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2021 (10) TMI 166 - AT - Income TaxAddition u/s 56 - allotment of shares through right issue @1 per share - difference between FMV and the consideration paid u/s 56(2)(vii) - The assessee being resident individual is stated to be director and a major shareholder in the private limited company - HELD THAT:- It could be inferred that provisions of section 56(2)(vii) were introduced as an anti-abuse measure and to prevent laundering of unaccounted income under the garb of gifts, after abolition of the Gift Tax Act. Upon perusal of orders of lower authorities, we find that there are no such allegations and no case of tax evasion or tax abuse has been made out against the assessee. In fact, the transactions are ordinary transactions of issue of right shares to existing shareholders in proportion to their existing shareholding and therefore, no case of abuse or tax evasion could be made out against the assessee. This proposition is supported by the fact that in line with the intent of legislatures, CBDT issued another Circular No. 10/2018 on 31/12/2018 clarifying that keeping in view the legislative intent to apply anti-abuse measures, Section 56(2)(viia) of the Act shall not be applicable in case of receipt of shares as a result of fresh issuance of shares, including by way of issue of bonus shares, rights shares and preference shares. The said circular was withdrawn immediately vide another Circular No.02/2019 dated 04/01/2019 and new Circular No. 03/2019 dated 21/01/2019 was issued wherein it was mentioned that the view taken in Circular No.10/2018 (subsequently withdrawn by Circular No.02/2019) that section 56(2)(viia) of the Act would not apply to fresh issuance of shares, would not be a correct approach, as it could be subject to abuse and would be contrary to the express provisions and the legislative intent of section 56(2)(viia) or similar provisions contained in section 56(2) - the fact that intent of introducing the provisions was anti-abusive measures still remain intact and there is no reason to depart from the understanding that the provisions were counter evasion mechanism to prevent laundering of unaccounted income. Additions as made by AO in the assessment order are not sustainable in the eyes of law.
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