Share application money cannot be treated as loan amount merely because there is a delay in issuance of shares
(ITAT Mumbai) March 27, 2015
(i) Though there was a delay in issuing the shares against the share application money given by the assesse to its AE, however, the assessee has duly explained the cause of delay and it was not a deliberate delay for using the money by subsidiary in the garb of share application money or by providing the fund by the assesse in the garb of share application money. The delay was due to obtaining necessary approval from the Securities and Exchange Commission, Phillipines. Finally, the shares were issued as per the share certificate dated 25.05.2008 which has been produced by the assesse as additional evidence.
Since the document of issuance of equity shares in the name of the assesse by the subsidiary/AE vide share certificate were not before the authorities below, therefore, to the extent of limited purpose of considering the said document, we set aside this issue to the record of AO/TPO to consider the same. As far as the re-characterization of the share application money as loan, we note that the Hon’ble Jurisdictional High Court in the case of DIT Vs. Besix Kier Dabhol S.A. vide its decision dated 30th August 2012 in ITA No. 776 of 2011 has considered an identical issue. Accordingly, the share application money cannot be treated as loan amount merely because there is a delay in issuance of shares by the subsidiary in the name of the assesse, which was duly explained by the assesse.
(ii) The assesse had two STPI units eligible for claiming deduction u/s 10A of the Act. The assesse set off total profit from Domestic business against the loss from the non STPI unit and the balance loss was claimed as carry forward. The AO observed that the deduction u/s 10Aof the Act, should be restricted to the profit of the unit eligible for deduction u/s 10A of the Act and the total income have been shown at nil instead of claiming of loss. This issue is covered by the Judgment of Hon’ble Jurisdictional High Court in the case of Commissioner of Income-tax Vs. Black & Veatch Consulting (P.) Ltd (348 ITR 72), wherein it was held that Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in Hindustan Unilever Ltd v . Dy. CIT  325 ITR 102 / 191 Taxman 119 (Bom.). The deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses.