CHHATTISGARH METALIKSAND ALLOYS PRIVATE LIMITED, RAIPUR V. INCOME TAX OFFRICER, WARDS 3(3), RAIPUR

ITA 102/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3191 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 21-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Gift; Fair market value
• Section: 68; 143(3); 133(6)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 102/RPR/2019 Ǔनधा[रण वष[ / Assessment Year : 2015-16 Chhattisgarh Metaliks and Alloys Private Limited. Mohini B 5, Merlin Jayashree Vihar, Mandi Gate, Pandri, Tarai, Raipur (C.G.) Pin-492 001 PAN : AADCC9242J .......अपीलाथȸ / Appellant बनाम / V/s. The Income Tax Officer-3(3), Raipur (C.G.) ......Ĥ×यथȸ / Respondent Assessee by :Shri Abhishek Mahawar, CA Revenue by :Shri G.N Singh, Sr. DR स ु नवाई कȧ तारȣख / Date of Hearing :10.06.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 26.07.2022 2 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 आदेश/ ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals)-I, Raipur, dated 01.01.2019, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 26.12.2017 for assessment year 2015-16. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That CIT(Appeals)-1 has erred in both fact and in law in sustaining the addition of Rs.34,49,600/- made by the Assessing Officer u/s.68 of the Income Tax Act, 1961. 2. That CIT (Appeals)-1 while deciding has failed to consider the ground no.3 in the appeal memo wherein the Assessing Officer has erred in law and facts in making addition of Rs.75,000/- u/s.56(2)(viib) of the I.T. Act, 1961. 3. That the assessee craves to add, amend or delete any of the above grounds of appeal during the course of hearing. 4. The above grounds are without prejudice to each other.” 2. Succinctly stated, the assessee company which was incorporated way back on 07.08.2009 for carrying on the business of manufacturing, casting, rolling & dealing in Iron & steel products had yet not commenced its commercial operations during the year under consideration before us. The return of income for AY 2015-16 was filed by the assessee company on 21.09.2015, declaring its income from 3 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 business under other operating revenue of Rs.19,570/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee company had during the year under consideration, inter alia, received share application money from M/s. Aayush Steelco Pvt. Ltd., a Kolkata based company, as under: S. No. Name of the Applicant PAN No. of shares allotted Total application money invested (in Rs.) 1. Aayush Steelco Pvt. Ltd., 120, Lenin Sarani, 5 th Floor, Kolkata. AAHCA1061B 49280 34,49,600/- In order to verify the genuineness and veracity of the aforesaid transaction of receipt of share application money, the A.O called upon the assessee company to furnish supporting documentary evidence substantiating the creditworthiness of the aforesaid investor. However, as the assessee failed to place on record the requisite documents to support the creditworthiness of the investor company, therefore, the A.O issued to the latter a notice u/s.133(6) of the Act, calling upon it to place on record certain documents which would prove its identity and creditworthiness. Although the aforesaid share applicant, viz. M/s. Aayush Steelco Pvt. Ltd. in compliance to the notice issued u/s. 133(6) of the Act furnished its reply a/w supporting documents with the A.O, however, the latter did not find the same in 4 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 order. Accordingly, the A.O vide his letter dated 08.12.2017 directed the assessee company to produce the directors of the share applicant company, viz. M/s. Aayush Steelco Pvt. Ltd. As the assessee company failed to comply with the aforesaid direction of the A.O and did not produce the directors of the investor company for necessary examination before him, therefore, the A.O held that the assessee had failed to discharge the onus that was cast upon it as regards proving the nature and source of the aforesaid amount in question within the meaning of Sec.68 of the Act. Observing, that pursuant to the amendment to Sec. 68 of the Act vide the Finance Bill, 2012, i.e., w.e.f. A.Y.2013-14 the assesee company as per the “first proviso” to section 68 of the Act was obligated to substantiate the source of the source of the amount that was claimed to have been received by it as share application money, the A.O was of the view that the assessee having failed to comply with the aforesaid mandate of law had thus not discharged the onus as was required on its part. Considering the aforesaid facts the A.O issued a commission u/s.131(1)(d) of the Act to the DDIT, Unit 2(3), Kolkata for examining the aforesaid share applicant, viz. M/s. Aayush Steelco