TMI Blog2019 (7) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the Order of Ld. CIT(A). The issue is, therefore, covered by the Order of ITAT, Delhi Bench in the case of Meenu Satija, New Delhi vs. Pr. CIT (Central), Gurgaon (supra). The Departmental Appeal has no merit and the same is accordingly dismissed. - ITA.No.5681/Del./2016 - - - Dated:- 10-7-2019 - Shri Bhavnesh Saini, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Assessee : Shri R.S. Ahuja, C.A. For the Revenue : Shri Sanjay Shivam, CIT-D.R. ORDER PER BHAVNESH SAINI, J.M. This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-3, Gurgaon, Dated 31.08.2016, for the A.Y. 2010-2011, on the following ground : That on the facts and in the circumstances of the case and as per provisions of law, the Ld. CIT(A) has erred in deleting the addition made by the A.O. u/s 56(2)(vii)(c) without appreciating the proper interpretation of the section. 2. Briefly the facts of the case are that search was conducted under section 132 of the I.T. Act in the case of the assessee, the residential as well as business pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also contended that the above provisions would apply in the case of transfer of shares which is not the case of the assessee and that no property have been transferred. The Ld. CIT(A) considering the explanation of assessee in the light of decision in the case of Sudhir Menon (HUF) vs. ACIT (supra), deleted the addition. The findings of the Ld. CIT(A) in paras 5 and 6 of the Order are reproduced as under : 5. Decision : I have perused the assessment order passed by the AO and submissions of the appellant. During the year, the appellant has received bonus shares from M/s Bestech India Pvt. Ltd. The AO has applied provisions of section 56(2)(vii) of the Act and made an addition of ₹ 1,61,05,074/- on account of the difference between the fair market value of the bonus shares received by the appellant and the actual consideration at which they have been allotted to her as Income from other sources'. Before, discussing the merits of the case, it will be necessary to go through the explanatory memorandum of Financial Bill 2010 w.r.t. amendment in section 56(2)(vii) which is reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. It is, therefore, proposed to amend the definition of property so as to provide that section 56(2)(vii) will have application to the property' which is in the nature of a capital asset of the recipient and therefore would not apply to stockin- trade, raw material and consumable stores of any business of such recipient. Thereafter, this issue was discussed in detail by Hon'ble ITAT Mumbai Bench in the case of Sudhir Menon HUF vs Astt. CIT- 21(2), Bandra Mumbai For AY 2010-11 in ITANo. 87/Mum/2013 and the relevant observations are reproduced as below :- (i) The provisions of section 56(2)(vii) of the Act would not apply to bonus shares, and the argument alluding thereto arises only on account of mis -conception in respect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r envisaged to be taxed under the provisions of section 56(2)(vii) introduced in Finance Bill 2010. Further, the judgment discussed above further elaborates as to how the provisions of section 56(2) (vii) of the Act would not apply to bonus shares. Thus, it is clear, that the addition made by the AO is not in accordance with law and hence deleted. 6. As a result, the appeal of the appellant is allowed. 4. Learned Counsel for the Assessee at the outset submitted that the issue is covered by the Order of ITAT, Delhi B-Bench in the case of Meenu Satija, New Delhi vs. Pr. CIT (Central), Gurgaon in ITA.No.3215/Del./2016, Dated 27.01.2017 in which in paras 12 to 22 held as under : 12. We have perused the submissions advanced by both parties in light of the records placed before us and decisions relied upon by them. 13. It is an undisputed fact that assessee has invested in shares of M/s Bestech India Pvt. Ltd., during the financial year relevant to the assessment year under consideration. She was allotted 10,000 equity shares at ₹ 400/- on 18th March, 2010 and 6,29,428 bonus shares were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration or at a consideration less than its Fair Market Value by an Individual and HUF became taxable in the their hand, in case, consideration is less than FMV for a sum not less than 50,000/-. However, some exception to this provision is also given in the proviso. It is relevant to mention here that these provisions remained to be effective only on individual and HUF. Finance Act 2010 w.e.f. 01.06.2010 introduced clause (viia) to section 56(2) which enhanced the scope of existing provision in clause (vii) to Firm or Company. Finance Act 2012 w.e.f. 01.04.2013 introduced clause, (viib) to section 56(2) whereby in case of allotment of shares by any company, any amount, received by the company in excess of its fair market value of shares or its face value was made taxable in the hands of the such company. Provision of section 56(2)(vii) are applicable on Individual and HUF whereas Provisions of 56(2)(viia) are applicable on firm and company. As the assessee before us is an Individual we are concerned with Sec. 56(2)(vii). Finance (No.2) Act 2009 w.e.f. 01.10.2009 introduced clause (vii) as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or any work of art. These are anti-abuse provisions which are currently applicable, only, if an individual or an HUF is the recipient Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value does not attract the anti-abuse provision. In order to prevent the practice of transferring unlisted shares at prices much below (their) fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interest) either for inadequate, consideration or without consideration where the recipient is a firm of a company (not being a company in which public are substantially interested}. Section 2(18) des the definition of a company in which the public are substantially interested . From the above discussion, it is amply clear that Legislator intended to tax the transfer of shares at a value lesser than its fair market value under Provisions of Section 56(2)(vii), and 56(2)(viia). 17. On a care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cited hereinabove, the issuance of bonus shares does not amount to distribution of accumulated profit of a company. The shareholder derives some benefit by the process of capitalising of their cumulative profit but at the same time the value of his original shareholding does not go down. 19. In view of the above observations by Hon ble Supreme Court, we do not find this decision being of any help to the revenue. 20. We agree with submission advanced by Ld. AR that in case section 56(2)(vii)/56 (2) (viia) is made applicable on issue of bonus/right shares, various other sections of the Act would become contradictory. This is because if for the sake of discussion it is presumed that the provisions of section 56 (2) (vii) are made applicable to the allotment of bonus/Right shares, then for the purpose of calculating capital gains under section 48 and 49 on the sale of such shares, the cost of acquisition shall be taken as per section 49 (4) which means the value of bonus/right shares considered while applying the provisions of section 52 (2) (vii), which is clearly contradicting the provisions of section 55 (2) (aa) (iiiia). If the legislature re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , New Delhi vs. DCIT, Central Circle-I, Faridabad in ITA.Nos.2486 2487/Del./2017, Dated 27.07.2017. copies of the Orders are placed on record and provided to Ld. D.R. who has submitted that though the issue is same, but the decisions relied upon by the Learned Counsel for the Assessee are in respect of proceedings under section 263 of the I.T. Act, 1961. 5. We have considered the rival submissions and do not find any justification to interfere with the Orders of the Ld. CIT(A) in deleting the addition. The Ld. CIT(A) deleted the addition following the relevant provisions of Law in the light of Order of ITAT, Mumbai Bench in the case of Sudhir Menon (HUF) vs. ACIT (supra), in which it was held that provisions of Section 56(2)(vii)(c) of the I.T. Act, would not apply to bonus shares. The ITAT, Delhi Bench in the case of Meenu Satija, New Delhi vs. Pr. CIT (Central), Gurgaon (supra), on identical facts quashed the proceedings under section 263 of the I.T. Act. Therefore, ratio of the decision of the Tribunal in the case of Meenu Satija, New Delhi vs. Pr. CIT (Central), Gurgaon (supra), squarely apply to the facts and circumstances of the case. Whether this order hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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