RAJESH KUMAR JAIN,RAJNANDGAON V. .ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, NAYA RAIPUR

ITA 42/RPR/2024

AI Insights

The case involves Rajesh Kumar Jain, a chartered accountant and member of the 'Crest Topworth Group', who was subjected to search and seizure under Section 132 of the Income Tax Act, 1961. Following the search, the Assessing Officer (A.O.) made an addition of Rs.7,04,00,000 to Jain's income under Section 56(2)(vii)(c) for the assessment year 2012-13, based on the fair market value of shares allotted to him. Jain contested this addition, arguing that the shares were allotted and not transferred, and thus Section 56(2)(vii)(c) should not apply. The Commissioner of Income Tax (Appeals) upheld the A.O.'s decision, leading Jain to appeal to the Income Tax Appellate Tribunal, which partly allowed his appeal by dismissing the procedural grounds but agreeing with Jain on the substantive issue regarding the application of Section 56(2)(vii)(c).

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469801 (ITAT-RAIPUR)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 13-02-2024
• Other Referred Cases: Pr. CIT, Central-3 Vs. Abhisar Buildwell (P) Ltd, Sunny Jacob Jewelers Gold Hyper Market Vs. CIT, Akansha Pradeep Mishra Vs. JCIT (OSD), Khoday Distilleries Ltd. Vs. CIT, H. Holck Larsen Vs. Commissioner of Income-tax, Prem Chand Sharma HUF Vs. ITO, Vijay Kumar Vijayvergiya Vs. DCIT, Sadhvi Securities (P) Ltd Vs. Asstt. CIT, Assistant Commissioner of Income-tax, Circle - 4(1), Visakhapatnam Vs. Y. Venkanna Choudary, Kumar Pappu Singh v. Deputy Commissioner of Income-tax, Circle-1, Andhra Pradesh, Prakash Chand Sharma HUF Vs. Income-tax Officer, Deputy Commissioner of Income Tax, Circle-2, Jaipur Vs. Smt. Veena Goyal
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.L ANURAGI
• Assessee Lawyers: NIKHILESH BEGANI; THIRD
• Keywords: Capital asset; Opportunity of being heard; Additional evidence; Reasonable cause; Reassessment proceedings; Question of law; Corroborative evidences; Sale consideration of property below Jantri Value; Fair market value; Income from undisclosed sources; Documents seized; Gift; Principle of natural justice; Search and seizure
• Section: 143(3); 143(2); 119; 250; 64; 56; 12AA; 132; 153A; 56(2); 139; 50C; 101

Judgement Text

"आयकर अपीलȣय अͬधकरण Ûयायपीठ रायपुर मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 42/RPR/2024 Ǔनधा[रण वष[ / Assessment Year : 2012-13 Rajesh Kumar Jain Palak Complex, Ramadhin Marg, Rajnandgaon (C.G.)-491 441 PAN : AAOPJ7585P .......अपीलाथȸ / Appellant बनाम / V/s. The Deputy/Assistant Commissioner of Income Tax, Central Circle-2, Naya Raipur (C.G.) ……Ĥ×यथȸ / Respondent Assessee by : Shri Nikhilesh Begani, CA Revenue by : Shri S.L Anuragi, CIT-DR सुनवाई कȧ तारȣख / Date of Hearing : 30.09.2024 घोषणा कȧ तारȣख / Date of Pronouncement : 09.12.2024 2 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), Raipur-3, dated 31.01.2024, which in turn arises from the order passed by the A.O under Sec.153A r.w.s. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 07.11.2016 for the assessment year 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us: “GROUND NO.I 1. That the ex-parte Appellate Order passed by the Learned Commissioner of Income Tax (Appeals)-3, Raipur (\"the Ld.CIT(A)') under section 250 of the Income Tax Act, 1961 (\"the Act') is highly unjustified, bad in law, without providing reasonable opportunity of being heard, against the principles of natural justice and not in accordance with the provisions of law. That the hearing notices purportedly issued by the Ld.CIT(A) were not received on the designated email id of the appellant and hence, could not be complied, rather the appellant remained uninformed. Further, the Ld.CIT(A) even did not consider the application filed by the appellant for admission of additional evidences. It is prayed that the Appellate Order passed under section 250 of the Act may please be cancelled/set-aside on this ground alone. GROUND NO.II 2. That the Search Assessment Order framed under section 153A r.ws. 143(3) of the Act on the strength of purported approval granted u/s.153D by the Ld. Joint Commissioner of Income Tax, Range-Central is void ab initio, invalid, illegal and bad in law hence, deserves to be quashed and declared a nullity since, the mandatory prior approval granted is `no approval' in the eyes of law as the same has not been obtained on the Final Assessment Order passed, is mechanical, mere empty formality, 3 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 lacks due application of mind and further, the Search Assessment Order was passed based