Pvt. Ltd. In reply, the DDIT, Unit 2(3), Kolkata vide his letter dated 08/11.12.2017 intimated to the A.O that though the directors of the investor company, viz. M/s. Aayush Steelco Pvt. vide summons dated 24.11.2017 were called upon to put up a personal appearance a/w. requisite documents to verify the source, creditworthiness and genuineness of its transaction with the assessee company, but the latter had merely filed paper submissions with the Central Receiving Section and 5 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 despite specific directions had evaded personal appearance. Also, it was intimated by the DDIT (Inv.), Unit 2(3), Kolkata that as per the departmental database of entry operators and their shell companies it was gathered that M/s. Abharani Vinimay Pvt. Ltd., i.e., one of the shareholder of aforementioned investor company, viz. M/s. Aayush Steelco Pvt. Ltd. was being managed and controlled by Shri Jitendra Mishra, an infamous Kolkata based entry operator. On being confronted with the aforesaid report of the DDIT ( Inv.), Unit 2(3), Kolkata, it was stated by the assessee that M/s. Abharani Vinimay Pvt. Ltd. held a minimal share holding of 14000 shares (7% of the entire share holding) which worked out to an amount of Rs.10.23 lacs in terms of the company’s net worth. Also, in his attempt to distance the aforesaid investor company, viz. M/s. Aayush Steelco Pvt. Ltd. from the above-mentioned shareholder i.e., M/s. Abharani Vinimay Pvt. Ltd., it was submitted by the assessee that the investor company had not entered into any transaction with the said shareholder company either during the year under consideration or in the last 7 to 8 years of its operation. However, the aforesaid explanation of the assessee did not find favour with the A.O. It was observed by the AO that despite summons being issued by the DDIT (Inv.) Unit-2(3), Kolkata seeking a personal appearance of the directors of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd., the latter had adopted an evasive approach with an ulterior motive to avoid surfacing of the true state if affairs. Also, it was observed by the A.O that the assessee despite specific directions had failed to produce the directors of the investor company, viz. M/s. Aayush Steelco 6 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 Pvt. Ltd. for necessary examination before him. On the basis of the aforesaid facts, the A.O held a conviction that the assessee company had failed to discharge the onus as regards proving the identity and creditworthiness of the share applicant, as well as the genuineness of the transaction in question. Referring to the serious infirmities in the documents which were filed by the assessee in its attempt to substantiate the identity, creditworthiness and genuineness of the transaction of receipt of share application money from the aforesaid investor company, viz. M/s. Aayush Steelco Pvt. Ltd., as had been culled out by the A.O at Para 4.8 to 5 of his order, the latter held the entire share application money of Rs.34,49,600/- credited in the books of account of the assessee as an unexplained cash credit u/s.68 of the Act. 3.1 Also, it was observed by the A.O that the assessee company during the year under consideration had allotted 5000 shares having a face value of Rs.10/- each a/w a share premium of Rs. 90/- per share to the following share applicants: S. No. Shareholder Name Shares Allotted Amount received Face value Premium 1. Pravin Somani 1500 150000 10 90 2. Rajesh Somani 1500 150000 10 90 3. Padam Jain 1000 100000 10 90 4. Ravi Laddha 1000 100000 10 90 Total 5000 500000 10 7 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 Observing, that though the fair market value (FMV) of the unquoted equity shares of the assessee company as per sub-rule (2) of rule 11UA was admittedly Rs.85/- per share, but the same were allotted by the assessee company to the aforementioned existing share holders @100/- per share, the A.O was of the view that the excess amount of Rs.15/- per share received by the assessee company was liable to assessed as its income from other sources u/s.56(2)(viib) of the Act. Accordingly, the A.O on the basis of his aforesaid deliberations made a further addition of Rs.75,000/- (5000 shares x Rs.15/- per share) and vide his order passed u/s.143(3) dated 26.12.2017 determined the income of the assessee company at Rs.35,44,170/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). On a perusal of the order of the CIT(Appeals), it transpires that though he was initially convinced that the assessee had established the identity and explained the source of investment made by the investor company, but thereafter by adopting a self-contradictory view he had drawn adverse inferences qua the identity and creditworthiness of the investor company, for the reason, viz. (i) that the directors of the assessee company despite specific directions had neither personally appeared before the DDIT (Inv.)