Appeal details
Counselvise Citation
[2019] 112 COUNSELVISE.COM (IT) 3766 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-11-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
D
Assessment Year
2012-2013
Appeal Filed On
01-04-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D, NEW DELHI BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.1716/DEL/2016 ASSESSMENT YEAR: 2012-13 DCIT, CENTRAL CIRCLE-1, FARIDABAD VS. SMT. MAMTA BHANDARI, 1/2873, RAM NAGAR, LONI ROAD, SHAHDRA, DELHI PAN :AAGPB3440H (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST OR DER DATED 29/01/2016, PASSED BY THE LD. COMMISSIONER OF INCOM E-TAX (APPEALS)-3, GURGAON [IN SHORT THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 2012-13, RAISING FOLLOWING GROUND: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,31,34,701/- MADE ON ACCOUNT OF THE APPELLANT BY SMT. DEEPALI CHANDRA, SR.DR RESPONDENT BY SHRI R.S. AHUJA, CA DATE OF HEARING 26.11. 2019 DATE OF PRONOUNCEMENT 29.11.2019 2 ITA NO.1716/DEL/2016 DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE SHA RES AND CONSIDERATION RECEIVED BY THE COMPANY FROM THE ASSE SSEE TO WHOM BONUS SHARES ISSUED IGNORING THE FACT THAT THE PROV ISIONS OF SECTION 56(2)(VII)(C) ARE SQUARELY APPLICABLE TO THE CASE O F THE ASSESSEE. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT ON CONTRAR Y, THE MARKET VALUE OF SHARES HAS INCREASED TO RS. 1250/- PER SHARE ON 29.03.2014, JUST TWO DAYS AFTER ISSUE OF BONUS SHARES. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE, AN INDIVIDUAL, IS DIRECTOR IN SOME COMPANIES OF BESTE CH GROUP, INCLUDING THE COMPANY M/S BESTECH INDIA PRIVATE LI MITED. A SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS CARRIED OUT ON 0 4/07/2012 AT THE PREMISES OF THE BESTECH GROUP OF THE COMPANIE S ALONG WITH ASSESSEE. CONSEQUENT TO THE SEARCH ACTION, NOTICE U NDER SECTION 153A OF THE ACT WAS ISSUED TO THE ASSESSEE ON 05/05 /2014, REQUIRING HIM TO FILE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. IN RESPONSE, THE ASSESSEE FILED RETU RN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 26/05/2014, DECLARI NG INCOME OF 18,00,610/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED AND COMPLIED WITH. DURING THE C OURSE OF THE SEARCH ACTION, IT WAS OBSERVED THAT COMPANY M/S BES TECH INDIA PRIVATE LIMITED HAD ALLOTTED BONUS SHARES TO ITS SH AREHOLDERS INCLUDING THE ASSESSEE. THE ASSESSEE WAS HOLDING 7, 86,785 SHARES OF BESTECH INDIA PRIVATE LIMITED AS ON 01/04/2011 . AS PER PAGE 28 OF ANNEXURE A-1 SEIZED DURING THE COURSE OF THE SEARCH, IT WAS SEEN THAT 11,01,499 NUMBER OF SHARES WERE ALLOTTED TO THE ASSESSEE AS BONUS SHARES AS ON 27/03/2012 AT THE FA CE VALUE OF 10 BY WAY OF CAPITALIZING AN AMOUNT OF 1,10,14,990/- THROUGH CONVERSION OF RESERVE AND SURPLUS INTO SHARE CAPITA L. ACCORDING TO THE ASSESSING OFFICER, RECEIPT OF BONUS SHARES BY T HE ASSESSEE 3 ITA NO.1716/DEL/2016 WITHOUT PAYING ANY CONSIDERATION, ATTRACTED PROVISI ONS OF SECTION 56(2)(VII) OF THE ACT, WHICH, INTER ALIA, PRESCRIBE THAT IF ANY PROPERTY OTHER THAN IMMOVABLE PROPERTY IS RECEIVED BY AN INDIVIDUAL OR HUF WITHOUT CONSIDERATION, THE AGGREG ATE FAIR MARKET VALUE OF SUCH PROPERTY SHALL BE CHARGEABLE T O INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE H ANDS OF SUCH INDIVIDUAL OR HUF IN THE RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER ACCORDINGLY, COMPUTED THE FAIR MARKET VALUE OF THE BONUS SHARES UNDER RULE 11U AND 11UA OF THE INCOME TAX RU LES AT 4,31,34,701/- AND MADE ADDITION ACCORDINGLY. ON FUR THER APPEAL, THE LD. CIT(A) DELETED THE ADDITION FOLLOWI NG THE DECISION OF THE TRIBUNAL IN THE CASE OF SUDHIR MENON, HUF VS ACIT, MUMBAI IN ITA NO. 4887/MUM/2013 FOR ASSESSMENT YEAR 2010- 11, OBSERVING AS UNDER: 6. 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 RS. 4,31,34,701/- 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 H ER AS INCOME FROM OTHER SOURCES'. BEFORE, DISCUSSING THE MERITS OF THE CASE, IT WIL L BE NECESSARY TO GO THROUGH THE EXPLANATORY MEMORANDUM OF FINANCI AL BILL 2010 W.R.T. AMENDMENT IN SECTION 56(2)(VII) WHICH IS REP RODUCED AS UNDER:- UNDER THE EXISTING PROVISIONS OF SECTION 56(2)(VI I), ANY SUM OF MONEY OR ANY PROPERTY IN KIND WHICH IS RECEIVED WIT HOUT CONSIDERATION OR FOR INADEQUATE CONSIDERATION (IN E XCESS OF THE PRESCRIBED LIMIT OF RS. 50,000/-) BY AN INDIVIDUAL OR AN HUF IS CHARGEABLE TO INCOME TAX IN THE HANDS OF RECIPIENT UNDER THE HEAD 'INCOME FROM OTHER SOURCES. HOWEVER, RECEIPTS FROM 4 ITA NO.1716/DEL/2016 RELATIVES OR ON THE OCCASION OF MARRIAGE OR UNDER A WILL ARE OUTSIDE THE SCOPE OF THIS PROVISION. THE EXISTING DEFINITION OF PROPERTY FOR THE PURPOS ES OF SECTION 56 (2)(VII) INCLUDES IMMOVABLE PROPERTY BEING LAND OR BUILDING OR BOTH, SHARES AND SECURITIES, JEWELLERY, ARCHEOLOGIC AL COLLECTION, DRAWINGS, PAINTINGS, SCULPTURE OR ANY WORK OF ART. A THESE ARE ANTI-ABUSE PROVISIONS WHICH ARE CURREN TLY APPLICABLE ONLY IF AN INDIVIDUAL OR AN HUF IS THE R ECIPIENT. THEREFORE, TRANSFER OF SHARES OF A COMPANY TO A FIR M OR A COMPANY, INSTEAD OF AN INDIVIDUAL OR AN HUF, WITHOU T CONSIDERATION OR AT A PRICE LOWER THAN THE FAIR MAR KET VALUE DOES NOT ATTRACT THE ANTI-ABUSE IN ORDER TO PREVENT THE PRACTICE OF TRANSFERRING U NLISTED SHARES AT PRICES MUCH BELOW THEIR FAIR MARKET VALUE, IT IS PROPOSED TO AMEND SECTION 56 TO ALSO INCLUDE WITHIN ITS AMBIT T RANSACTIONS UNDERTAKEN IN SHARES OF A COMPANY ( NOT BEING A COM PANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED) EITHER F OR INADEQUATE CONSIDERATION OR WITHOUT CONSIDERATION WHERE THE RE CIPIENT IS A FIRM OR A COMPANY (NOT BEING A COMPANY IN WHICH PUB LIC ARE SUBSTANTIALLY INTERESTED). SECTION 2(18) PROVIDES T HE DEFINITION OF A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INT ERESTED. IT IS ALSO PROPOSED TO EXCLUDE THE TRANSACTIONS UN DERTAKEN FOR BUSINESS REORGANIZATION, AMALGAMATION AND DEMERGER WHICH ARE NOT REGARDED AS TRANSFER UNDER CLAUSES (VIA), ( VIE), (VICB), (VID) AND (VII) OF SECTION 47 OF THE ACT. CONSEQUENTIAL AMENDMENTS ARE PROPOSED IN- (I) SECTION 2(24) TO INCLUDE THE VALUE OF SUCH SHA RES IN THE DEFINITION OF INCOME. (II) SECTION 49, TO PROVIDE THAT THE COST OF ACQUI SITION 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). THESE AMENDMENTS ARE PROPOSED TO TAKE EFFECT FROM 1ST JUNE 2010 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2011-12 AND SUBSEQUENT YEARS. B. THE PROVISIONS OF SECTION 56(2)(VII) WERE INTROD UCED AS A