on invalid, inchoate and consolidated approval, accordingly, the Search Assessment Order is bad in law & legally unsustainable hence, it is earnestly prayed that the Assessment Order passed u/s.153A r.w.s. 143(3) may please be quashed and cancelled in limine. GROUND NO.III 3. That the Search Assessment Order framed u/s.153A r.w.s. 143(3) of the Act Dated 07.11.2016 by the Ld. AO and affirmation of the same by the Ld.CIT(A) is highly illegal, invalid, void ab initio and bad in law in as much as the jurisdiction to frame the assessment could not have been validly assumed by the Ld.AO since, the assessment was made dehors any incriminating material or documents seized in the course of search ignoring the settled position of law that the assessment proceedings for the assessment year under reference were not 'pending' on the date of initiation of search u/s.132 on 10.10.2012 in view of second proviso to section 153A(1), accordingly, the Search Assessment Order is bad in law & legally unsustainable hence, it is earnestly prayed that the Assessment Order passed u/s.153A r.w.s. 143(3) of the Act may please be quashed and cancelled in limine. GROUND NO. IV 4. On the facts and in the circumstances of the case as well as in law, the Ld.CIT(A) has grossly erred in confirming an addition of Rs.7,04,00,000/- made by the Learned Assessing Officer invoking the provisions of section 56(2)(vii) of the Act which is highly unjustified, unwarranted, unsustainable, not proper on facts, dehors any incriminating material or documents seized in the course of search, based on presumptions & surmises, without providing adequate opportunity of being heard, contrary to the principles of natural justice and not in accordance with the provisions of law. Further, the Ld.CIT(A) has failed to appreciate that- (i) the instant case is that of initial or subsequent issuance of equity shares (rights shares) rather issuance and allotment of fresh equity shares by the investee company to the existing or other shareholders and such allotment of equity shares does not fall within the ambit of 'transfer' articulated as per the legislative intent; (ii) the renunciation of entitlement of subscription to rights shares viz. the excessive rights shares were subscribed by the appellant and hence, the instant transaction of renunciation of 4 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 entitlement to rights shares in favour of appellant and its subscription was a transaction between close 'relatives' covered under the exceptions carved out under second proviso to section 56(2)(vii) r.w. Explanation (e) and hence, out of the purview of deeming provisions of section 56(2)(vii); (iii) the provisions of section 56(2)(vii) is in the nature of anti- abuse measure and the allotment of equity share capital was done as a measure of genuine business expediency and the accordingly, was a bonafide business transaction hence, out of purview of deeming provisions; (iv) the Balance Sheet required to be considered for determination of Fair Market Value has to be on the 'allotment date' itself prescribed under Rule 11U & 11UA of the Income Tax Rules, 1962 and not the Balance Sheet of the preceding financial year as has been fallaciously adopted by the Ld.AO contrary to the methodology prescribed under the Rules; & (v) the plain application of section 56(2)(vii) contrary to the methodology prescribed in the Rules leads to taxation of notional, unreal & imaginary income thereby leading to absurdity & unintended consequences. Hence, it is earnestly prayed that the addition of Rs.7,04,00,000/- may please be deleted. GROUND NO. V 5. That the Appellant craves leave to add, amend, alter or delete all or any of the grounds of Appeal at the time of hearing of the appeal.” 2. Succinctly stated, the assessee, a chartered accountant by profession, had filed his original return of income for A.Y.2012-13 on 31.08.2012, declaring an income of Rs.15,05,470/- a/w. agricultural income of Rs.10,000/-. The assessee who belongs to “Crest Topworth Group” was subjected to search and seizure proceedings u/s.132 of the Act on 10.10.2012. Notice u/s.153A of the Act dated 31.05.2013 was issued to the assessee calling upon him to file his return of income for A.Y.2012-13. In 5 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 compliance, the assessee filed his return of income for the year under consideration i.e A.Y 2012-13 on 24.07.2014 declaring his income as was originally returned. 