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2019 (7) TMI 646

..... ITAT MUMBAI] in which it was held that provisions of Section 56(2)(vii)(c) would not apply to bonus shares. ITAT, Delhi Bench in the case of Meenu Satija, New Delhi vs. Pr. CIT (Central), Gurgaon [2017 (1) TMI 1677 - ITAT DELHI] , on identical facts quashed the proceedings under section 263 . 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 have been passed under section 263 or merit would not make any difference. The principle of law have been clearly decided in favour of the assessee on the identical facts. The Tribunal has also relied upon the decision of Mumbai Bench in the case of Sudhir Menon (HUF) vs. ACIT [2014 (3) TMI 534 - ITAT MUMBAI] which is relied upon by the Ld. CIT(A) as well. No infirmity have been pointed 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 - 10-7-2019 - Shri Bhavnesh Sain .....

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..... I.T. Act and relied upon Explanatory Memorandum to the Finance Bill 2010 and decision of ITAT, Mumbai Bench in the case of Sudhir Menon (HUF) vs. ACIT in ITA.No.4487/Mum/2013. The A.O. however, did not accept the contention of assessee and held that provisions of Section 56(2)(vii)(c) apply to the case and accordingly, made the addition of ₹ 1,61,05,074/-. 3. The addition was challenged before the Ld. CIT(A). The assessee reiterated the submissions made before the A.O. It was contended that the above provisions are not applicable to allotment of bonus shares and relied upon the same judgment and Explanatory Memorandum to the Finance Bill 2010. It was 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 app .....

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..... section 47 of the Act Consequential amendments are proposed in- (i) Section 2(24) to include the value of such shares in the definition of income. (ii) Section 49, to provide that the cost of acquisition of such shares will be the value which has been taken into account and has been subjected to tax under the tax under the provisions of section 56(2). B. The provisions of section 56(2)(vii) were introduced 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 Mumb .....

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..... t of the additional shares, no addition in terms of the provision itself shall arise in the facts of the case. Thus from the above discussion, it is clear that issue of Bonus Shares was never 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 allo .....

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..... 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: (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person .....

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..... ket 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 careful reading of the provisions and the legislative intent, we agree with the submissions of Ld.AR that the provision would not be applicable to bonus/right shares as there is no increase or decrease in the wealth of shareholder assessee on account of bonus/right shares. Further, there is no element of gift in issuing of bonus/right shares to the assessee by the compan .....

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..... tion 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 really intended to bring allotment of bonus/right shares within the ambit of section 56 (2) (vii), it would have amended section 55 (2) (aa) (iiia) simultaneously. 21. Ld. AR placed his reliance upon the decision of Mumbai Tribunal in the case of Sudhir Menon (HUF) (supra). The observation of this Tribunal in respect of applicability of section 56(2)(vii) in case of bonus/right shares are as follows: Issue of bonus shares is by definition capitalization of its profit by the issuing company. There is neither any incre .....

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..... hir 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 have been passed under section 263 or merit would not make any difference. The principle of law have been clearly decided in favour of the assessee on the identical facts. The Tribunal has also relied upon the decision of Mumbai Bench in the case of Sudhir Menon (HUF) vs. ACIT (supra), which is relied upon by the Ld. CIT(A) as well. No infirmity have been pointed 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. 6. In the result, appeal of the Revenue dismissed .....

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