- Unit 2(3), Kolkata; or before him.; (ii) that Shri Jitendra Mishra, an infamous entry operator of Kolkata in his statement recorded u/s.131 of the Act had stated that he had, inter alia, controlled the affairs of M/s. Abharani Vinimay Pvt. Ltd., a shareholder of the investor company; (iii) that the miniscule 8 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 revenue of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. of Rs.5.83 lac that resulted in profit before tax (PBT) of Rs.2.79 lac for the year under consideration did not inspire any confidence as regards its creditworthiness; and (iv) that though the investor company had claimed to have withdrawn an amount of Rs.34.50 lac on 09.06.2014 from its capital account as a partner with M/s. Sri Balaji Iron & Steel Traders, Vishakhapatnam, but its claim of having invested the said amount towards share application money with the assessee company could not be substantiated in the absence of supporting documents. Accordingly, on the basis of his aforesaid observations the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the addition of Rs.34,49,600/- made by him u/s.68 of the Act. 4.1 As regards the addition of Rs.75,000/- made by the A.O u/s.56(2)(viib) of the Act, we find that the CIT(Appeals) despite a specific ground of of appeal having been raised by the assessee before him had however failed to adjudicate the same. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR in order to drive home his contentions. 9 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 7. At the very outset of the hearing of the appeal, Shri Abhishek Mahawar, CA, the Ld. Authorized Representative (for short ‘AR’) for the assessee took us through the facts of the case by referring to a meticulously prepared “chart” which was placed on record for our assistance to understand the issues therein involved. It was submitted by the Ld. AR that the investor company, viz. M/s Aayush Steelco Pvt. Ltd. was a partner holding 95% stake in the firm M/s. Sri Balaji Iron & Steel Traders, Vishakapatnam. Elaborating on the source of the investment of Rs.34,49,600/- made by the investor company, viz. M/s Aayush Steelco Pvt. Ltd. towards share application money with the assessee company, it was submitted by the Ld. AR that the same was sourced from the withdrawal made on 10.06.2014 by the investor company from its capital account with M/s. Sri Balaji Iron & Steel Traders. In order to fortify his aforesaid contention the Ld. AR had taken us through the copy of the capital account of the investor company, viz. Aayush Steelco Pvt. Ltd. (as a partner) as appeared in the books of account of M/s. Sri Balaji Iron & Steel Traders, Page 31 of APB. Also, our attention was drawn towards copy of the bank account of M/s. Shree Balaji Iron & Steel Traders, Page 36 of APB, wherein, payment of an amount of Rs.34.50 lac in favour of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. was reflected. Our attention was also drawn by the Ld. AR towards the copy of the bank account of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd., Page 45 of APB wherein receipt of an amount of Rs.34.50 lac by investor company from M/s. Sri Balaji Iron & Steel Traders on 10.06.2014 a/w. the payment of the said amount 10 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 on the very same date to the assessee company, viz. M/s Chhattisgarh Metaliks and Alloys Pvt. Ltd. was clearly reflected. It was stated by the Ld. AR that though the aforesaid documents were very much there before the lower authorities, however, they had either not considered the same, or had failed to consider the same in the right perspective. Adverting to the adverse inferences drawn in the hands of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd., for the reason that one of its share holder, viz. M/s. Abharani Vinimay Pvt. Ltd. was allegedly on the basis of the statement of Shri Jitendra Mishra, an infamous entry operator, was found to be a shell company, it was submitted by the Ld. AR that the aforesaid alleged tainted share holder company was holding only 7% shareholding of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. Also, it was submitted by the ld. AR that the investor company, viz. M/s Aayush Steelco Pvt. Ltd. had not entered into any transaction with its aforesaid shareholder either during the year under consideration or in the last 7 to 8 years of its operation. It was the claim of the Ld. AR that now when the source of the investment of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. was clearly discernible to