3. During the course of the assessment proceedings, the A.O, observed that as per information that had surfaced in the course of search proceedings, the assessee had over the years made an investment of Rs.6,53,92,000/- with M/s. Crest Steel and Power Ltd. The assessee on being queried about the source of the investment submitted that he had invested Rs.6.41 crore in the equity shares and Rs.13.92 lacs in preferential shares of M/s. Crest Steel and Power Ltd. It was further stated by him that the investment in equity shares of Rs.6.41 crore was made in two years, viz. (i) Rs. 1 lac in one year; and (ii) Rs.6.40 crore in another year. Apropos the investment in preferential shares, it was submitted by the assessee that the same were allotted by the aforementioned company in lieu of the equity shares of M/s. Satyarth Steel & Power Pvt. Ltd. and M/s. Topworth Steel & Power Pvt. Ltd. The A.O, observed that though the assessee had made investment in the shares of the aforementioned company at their “face value” but their apparent value was substantially higher. Accordingly, the A.O in backdrop of Section 56(2)(vii) of the Act called upon the assessee to furnish the “Fair Market Value” (FMV) of the subject shares and explain as to why the differential amount may not be added in his case. In reply, the assessee claimed that the provisions of Section 56(2)(vii) of the Act were not applicable 6 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 in his case. Elaborating on his contention, it was the assessee’s claim that as the provisions of Section 56(2)(vii) of the Act were applicable to the transactions relating to “transfer of shares” and not to “allotment of shares”, therefore, the same could not be triggered in his case. 4. Alternatively, the assessee in compliance to the direction of the A.O filed with him a calculation of the FMV of the shares as on the date of valuation under Rule 11UA of the Income Tax Rules, 1962, certified by an independent chartered accountant. However, it was clarified by him that the calculation of FMV of the shares was filed only for the sake of compliance to the direction of the A.O and was not to be construed as either an admission or declaration of the said value for the purpose of taxation. The claim of the assessee that the provisions of Section 56(2)(vii) of the Act were not applicable in his case, as was filed before the A.O, vide his reply dated 05.11.2016 is culled out as under: (a) The provisions are not applicable to the assessee’s case as the transactions relates to allotment and not transfer. (b) Sec.56(2) begins with the word “any property”. The 2nd proviso to the said clause “c” which defines property includes share and securities. Hence for the purpose of applicability of the said provisions, the property should be in existence. In the assessee’s case “share”, we would like to bring to your kind notice that as per the company law till allotment, there is no existence of shares. As such there is no property in existence received by the assessee. Hence, section 56 could not apply to the case of the assessee as assessee has not received any property. (c) We would like to further bring to your kind notice that section 56(2)(vii) talks about receive of property, however in the case of 7 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 assessee the assessee not received any property it is mere allotment. (d) We would like to further bring to your kind notice that section 56(2)(vii) pre supposes receive of capital assets. The word \"receive\" means to get by a transfer. However in the above case the assessee has been allotted the shares and not by transfer (receive) as such the allotment of shares is not covered by the provisions of section 56. (e) We would like to further bring to your kind notice that section 56(2)(vii) pre supposes inadequate consideration of transfer of shares if the intention of the legislation would have been cover fresh issue of share (allotment) as in the case of the assessee they would have specifically included the word \"on issue of share\" as has been done in the section 56(2)(viib). (f) The independent CA submitted two valuations one considering value before allotment and the other after allotment. Therefore, in the facts and circumstances of the case and without prejudice to assessee's objection stated in (a) to (e) above, f the provisions are proposed to forcefully invoked the value as worked out after allotment deserves to be considered and not before allotment for the reason that adoption of value before subsequent allotments would lead to taxation of unreal and imaginary income, which is against the basic scheme of taxation under the Income-tax Act. (g) In last but not the least, adoption of such value would result in assessment of exorbitant amount which is even more than the net worth of the company and such interpretation would lead to absurdity...