TMI Blog2020 (9) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of advance or loan which shows that for invoking the provisions of section 2(2)(e), there must be a payment by way of advance or loan. This vital aspect is missing in the case of the assessee as neither there is any payment nor the company made any advance or loan to the assessee, thus debit balance worked out by the assessee company will not fall within the ambit of the provisions of section 2(22)(e) and thus are not applicable in the case of the assessee. Detailed finding recorded by the ld. CIT(A) are as per the material on record, accordingly, we do not find any reason to interfere in the order of the ld. CIT(A) for deleting the addition so made. Hence, we uphold the same. Addition u/s 56(2(vii)(c) - Allotment of shares - difference calculated between fair market value and that of face value under section 56(2)(vii)(c) - CIT-A deleted the addition - HELD THAT:- Mumbai Bench of ITAT in the case of ACIT Vs Subodh Mennon [ 2018 (12) TMI 981 - ITAT MUMBAI] have held that only when a higher than a propionate allotment of fresh shares issued by a company is received by a shareholder, the provisions of section 56(2)(vii) get attracted; provisions of section 56(2)(vii) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited the value of shares to her running account and therefore her account never represented a debit balance. However, two Cheque of ₹ 35,00,000/- each which were credited in the books on 01.02.2013 2.2.2013 but the cheques was presented by the company after some time but during the current financial year, in the books of the assessee there was a credit balance of ₹ 20,00,000/- on 4.2.2013 even after debit of ₹ 70 Lacs for Share Application money but the learned ACIT has treated the same as deemed dividend u/s 2(22)(e) of the Income Tax Act and made the addition. 6. By the impugned order, the ld. CIT(A) had deleted the addition after observing as under: (iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is seen that before allotment of shares, the balance of the appellant in the books of accounts of the M/s Pinkcity Jewel House Pvt. Ltd. was credit of ₹ 20,00,000/-. It is also noted that the debit balance of ₹ 50,00,000/-appeared in the books of accounts of the company as the entry of allotment of shares was passed before clearance of cheques paid by the appellant against such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned assessing officer due to the fact the cheque were cleared later on treated ₹ 50 Lacs as deemed dividend. 8. Provisions of Section 2(22)(e) of the Act comes to play only if the company makes any payment to such shareholder, by way of advance or loan and that too to the extent the company possesses accumulated profit, provided that his/her holding is not less than ten percent of voting power. From provisions of section 2(22)(e) it is clearly evident that the provisions of this section come to play only if the company makes any payment of advance or loan to a shareholder holding not less than ten percent of voting power. In the case of assessee, the company has not paid any sum and in fact amount is being debited by way of Journal Entry and no amount or money has been given as loan or advance to the shareholder. The debit balance has been notionally worked out by the assessing officer by working out the balance in ledger account of shareholder on the basis of clearing date of cheque received (not paid) in the bank account, which is not correct. As per accounting principles entries in the books of accounts are required to be made on the basis of transactions entered which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10/- only, the AO treated the difference of ₹ 10.37 as benefit transferred to the appellant. Considering the provision of section 56(2)(vii)(c) of the Act, the AO taxed ₹ 1,16,14,400/- (11,20,000 * 10.37) as deemed income of the appellant. The relevant portion of the assessment order is reproduced as under: 8. ADDITION ON A/C SHARE ALLOTMENT U/S 56(2)(Vii)(C Further, as mentioned above in the reasons recorded for re-opening of the case, the assessee was allotted 11,20,000 shares by M/s Pinkcity Jewel House Pvt. Ltd. Jaipur and the assessee is also a director in the said company. The shares were allotted on face value of ₹ 10/- only. Whereas as per the section 56(2)(vii)(c) the value of the share at the time of allotment is of ₹ 20.37, thus it can clearly be concluded that the shares were issued, less by ₹ 10.37 than the fair market value, therefore difference required to be added as income in the hands of director assessee. Out of total shares issued by the company i.e. 32,00,000 the assessee was allotted 11,20,000 shares. Thus difference of ₹ 10.37 on these share which come to ₹ 1,16,14,4001 (1120000 X 10.37) is deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risen in hands of the appellant. (iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The shareholding pattern of the M/s Pinkcity Jewel House Pvt. Ltd before and after the allotment of additional shares, as submitted by the appellant, is as under: Memberwise Share Holding Pattern and Analysis S.No. Category Name No of Shares As on 31.3.2012 % of Share Holding No of Shares As on 31.3.2013 % of Share Holding 1 Director Manuj Goyal 1353000 30% 2313000 30% 2 Share Holder Veena Goyal 1578500 35% 2698500 35% 3 Director Kajal Goyal 1578500 35% 2698500 35% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue (FMV) u/r. 11U and 11 UA-AO, treating difference of money per share as extent of inadequate consideration in terms of section 56(2)(vii)(c), toward acquisition of additional shares, brought same to tax-Order of AO confirmed in appeal-Held, section 56(2)(vii)(c) would be attracted whenever individual or HUF receives property without consideration, FMV of which was in excess of ₹ 50,000, or where difference between FMV and such consideration exceeds amount . specified-Issue of additional/bonus shares was capitalization of profit by issuing-company-There was neither any increase nor decrease in wealth of shareholder or of issuing company on account of bonus issue-As long as there was no disproportionate allotment, there was no scope for any property being received by shareholders on allotment of bonus shares-Section 56(2)(vii)(c) would apply uniformly for all capital assets, drawing no exception for any particular class or category of specified Assets, as 'right' shares-No addition u/s. 56(2)(vii)(c) would arise-Language employed in statue would be determinative factor of legislative intent- Foundational basis of any interpretation, would be found from words used by L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working submitted by the appellant It is seen that after allotment of additional shares, the average value per share has also reduced and after taking into account the payment made by the appellant, no gain has arisen in hands of the appellant. (vi) In view of the above discussion and judicial pronouncement, no addition is justified in the hands of the appellant. The addition made by the AO amounting to ₹ 1,16,14,400/- is deleted. 14. Against the above order of the ld. CIT(A), the revenue is in appeal before the ITAT. 15. We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that as per the provisions of the section 56(2)(vii)(c)(i), any property other than immovable property is transferred for a consideration which is less than the aggregate fair market value of the property by an amount exceeding ₹ 50000/-, the aggregate fair market value of such property as exceeds such consideration will be treated as income of the assessee. Following the above provisions of the Act, the learned ACIT has made an addition of ₹ 1,16,14.400/- treating the difference exceeding the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he existing shareholding of 34.57 % the assessee was offered 21,78,204 shares at face value of ₹ 100 per share. Assessee accepted part offer of the Shares only to the extent of 20,94,032 shares consequently his shareholding came down from 34.57 % to 33.30 %. The ITAT held that the addition under 56(2)(vii)(c) being the difference between alleged fair market value of shares and the subscribed value of shares was not sustainable. It is only when a higher than propionate allotment of fresh shares issued by a company is received by a shareholder, the provisions of section 56(2)(vii) get attracted. 16. Detailed finding so recorded by the ld. CIT(A) while deleting the addition made U/s 56(2)(vii)(c) of the Act of ₹ 1,61,14,400/- are as per material on record which do not require any interference on our part. Accordingly, we uphold the finding of the ld. CIT(A) qua this issue. 17. In the result, this appeal of the revenue is dismissed. 18. Now we take ITA No. 76/JP/2020. In this appeal, the grounds taken by the revenue are exactly same as ITA No. 75/JP/2020. Facts and submissions are also identical to the facts and submissions made in ITA No. 75/JP/2020, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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