have been made out of the withdrawal from its capital account as a partner with M/s. Sri Balaji Iron & Steel Traders, therefore, no adverse inferences qua the same was liable to be drawn. In order to buttress his aforesaid claim as regards the transparency of the aforesaid transaction in question, it was submitted by the Ld. AR that the opening balance in the capital account of the investor company i.e., M/s. Aayush Steelco Pvt. Ltd. on 01.04.2014 was Rs.89.18 11 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 lac (Cr.) and the investment of Rs.34.50 lac towards share application money of the assessee’s company was made out of the same. Backed by the aforesaid facts, it was submitted by the Ld. AR that even if the afore mentioned shareholder of the investor company i.e., M/s. Abharani Vinimay Pvt. Ltd. was found to be a tainted concern, the same, in the backdrop of the clearly identified source of investment made by investor company would have no bearing on the authenticity of the transaction in question. 8. Adverting to the view taken by the lower authorities, that the assessee company despite specific direction by the A.O had failed to produce its directors for necessary examination before him, it was submitted by the Ld. AR, that as at the relevant point of time the concerned directors well to the notice of the A.O, were travelling abroad, therefore, for the said reason they could not put an appearance before him. Apart from that, it was submitted by the Ld. AR that even otherwise as the A.O had called upon the assessee company to produce the directors at the fag end of the assessment proceedings, therefore, necessary compliance on account of paucity of time could not be made. It was submitted by the Ld. AR that as the assessee company had placed on record the PAN a/w copies of the returns of income of the investor company, therefore, its identity was clearly established. As regards the genuineness of the transaction in question, it was submitted by the Ld. AR that as the amount of share application money was received through banking channels, therefore, the same stood duly established. On the basis of his aforesaid contentions, 12 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 it was submitted by the Ld. AR that now when the identity and creditworthiness of the share applicant company, viz. M/s. Aayush Steelco Pvt. Ltd. a/w. genuineness of the transaction had been proved to the hilt by the assessee, therefore, neither the adverse inferences nor the treating of the amount of share application money as an unexplained cash credit u/s.68 of the Act could be sustained. 9. Adverting to the addition of Rs.75,000/- made by the A.O u/s. 56(2)(viib) of the Act, it was submitted by the Ld. AR that as the additional 5000 shares were issued by the assessee company to its existing shareholders on the basis of a proportionate allotment, i.e., allotment of the additional shares on a pro-rata basis, to the share holders on the basis of their existing shareholding, therefore, the provisions of section 56(2)(viib) of the Act could not be triggered. In support of his aforesaid contention the Ld. AR had relied on the order of the Co-ordinate Bench of the Tribunal i.e, ITAT, Bench ‘A’, Mumbai in the case of Sudhir Menon HUF Vs. ACIT- 21(2), Bendra, Mumbai, (2014) 148 ITD 260 (Mum). 10. Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. 11. As observed by us hereinabove, the assessee by preferring the present appeal has assailed the orders of the lower authorities on two counts, viz. (i) addition of the share application money received from M/s. Aayush Steelco Pvt. Ltd. as an 13 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 unexplained cash credit u/s.68 of the Act: Rs.34,49,600/-; and (ii) addition u/s. 56(2)(viib) of the Act : Rs.75,000/-. 12. We shall first deal with the sustainability of the addition of Rs.34.49 lakhs made by the A.O u/s.68 of the Act, which thereafter had been upheld by the CIT(Appeals). As is discernible from the records, the aforesaid investor company, viz. M/s. Aayush Steelco Pvt. Ltd. had made an investment of Rs.34.49 lac towards share application money with the assessee company. As stated by the Ld. AR, and rightly so, the aforesaid investment was sourced out of the withdrawal made by the investor company from its capital account as a partner with M/s. Sri Balaji Iron & Steel Traders, Vishakhapatnam. Claim of the assessee as regards the source of its investment towards share application money is established on a conjoint perusal of the capital account of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. with M/s. Sri Balaji Iron & Steel Traders, Page 31 of APB a/w. its bank account No.911030049109355 with Axis bank, Page 30-36 of APB . Confirmation of the aforesaid