\" However, the aforesaid claim of the assessee regarding the inapplicability of the provisions of Section 56(2)(vii) of the Act to the transaction of allotment of shares of M/s. Crest Steel and Power Ltd., i.e, at a value lower than the FMV did not find favor with the A.O. Although, it was the claim of the assessee that as the equity shares allotted by M/s. Crest Steel and Power Ltd. were not in existence before their allotment, and thus, the same could not be brought within the meaning of “property” as envisaged u/s. 56 of the 8 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 Act but the same was not accepted by the A.O. The A.O, held a firm conviction that as the term “property” defined in the “Explanation (d)(ii)” to Section 56 of the Act did not make any distinction between the existing shares, i.e., the shares already allotted by the company; or those shares which were pending allotment, therefore, the claim of the assessee being devoid and bereft of any substance could not be accepted. The A.O., further observed, that if the assessee’s contention was to be accepted, then, it would limit the applicability of the provisions of Section 56(2) only to the transactions of purchase of existing shares which is commonly referred to as “the transfer of shares”, but such limited meaning was not discernible from the language employed by the legislature in the Income Tax Act. Rather, the A.O was of the view that in case the legislature would have intended to limit the applicability of Section 56(2)(vii) of the Act only to the existing shares, then, it would have in all its wisdom worded the provisions suitably. Further, the A.O, observed that the claim of the assessee that as per the Company law no property comes into existence till the allotment of shares did not come to his rescue as the taxability of Section 56(2)(vii) was considered only after the allotment of shares. 5. The A.O., based on his aforesaid deliberations, held a firm conviction that as the assessee had received the property upon allotment of shares against inadequate consideration, therefore, the provisions of Section 56(2) of the Act stood attracted. The A.O rejected the contention of the assessee 9 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 that the word “receive” used in Section 56(2) was to be construed as “to get by a transfer” as there was nothing to ascribe such a narrow interpretation to the said term. Accordingly, the A.O based on his aforesaid observation was of the view that as the assessee had received shares of M/s. Crest Steel and Power Ltd. at the “face value”, i.e., much below the FMV, therefore, the provisions of Section 56(2)(vii) of the Act were attracted in his case. The A.O, backed by his aforesaid conviction made an addition of Rs.7,04,00,000/- u/s. 56(2)(vii) of the Act in the hands of the assessee, as under: 10 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 Accordingly, the A.O vide his order passed u/s.153A r.w.s. 143(3) of the Act, dated 07.11.2016, after making an addition of Rs.7,04,00,000/- u/s. 56(2)(vii) of the Act, determined the income of the assessee at Rs.7,19,05,470/- a/w. agriculture income of Rs.10,000/-. 6. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). As the assessee had failed to participate in the proceedings before the CIT(Appeals), therefore, the latter after deliberating on the facts involved in the case before him found no infirmity in the view taken by the A.O and, thus, approved his order and dismissed the appeal. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under: “5.2 During the appeal proceedings the appellant was not filing any written submission, the appellant has shown that he is not interested in pursuing the appeal. The laws aid those who are vigilant, not those who sleep upon their rights. Under these circumstances, in my opinion the appellant is not interested in the appeal. In view of these facts, the appeal of the appellant deserves to be dismissed as it cannot be kept pending adjudication for indefinite period. It is the duty of the appellant to make necessary arrangements for effective representation oil the appointed date. Mere filing of an appeal is not enough, rather it requires effective hearing also. Therefore, the appeal is found liable for dismissal. This view is supported by the following judicial pronouncements:- (i) In the case of Estate of Late Tukojirao Holkar vs. CWT 223 ITR 480 (M.P.) Hon'ble MP High Court has held as under:- 4. As held in Jamunadas v. CST [1993] 38 MPLJ 462 (MP) and the common order passed in Miscellaneous