2024 (5) TMI 1287 - AT - Income Tax

Addition u/s 56(2)(vii)(c) - bonus shares received - AO found that the assessee has sold only the original shares and not the bonus shares received by him - HELD THAT - DR was trying to do what neither the AO nor the CIT(A) has done which means that the DR was trying to improve the assessment order as if he was the Assessing Officer and guiding that how the assessment should have been done by the AO. In our considered opinion this is not acceptable the Bench cannot go beyond the plaint and the issue before the Bench is very simple whether the provision of section 56(2)(vii)(c) of the Act applied on the facts of the case. The answer lies in the order of the Tribunal in the case of the wife of the assessee Smt. Aruna Chandhok whose assessment was also done by the same Assessing Officer and in whose case also the addition has been made on identical set of facts on the sale of shares of the same company. Tribunal in SMT ARUNA CHANDHOK 2023 (9) TMI 330 - ITAT DELHI held that 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. 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.

Summary

Issues:
Appeal against deletion of addition of bonus shares under section 56(2)(vii)(c) for A.Y. 2015-16.

Detailed Analysis:
1. The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 36,10,63,656 made under section 56(2)(vii)(c) of the Act for bonus shares received.
2. The assessee declared total income of Rs. 8,83,90,720 for A.Y. 2015-16, including income from various sources such as salary, house property, business, capital gain, and other sources.
3. The Assessing Officer (AO) observed that the assessee had earned long term capital gain but set off the gain with losses from the sale of certain shares and mutual funds, not including the bonus shares received.
4. The AO invoked section 56(2)(vii)(c) to compute the addition based on the fair market value (FMV) of the bonus shares received by the assessee.
5. The CIT(A) deleted the addition after considering the judicial opinions and arguments presented by the assessee, emphasizing that bonus shares are in the nature of Capitalization Shares.
6. The CIT(A) highlighted that the market price of shares tends to decrease proportionally after a bonus issue, and the cost of acquisition of bonus shares is nil under section 55(2)(aa)(i) of the Income Tax Act.
7. The Tribunal upheld the CIT(A)'s decision, citing previous judgments and emphasizing that bonus shares do not result in a double benefit for the assessee, as the overall wealth remains the same post-bonus issue.
8. The Tribunal rejected the Revenue's appeal, stating that the bonus shares issued are a reallocation of company funds and do not attract section 56(2)(vii)(c) as there is no inflow of fresh funds or change in the capital structure.

This detailed analysis covers the issues involved in the legal judgment regarding the addition of bonus shares under section 56(2)(vii)(c) for the relevant assessment year.