investor company as regards the investment made towards share application money with the assessee company a/w. source thereof had been filed by the assessee in the course of the assessment proceedings. Also, a copy of the bank account of the investor company, viz. M/s. Aayush Steelco Pvt. Ltd., Page 45 of APB clearly evidences the investment made by it towards share application money a/w. source thereof, which, for the sake of clarity is culled out as under: Account Number Name Holding status Customer ID 14 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 20001397783 1 Aayush Steel Co Private Limited Primary holder 10208539 Product Description current account-Indus Blue Branch Address: Vishakhapatnam CDR Hospital, A 3 Raja Complex, Walter Main Road, Vishakhapatnam, Andhra Pradesh-530002 Statement period : 01 June-2014 to 30-June-2014 Statement Frequency : Monthly Average monthly balance required : Rs.5000/- SMS Alert No. Branch MICR Code : 530234001 Branch IFSC Code : INDB0000581 Nomination Registered : No. Date Particulars Chq. No./Ref . No. Withdrawa l Deposit Balance 01-Jun-2014 10-June-2014 10-Jun-2014 10-Jun-2014 June-2014 Brough forward Transfer/ECS CREDIT/AAGCA106-1B-AY 2012-13/019407495142823617 CRNACH10061014 Transfer/ Bank Induced RTGS/UTIBH14161077687/ SRI BALAJI IRON & STEEL TRAD 000016043474/UTIB00003 69911030049109355 Transfer/Customer induced RTGS/INDBH14161917547/CHHATISHGAR H METALIKS AND AL 000016047321/STATE BANBK OF IND 33394566277 Transfer/Bank Induced to RTGS/NEFT Chgs. INDBH14161917547 Value-Date 10- JUN-14 615286 3,450,000.00 56.18 2,010.00 3,450,000.0 0 22,261.98 24,271.98 3,474,271.9 8 24,271.98 24,215.80 30-JUN-2014 Carried forward 24,215.80 On the basis of the aforesaid facts, we are of the considered view that the lower authorities had grossly erred in law and the facts of the case in dubbing the transaction in question, i.e., receipt of duly explained share application money by the assessee company from the aforesaid investor company, viz. M/s. Aayush Steelco Pvt. Ltd. as an unexplained cash credit u/s.68 of the Act. At this stage, we 15 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 may herein observe, that a perusal of the capital account of the investor company ,viz. M/s. Aayush Steelco Pvt. Ltd. reveals beyond doubt that the investment in question was made out of its ‘opening balance’ of Rs.89.18 lac (supra) on 01.04.2014 as a partner with M/s Sri Balaji Iron & Steel; Traders, Vishakapatnam and not on the basis of any fresh amount which was found parked in the same during the year under consideration. As regards the adverse inferences drawn by the lower authorities, for the reason that M/s. Abharani Vinimay Pvt. Ltd., a share holder of the investor company had allegedly emerged as a shell company, we are of the considered view that the same by no means would have any bearing in so far the issue in hand is concerned. As stated by the Ld. AR, and rightly so, as the investment towards the share application money is sourced from the ‘opening balance’ of Rs.89.18 lac in the capital account of the investor company with M/s. Sri Balaji Iron & Steel Traders, therefore, there would be no justification in drawing of any adverse inferences qua the said source of investment. At this stage, we may herein observe, that except for raising allegations in the thin air the department had failed to lead any iota of evidence which would persuade us to conclude that it was the unaccounted money of the assessee company which was routed back to its coffers in the garb of share application money through the investor company, viz. M/s. Aayush Steelco Pvt. Ltd. Considering the aforesaid duly substantiated explanation of the assessee as regards the source of investment of share application money made by the investor company, viz. M/s. Aayush Steelco Pvt. Ltd., we are of the considered 16 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 view that the onus cast upon the assessee company for proving the nature and source of the share application money a/w the additional burden cast upon it as per the “first proviso” to section 68 of the Act, stands duly discharged. Accordingly, not being able to persuade ourselves to subscribe to the view taken by the lower authorities who had dubbed the share application money of Rs.34.49 lac received by the assessee company as an unexplained cash credit u/s.68 of the Act, we herein set- aside the order of the CIT(Appeals) and vacate the said addition. Thus, the Ground of appeal No.1 raised by the assessee is allowed in terms of our aforesaid observations. 13. We shall now advert to the grievance of the assessee that the lower authorities had erred in law and the facts of the case in making an addition of Rs.75,000/- u/s. 56(2)(viib) of the Act. As observed by us hereinabove, the assessee company had allotted additional 5000 shares having face value of Rs.10/- each to its existing share holders at a premium of Rs.90/- per share. Accordingly, the assessee company on account of the said allotment had raised an amount of Rs.50,000/- towards share capital a/w. share premium of Rs.4.5 lac. As the FMV of the unquoted equity shares of the assessee company as per sub-rule (2) of Rule 11UA was Rs.85/- per share, therefore, the A.O held the excess amount of Rs.15/- per share so received by the assessee as its income u/s. 56(2)(viib) of the Act. 17 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 14. After having given a thoughtful consideration to the contentions of the Ld. AR, we concur with his contention that as the additional shares of the assessee company were issued and allotted on a pro-rata basis to the existing shareholders, i.e., based on their existing shareholding, therefore, the share holding percentage before and after allotment of the aforesaid shareholders remained the same. In sum and substance, as long as there was no disproportionate allotment of shares, i.e., shares were allotted on a pro-rata basis to the shareholders based on their existing holding, then, pursuant to allotment of the additional shares there would only be an apportionment of the value of their existing holding over a larger number of shares. The aforesaid contention of the Ld. AR is fortified by the order of the Co-ordinate Bench of the Tribunal, i.e, ITAT, Bench ‘A’, Mumbai in the case of Sudhir Menon, HUF Vs. ACIT-21(2), Bendra, Mumbai, (2014) 148 ITD 260 (Mum). Also, a similar view had been taken by the ITAT, Mumbai in its recent order passed in the case of ITO Vs. Rajeev Ratanlal Tulshyan (2021) 136 Taxman.42 (Mum). In fact, we find that the CBDT vide its Circular No.10 of 2018, dated 31.12.2018, had earlier clarified that the provisions of section 56(2)(viia) of the Act shall not be applicable in cases of receipt of shares by the specified company or firm as a result of fresh issuance of shares including those by way of issue of bonus shares, right shares and preference shares. Although the aforesaid circular was, thereafter, withdrawn, but in our considered view, as the provisions of Sec. 56(2)(vii) were introduced as an anti- abuse measure to prevent laundering of unaccounted money in the garb of gifts 18 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 after abolition of Gift Tax Act, therefore, there is no justifiable reason to depart from the understanding that the said provisions were in the nature of counter evasion mechanism to prevent laundering of unaccounted money. In the case of issuance of bonus shares, allotting of shares to existing shareholders in proportion to their existing shareholding (akin to issue of right shares), there is neither any increase or decrease in the wealth of the shareholder (or of the issuing company) on account of a bonus issue and his percentage holding therein remains the same. What in effect transpires is that a share gets split (in the same proportion for all the shareholders). As observed by the Tribunal in its aforesaid order, such allotment of additional shares would be akin to changing a one thousand rupee note for two five hundreds rupee notes. Accordingly, we are of the considered view, that as stated by the Ld. AR, and, rightly so, the provisions of section 56(2)(viib) of the Act in the backdrop of the facts of the case before us could not have been triggered. 15. At this stage, we may herein observe that though the aforesaid issue was specifically raised by the assesee before the CIT(Appeals) however, the latter had failed to adjudicate the same. In all fairness, instead of restoring the issue to the file of the CIT(Appeals) for fresh adjudication which would only add to the pending litigation, we have taken a call and adjudicated the aforesaid issue. We, thus, in terms of our aforesaid observations modify the order of the CIT(Appeals) and vacate the disallowance of Rs.75,000/- made by the A.O u/s. 56(2)(viib) of the Act. Thus, 19 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 the Ground of appeal No.2 raised in appeal by the assessee is allowed in terms of our aforesaid observation. 16. In the result, appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 26 th July, 2022 **SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1,Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध,आयकर अपीलȣय अͬधकरण, रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur. 20 Chhattisgarh Metaliks and Alloys Private Limited. Vs. ITO-3(3) ITA No. 102/RPR/2019 Date 1 Draft dictated on 20.06.2022 Sr.PS/PS 2 Draft placed before author 20.06.2022 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order