Civil Case No. 30Z of 1986- -B. R. Phosphate v. CST and Miscellaneous Civil Case No. 304 of 1986--B. R. Phosphate v. CST by this court on November 6, 1995, this court is not bound to answer the reference. In Jamunadas v. CST [1993] 38 MPLJ 462, it is held as under : 11 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 \"For the foregoing reasons, we are of the opinion that if the party at whose instance the reference is made, fails to appear at the hearing, or fails in. taking steps for preparation of the paper books so as to enable hearing of the reference, this court is not bound to answer the reference. We refuse to answer the reference and also saddle the assessee with the costs of the Department quantified at Rs. 150.\" (ii) In the case of Kalsaria Diamonds Pvt Ltd vs Addl.CIT in ITA NO 1783/Mum/2012 dated -.05.09.2013, Hon'ble Mumbai ITAT placing reliance on decision of Hon'ble MP High court in the case of Estate of Late Tukojirao Holkar (supra) has held as under:- \"2. Earlier this appeal was fixed for hearing on 21/3/2013, when nobody attended on behalf of the assessee, therefore, as per directions of the Tribunal the matter was adjourned to 05/09/2013 and notice was directed to be issued through RPAD. Accordingly, notice was sent through RPAD at the address given in Form No.36. However, the said notice was received back from the postal authorities with the remark \"Unclaimed -Return to Sender\". The assessee has not intimated any change of address to the registry. Adjournment application has also not been filed. Therefore, in the-facts and circumstances of the case, we presume that the assessee is not interested in prosecuting this appeal. Following the decision of the Tribunal reported in the case of CIT vs. Multiplan India (P) Ltd.38 ITD 320 (Del) and the decision of the Hon'ble Madhya Pradesh High Court in the case of Estate of Late Tukojirao Holkar vs. CWT, 223 ITR 480 (M.P) we dismiss the appeal filed by the assessee in limina.\" 5.3 No explanation has been furnished by the appellant at this stage on the findings and conclusion of the Ld. AO. In absence of any explanation & on the basis of facts gathered and discussed by the Ld. AO, considering entire facts in the assessment order, the assessee has invested Rs.6,41,00,000/- in the equity shares of Crest steel and Power Ltd., and Rs. 13,92,000/- in the preferential shares of the said company. The investment in equity shares has been in two years i.e. Rs. 100000/-in one year and Rs.6,40,00,000/- in another year. The preferential shares are allotted by the company in lieu of equity shares of M/s Satyarth Steel & Power Pvt.Ltd. and M/s Topworth Steel and Power Pvt.Ltd. It is noticed that the assessee has invested in the shares at the face value whereas the apparent value of the shares was higher. With a view to examine the applicability of the provisions of section 56(2)(vii), the assessee was asked to furnish the FMV of 12 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 the shares so purchased. Further the assessee was also asked to explain why addition should not be made u/s. 56(2) of the Act. Vide his reply dated 05.11.2016, the assessee submitted his explanation in the matter of applicability of provisions of section 56(2)(vii) of the Act as detailed below: \"... that the said provisions are applicable only in respect of transactions relating to \"transfer of shares\" and not to \"allotment of shares\". However as required the calculation of fair market value of shares as on the date of valuations under rule 11UA of the Income-tax Rules, 1962 certified by independent Chartered Accountant obtained from the company are submitted herewith as annexure-1 and annexure -1(a) respectively, only for the sake of compliance and it should not be. construed either as admission or declaration of such value for taxation. I find that Ld. AO is justified in assessing the total income of the appellant as discussed above. when repeated opportunity in this regard was provided clearly shows that the appellant is not interested in pursuing the appeal. In these circumstances, I have no option but to confirm the addition made by the Ld. AO and dismiss the grounds of appeal of the appellant. Respectfully, following the view taken in the case cited above, the appeal filed by the appellant deserves to be dismissed accordingly, addition of Rs.7,04,00,000/- is hereby considered as unexplained u/s56(2)(vii) of the Act is confirmed. Therefore, appeal on these grounds are dismissed. 6. Ground No.5 & 6:- This ground .of appeal is general in nature and do not require any specific adjudication. 7. In the result, appeals are dismissed”. 7. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 8. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 13 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 9. Shri Nikhilesh Begani, Ld. Authorized Representative (for short ‘AR’) for the assessee, at the threshold, submitted that as per instructions he seeks not to press the Grounds of appeal No. (I) and (II). We, thus, considering the aforesaid concession of the Ld. AR dismiss the Grounds of appeal Nos. (I) and (II) as not pressed. 10. The assessee applicant has filed before us an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963, dated 12.03.2024, seeking admission of certain documents as additional evidence. Elaborating on the reasons as to why the aforesaid documents could not be filed before the A.O, it is stated by the assessee that after exhausting the remedy of filing of writ petitions before the Hon’ble High Courts of Chhattisgarh and Bombay, the assessment proceedings had effectively commenced before the A.O from 13.10.2016 and, thereafter, within a span of about 25 days the assessment order was passed u/s. 153A r.w.s. 143(3) of the Act, determining his total income at an astronomical figure of Rs.7.91 crore. Referring to the order of the CIT(Appeals) which was passed on an ex-parte basis, the assessee states that though he had in the course of the proceedings before the first appellate authority filed an application under Rule 46A of the Income Tax Rules, 1962 on 05.10.2021 but the CIT(Appeals) without considering the same had summarily approved the view taken by the A.O. and dismissed the appeal. Also, the assessee claims in his application that he had been visited with an ex-parte order without dropping of any notice 14 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 intimating the fixation of the appeal in his designated email account i.e. [e-mail]. Apart from that, the assessee states that as the company, viz. M/s. Crest Steel and Power Ltd. was controlled and managed from Mumbai, therefore, it remained an onerous and challenging task to obtain the documentary evidence which were scrupulously maintained at its office at Mumbai. Also, it is the claim of the assessee that as insolvency proceedings were instituted by various financial creditors against most of the group companies under the provisions of Section 7, 9 and 10 of IBC, 2016 before the Benches of the Hon’ble NCLT, therefore, owing to severe financial crisis at the relevant point of time, the skilled and experienced accounts personnel of the aforementioned company, viz. M/s Crest Steel and Power Ltd. had left their jobs, leaving behind a few employees who were still new to the nuance of assessment/appellate procedure, therefore, the requisite compliances keeping in view the locational and personnel constraints had further contributed to delay/lapses before the lower authorities. Accordingly, the assessee had come forth with multi-facet reasons as to why the aforementioned documents which have a strong bearing on a fair disposal of the present appeal could not be filed by him before the lower authorities. For the sake of clarity, the contents of the application filed by the assessee under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963, dated 12.03.2024 is culled out as under: 15 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 “1. That an ex-parte Appellate Order under the provisions of section 250 of the Income Tax Act, 1961 (\"the Act\") was passed by the Ld. Commissioner of Income Tax (Appeals)-3, Raipur on 31 January, 2024 (\"the Ld.CIT(A)\") thereby confirming the humongous addition to the tune of Rs.7.04 Cr. under the provisions of section 56(2)(vii) of the Act made in the Search Assessment Order passed by the Ld. Asst. Commissioner of Income Tax, Central Circle-2, Raipur (\"the Ld.AO\") under the provisions of section 153A r.w.s. 143(3) of the Act on 7th November, 2016 briefly upholding the findings & conclusions recorded in the above referred search assessment order. 2. That aggrieved with the same, the appellant herein has filed the captioned appeal under the provisions of section 253 of the Act before the Hon'ble Income Tax Appellate Tribunal, Raipur Bench on 13th February, 2021 which have been numbered as ITA. No.42/RPR/2024 as mentioned above. 