2023 (9) TMI 330 - ITAT DELHI

Addition u/s 56(2)(vii)(c) - bonus shares received - Assessee submitted that provisions of section 56(2)(vii)(c ) of the Act would not apply to bonus shares at all as it is merely done by capitalization of profits - HELD THAT:- We hold that the bonus shares are issued only out of capitalization of existing reserves in the company. In the instant case, the ld. AO had not disputed the fact that the overall wealth of a shareholder post bonus or pre bonus remains the same. Having held so, it is wrong on his part to invoke the provisions of section 56(2)(vii)(c ) of the Act on the ground that there is an double benefit derived by the assessee due to bonus shares.

We find that the issue in question is also covered by the decision of Dr Ranjan Pai [2016 (5) TMI 216 - ITAT BANGALORE] as held there is no material on record to infer that bonus shares have been transferred with an intention to evade tax, which is the object of the provision in question. Therefore, the Commissioner of Income Tax (Appeals) as well as the tribunal have rightly held that when there is an issue of bonus shares, the money remains with the company and nothing comes to the shareholders as there is no transfer of the property and the provisions of Section u/s 56(2)(vii)(c) of the Act are not attracted to the fact situation of the case. Appeal of the revenue is dismissed.