Applicability of provisions of section 28(iv) read with section 2(24)(ix) of the IT Act

This Income Tax Appellate Tribunal ruling concerns money received by a company for issuing shares, which could not be issued due to contravention of FEMA guidelines. The revenue treated this money as a gift and therefore taxable income. However, the Tribunal found that the initial intention was for share capital and the revenue had not doubted this. Despite the failure to allot shares within the stipulated time due to FEMA regulations, the Tribunal ruled that the sum received could not be taxed as income in the hands of the assessee company, allowing the appeal.

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C‘ BENCH MUMBAI
BEFORE: SHRI MAHAVIR SINGH, VICE PRESIDENT
&
SHRI M.BALAGANESH, ACCOUNTANT MEMBER
ITA No.559/Mum/2017 (Assessment Year :2012-13)

M/s. Crescent Payments Pvt. Ltd.,

306, 3rd Floor, Sigma IT Park Rabale,

Navi Mumbai Maharashtra- 400 701

PAN/GIR No. AAICA5293L

vs

Dy. Commissioner of Income Tax,

Circle-6(1)(1) Mumbai

Assessee by
Shri Faran Khan
Revenue by
Ms. Shreekala Pardeshi
Date of Hearing 16/06/2021
Date of Pronouncement 30/08/2021

O R D E R

The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in upholding the action of the ld. AO in treating the money received by the assessee for issue of shares but the shares could not be issued due to contravention of FEMA guidelines and accordingly, treated as gift by the assessee company, in the facts and circumstances of the instant case.

2. We have heard rival submissions and perused the materials available on record. The assessee company was registered originally in the name of M/s. Alertpay Solutions Pvt. Ltd., on 20/04/2010. Later the name of the company was changed to M/s Crescent Payments Pvt. Ltd., w.e.f. 29/01/2014.

3.We find at the outset, that the receipt of monies by the assessee company originally was only towards share capital and for the purpose of allotment of shares to the Canadian Company. This intention of the assessee company was not doubted by the revenue at any point in time. It is a fact that the assessee company failed to comply with the FEMA regulations by not allotting shares within 6 months from the date of receipt of money towards share capital.

4. In view of our aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the receipt of monies in the sum of Rs 3,46,33,388/- cannot be taxed as income in the hands of the assessee company. Accordingly, the grounds raised by the assessee in this regard are allowed.

5.In the result, the appeal of the assessee is allowed.

Order pronounced on 30/ 08 /2021 by way of proper mentioning in the notice board.

Please find attached the enclosed file for the full judgement