3. That the original return of income was filed under the provisions of section 139 of the Act on 31.08.2012 declaring a total income of Rs.NIL. Pursuant to search u/s.132(1) of the Act commencing from 10.10.2012, notices under the provisions of section 153A were issued by the Ld.AO. After exhausting the remedy of filing writ petitions before the Hon'ble High Courts of Chhattisgarh & Bombay, the assessment proceedings effectively commenced before the Ld.AO from 13.10.2016 and within a span of about 25 days, the Search Assessment Order had been passed u/s. 153A r.w.s. 143(3) of the Act thereby determining the Total Income at an astronomical figure of Rs.7.191 Cr. with a consequential humongous demand of Rs.3.727 Cr. wherein the addition on sole issue pertains to the 'fresh allotment' of equity shares by group company viz. M/s.Crest Steel & Power Private Limited (\"CSPPL\") on 30.03.2012. 4. That the ex-parte Appellate Order passed by the Ld.CIT(A) u/s.250 is highly illegal, bad in law, without providing reasonable opportunity of being heard thereby resulting into violation of the principles of natural justice. That, in response to hearing notices issued, the appellant filed an application for admission of additional evidences under the provisions of section 250 of the Act r.w. Rule 46A of the Rules before the Ld.CIT(Appeals)-3, Bhopal on 5th October, 2021 which was not taken into consideration by the Ld.CIT(A). That, further the requisite written submissions with supporting evidences could not 16 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 be furnished before the Ld.CIT(A) primarily for the reason that the hearing notices issued by Ld.CIT(A) were never served on the designated email id of the appellant viz. [e-mail] and further, that the Group is being controlled & managed from Mumbai and all other paraphernalia is concentrated with the Books of Accounts and other documents scrupulously maintained at Mumbai only and further, at the relevant time, most of the Group Companies including inter alia the aforesaid Share Issuer Company viz. CSPPL was reeling under great financial stringency/severe financial crisis and hence, incapable of honouring the borrowing commitments of various banks & financial institutions which thereafter initiated stern recovery proceeding hence, to obtain the documentary evidence to support the appeal cases was an onerous task. Finally, insolvency proceedings were instituted by various financial creditors against most of the group companies including the aforesaid CSPPL & TPTPL (treating them as \"Corporate Debtor\") under the provisions of section 7, 9 & 10 of the IBC, 2016 before the Benches of Hon'ble NCLT and subsequently, the Insolvency Petitions filed by the Financial Creditor(s) were 'admitted' and Resolution Professionals were appointed for initiation of Corporate Insolvency Resolution Process. That, owing to severe financial crisis, at the relevant time, the skilled experienced accounts personnel left their jobs, leaving behind a few employees who were still new to the nuances of assessment/appellate procedure and hence, there was complete lack of co-ordination between all the factions involved and time required for making compliances was also insufficient keeping in view the locational and personnel constraints and the said limitations acted as a deterrent factor for delay in making compliances at the appellate stage also. Pertinently, in order to establish the case before the Ld.CIT(A), as per the legislative intendment of section 56(2)(vii), various documents in order to prove the veracity & genuineness of the issuance of share transactions coupled with stipulation in the loan documents to increase the promoter contribution and pertinently, the factum of rights issue of equity shares by CSPPL to existing shareholders and the renunciation of entitlement of rights shares to other shareholders (all of whom are close relatives covered under definition of relatives accordingly, in the exception carved out in section 56(2)(vii)) and further, in accordance with the provisions of Rule 110/110A r.w.s.56(2)(vii), Balance Sheets of the share Issuer company viz. 17 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 CSPPL were required to be placed which in view of the aforesaid limitations could not be accomplished thereby disabling the appellant from filing of written submissions. With a view to substantiate its claim that there was a reasonable cause and due to extenuating circumstances beyond its control the appellant could not file the documentary evidences before the Ld.CIT(A) and the Ld.AO, the appellant has filed an 'Additional Paper Book' running into 169 Pages before this Hon'ble Bench with all the Documents and evidences with S.No.1 to 10 of the said Paper Book. It is further submitted that the documents and evidences at Sl.No.1 to 10 are in the form of additional evidences which were not filed before the lower authorities being in the nature of the copy of certified minutes of BOD