COUNTER EVASION MECHANISM TO PREVENT LAUNDERING OF UNACCOUN TED INCOME UNDER THE GARB OF GIFTS, PARTICULARLY AFTER ABOLITION OF THE GIFT TAX ACT. THE PROVISIONS WERE INTENDED TO EXTEN D THE TAX NET TO SUCH TRANSACTIONS IN KIND. THE INTENT IS NOT TO TAX THE TRANSACTIONS ENTERED INTO IN THE NORMAL COURSE OF B USINESS OR 5 ITA NO.1716/DEL/2016 TRADE, THE PROFITS OF WHICH ARE TAXABLE UNDER SPECI FIC HEAD OF INCOME. IT IS, THEREFORE, PROPOSED TO AMEND THE DEF INITION OF PROPERTY SO AS TO PROVIDE THAT SECTION 56(2)(VII) W ILL HAVE APPLICATION TO THE 'PROPERTY' WHICH IS IN THE NATUR E OF A CAPITAL ASSET OF THE RECIPIENT AND THEREFORE WOULD NOT APPL Y TO STOCK-IN- TRADE, RAW MATERIAL AND CONSUMABLE STORES OF ANY BU SINESS OF SUCH RECIPIENT. THEREAFTER, THIS ISSUE WAS DISCUSSED IN DETAIL BY HON'BLE ITAT MUMBAI BENCH IN THE CASE OF SUDHIR MENON 1IUF VS ASTT. CIT- 21(2), BANDRA MUMBAI FOR AY 2010-11 IN ITANO. 4887/ MUM/2013 AND THE RELEVANT OBSERVATIONS ARE REPRODUCED AS BEL OW:- (I) THE PROVISIONS OF SECTION 56(2)(VII) OF THE A CT WOULD NOT APPLY TO BONUS SHARES, AND THE ARGUMENT ALLUDING TH ERETO ARISES ONLY ON ACCOUNT OF MIS -CONCEPTION IN RESPEC T THEREOF. (II) ISSUE OF BONUS SHARES IS BY DEFINITION CAPITA LIZATION OF ITS PROFIT BY THE ISSUING COMPANY. THERE IS NEITHER ANY INCREASE NOR DECREASE IN THE WEALTH OF SHAREHOLDER (OR OF THE ISSUING COMPANY) ON ACCOUNT OF A BONUS ISSUE AN D HIS PERCENTAGE HOLDING THEREIN REMAINS CONSTANT. (III) WHAT IN EFFECT TRANSPIRES IS THAT A SHARE GE TS SPILIT (IN THE SAME PROPOSITION FOR ALL THE SHAREHOLDERS), AS FOR EXAMPLE BY A FACTOR OF TWO IN CASE OF A 1:1 BONUS ISSUE. (IV) REFERENCE IN THIS REGARD MAY BE TO THE DECISI ON IN CIT VS DALMIA INVESTMENT CO. LTD. [1964] 52 ITR 567 (SC) A S WELL AS IN KHODAY DISTILLERIES LTD. (SUPRA), WHEREIN REF ERENCE STANDS MADE TO THE FORMER, ALSO QUOTING THEREFROM B ESIDES INTER ALIA TO HUNSUR PLYWOOD WORKS LTD VS C1T[ 1998 ] 229 ITR 112 (SC), WHERE THE SAME WERE REFERRED TO AS CAPITALIZATION SHARES. (V) IN OTHER WORDS, THERE IS NO RECEIPT OF ANY PRO PERTY BY THE SHAREHOLDER, AND WHAT STANDS RECEIVED BY HIM IS THE SPLIT SHARES OUT OF HIS OWN HOLDING. IT WOULD BE AKIN TO SOMEBODY EXCHANGING A ONE THOUSAND RUPEE NOTE FOR T WO FIVE HUNDRED OR TEN HUNDRED RUPEE NOTES. THERE IS, ACCORDINGLY, NO QUESTION OF ANY GIFT OF OR ACCRETIO N TO PROPERTY; THE SHARE HOLDER GETTING ONLY THE VALUE O F HIS EXISTING VALUE PER SHARE, INCREASING ITS MOBILITY A ND, THUS, LIQUIDITY, IN THE SENSE THAT THE SHARES BECOME MORE ACCESSIBLE FOR TRANSACTIONS AND, THUS, TRADING, I.E . CONSIDERED FROM THE HOLDERS' POINT OF VIEW. WE MAY THOUGH ADD A NOTE OF CAUTION. THERE COULD BE A CASE OF BON US 6 ITA NO.1716/DEL/2016 ISSUE COUPLED WITH THE RELEASE OF ASSETS (OF THE IS SUING COMPANY) IN FAVOUR OF THE SHAREHOLDERS. THE SAME WO ULD FALL TO BE CONSIDERED AS DIVIDEND U/S 2(22)(A) OF T HE ACT. (VI) IN THE CASE OF ISSUE OF BONUS SHARES (AS ALSO DEMERGER), NO PROPERTY IS BEING CONVEYED TO THE SHAREHOLDER IN AS MUCH AS THE PROPERTY THEREIN IS COMPRISED IN THE EXISTIN G SHAREHOLDING OF THE ALLOTEE. THERE IS AS SUCH NO CA SE OF A GIFT, THE SHAREHOLDER ONLY RECEIVING HIS OWN PROPER TY. (VII) NO PROPERTY HOWEVER BEING PASSED ON TO THE AS SESSEE IN THE INSTANT CASE, I.E. CN THE ALLOTMENT OF THE ADDI TIONAL SHARES, NO ADDITION IN TERMS OF THE PROVISION ITSEL F 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 20 10. FURTHER, THE JUDGMENT DISCUSSED ABOVE FURTHER ELABORATES AS TO H OW THE PROVISIONS OF SECTION 56(2)(VII) OF THE ACT WOULD N OT APPLY TO BONUS SHARES. THUS, IT IS CLEAR, THAT THE ADDITION MADE BY THE AO IS NOT IN ACCORDANCE WITH LAW AND HENCE DELETED. 3. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2010-11 IN ITA NO. 5681/DEL/2016. 4. THE LD. DR THOUGH RELIED ON THE ORDER OF THE ASSES SING OFFICER, COULD NOT CONTROVERT SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IN THE CASE, THE ASSESSEE HAS R ECEIVED BONUS SHARES WITHOUT PAYING ANY CONSIDERATION, AND FAIR M ARKET OF WHICH, HAS BEEN HELD BY THE ASSESSING OFFICER AS IN COME IN THE HANDS OF THE ASSESSEE. WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION FOLLOWING THE PRECEDENT IN THE CASE OF SUD HIR MENON 7 ITA NO.1716/DEL/2016 (HUF) (SUPRA). IN THE CASE OF THE ASSESSEE, BONUS S HARES WERE ALSO RECEIVED IN FINANCIAL YEAR CORRESPONDING TO ASSESSM ENT YEAR 2010- 11 FROM THE SAME COMPANY AND THE AO MADE ADDITION U /S 56(2)(VII) OF THE ACT. THE TRIBUNAL IN ITA NO. 5681 /DEL/2016 HAS DELETED THE SAID ADDITION FOLLOWING THE DECISION IN THE CASE OF SUDHIR MENON (HUF)(SUPRA) AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NO T FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF T HE LD. CIT(A) IN DELETING THE ADDITION. THE LD. CIT(A) DELETED THE A DDITION FOLLOWING THE RELEVANT PROVISIONS OF LAW IN THE LIGHT OF ORDE R OF ITAT, MUMBAI BENCH IN THE CASE OF SUDHIR MENON (HUF) VS. ACIT (S UPRA), 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 BE NCH IN THE CASE OF MEENU SATIJA, NEW DELHI VS. PR CIT (CENTRAL), GU RGAON (SUPRA), ON IDENTICAL FACTS QUASHED THE PROCEEDINGS UNDER SECTI ON 263 OF THE L.T, ACT. THEREFORE, RATIO OF THE DECISION OF THE TRIBUN AL IN THE CASE OF MEENU SATIJA, NEW DELHI VS. PR. CIT (CENTRAL), GURG AON (SUPRA), SQUARELY APPLY TO THE FACTS AND CIRCUMSTANCES OF TH E CASE. WHETHER THIS ORDER HAVE BEEN PASSED UNDER SECTION 263 OR ME RIT WOULD NOT MAKE ANY DIFFERENCE. THE PRINCIPLE OF LAW HAVE BEEN CLEARLY DECIDED IN FAVOUR OF THE ASSESSEE ON THE IDENTICAL FACTS. T HE TRIBUNAL HAS ALSO RELIED UPON THE DECISION OF MUMBAI BENCH IN TH E 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 TH E ITAT, DELHI BENCH IN THE CASE OF MEENU SATIJA, NEW DELHI VS. PR. CIT( CENTRAL), GURGAON (SUPRA). THE DEPARTMENTAL APPEAL HAS NO MERIT AND T HE SAME IS ACCORDINGLY DISMISSED. 6. IN VIEW OF THE IDENTICAL ISSUE OF RECEIPT OF BONUS SHARE WITHOUT CONSIDERATION IS INVOLVED IN THE YEAR UNDER CONSIDERATION, RESPECTFULLY, FOLLOWING THE FINDING OF THE TRIBUNAL IN THE CASE OF SUDHIR MENON (HUF) (SUPRA) AND TRIBUNAL (SUPRA) IN THE CASE OF THE ASSESSEE ITSELF, WE UPHOLD THE FINDING OF THE L D. CIT(A) ON THE ISSUE IN DISPUTE. THE GROUND OF APPEAL OF THE REVEN UE IS ACCORDINGLY DISMISSED. 8 ITA NO.1716/DEL/2016 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2019. SD/- SD/- (SUSHMA CHOWLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH NOVEMBER, 2019. RK/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI
