Share application money account to Capital reserve account.

During the course of assessment proceeding, assessee filed written submissions stating that the share application money of Rs.44,25,000/- was received from one private limited company during Financial Year 2004-05 through banking channel and the assessee, during the year, had merely passed a Journal book entry on transferring the share application money account to Capital Reserve account.

The AO was not convinced with the submissions of the assessee and made the addition u/s.28(iv) of the Income Tax Act, 1961 (the Act) holding that the benefit had arisen in the business of the assessee. The findings of the AO were as under:

(a) There was no evidence on record that the amount was received from the said private limited company in FY 2004-05.

(b) There was no evidence that the amount was towards share application money

(c) There was no evidence that the amount was forfeited due to non performance of action on the part of company giving the share application money

(d) Mere transfer of amount to capital reserve account did not ipso facto absolved the assessee from its onus to explain the transaction with corresponding evidences.

(e) When the amount was transferred to capital reserve account, it had resulted in benefit arising from the business carried out by it.

(f) Therefore the amount was squarely taxable u/s. 28(iv) of the Act

Matter carried to the CIT(A) and he deleted the addition made observing that the assessee had merely passed a book entry by transferring the share application account to Capital reserve account and as the share capital/premium was in nature of capital field, it could not be regarded that any benefit or perquisite had arisen to the appellant in course of business u/s.28(iv) of the Act.

Observations made by the Tribunal:

The ITAT observed that the controversy is covered by the decision of Hon’ble Supreme Court wherein it was held that the amount on account of share capital received from the various shareholders ought not to have been treated as business income.

It was also noted that similar issue had been decided by the Tribunal in another case.

Held:
It was held that CIT(A) was justified in deleting the addition