Resolution approving issuance of 'Rights Shares' to existing shareholders in their shareholding ratio, application forms for subscription of additional shares, renunciation form by existing shareholders in favour of other shareholders (close relatives), Loan Sanction Letters from Banks & Financial Institutions & the creation of charge against the sum borrowed by CSPPL thereby establishing the factum of availment of secured loan with a stipulation of corresponding increase in promoter contribution in the form of Equity Share Capital, Form No. 2 prescribed under the Companies Act, 1956 (Return of Allotment) evidencing allotment of share capital in case of CSPPL etc. and hence, are vital in order to appreciate the factual matrix and the judicious adjudication of the appeal by the Hon'ble Bench. 5. In view of the aforesaid compelling circumstances and in the interest of justice, it is earnestly beseeched that the aforesaid additional evidences may please be admitted exercising judicious powers vested in your honours under Rule 29 in order to impart justice to the appellant.” 11. Per contra, the Ld. Departmental Representative (for short ‘DR’) objected to the seeking of admission of the aforementioned documents as additional evidence by the assessee. The Ld. D.R. submitted that as the assessee without any justifiable reason had failed to file the aforementioned documents in the course of the proceedings before the lower authorities, 18 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 therefore, he could not be permitted to file the same for the first time in the course of the present proceedings. 12. We have thoughtfully considered the reasons due to which the assessee could not file the aforementioned documents that have been filed before us as “additional evidence” in the course of the proceedings before the lower authorities, i.e. Sr. No.1 to 10, Page 1 to 169 of the “Additional Paper Book” (“APB”). We are of the view that as there were justifiable reasons that had resulted to the failure on the part of the assessee to file the aforementioned documents before the lower authorities, therefore, we have no hesitation in admitting the same. 13. Shri Nikhilesh Begani, Ld. AR for the assessee, at the threshold of hearing of the appeal had assailed the validity of the jurisdiction that was assumed by the A.O for framing the impugned assessment vide his order passed u/s.153A r.w.s. 143(3) of the Act, dated 07.11.2016. Elaborating on his contention, the Ld. AR submitted that as no incriminating material relating to the unabated assessment year under consideration was found in the course of the search proceedings conducted on the assessee u/s.132 of the Act on 10.10.2012, therefore, the A.O was divested of his jurisdiction from making an independent/stray addition of Rs. 7.04 crore u/s. 56(2)(vii)(c) of the Act. The Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon’ble Apex Court in the case of Pr. CIT, 19 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 Central-3 Vs. Abhisar Buildwell (P) Ltd, (2023) 454 ITR 212 (SC). The Ld. AR, on being queried, as to whether any assessment proceeding in the case of the assessee for the year under consideration i.e. A.Y.2012-13 were pending on the date of initiation of search proceedings u/s. 132 of the Act, i.e. on 10.10.2012, answered in the negative. Elaborating on his contention, the Ld. AR submitted that though the time limit for issuing of notice u/s. 143(2) of the Act to the assessee for the subject year i.e. A.Y.2012-13 had yet not lapsed, but no such notice was received by him till the date of initiation of the search proceedings u/s. 132 of the Act. Carrying his contention further, the Ld. AR submitted that as no assessment or reassessment proceedings for the year under consideration i.e. A.Y.2012-13 were pending in the case of the assessee on the date of initiation of the search proceedings u/s. 132 of the Act, i.e. on 10.10.2012, therefore, the A.O. in absence of any incriminating material relating to the subject year found and seized during the course of search proceedings was divested from making any independent addition while framing the assessment vide his order passed u/s. 153A r.w.s. 143(3) of the Act, dated 07.11.2016. 14. The Ld. AR had further taken us through Section 153A of the Act. The Ld. AR submitted that as per the “2nd proviso” to Section 153A of the Act, it was only where the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years immediately preceding the assessment year relevant to the previous year in 20 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 which search is conducted or requisition is made, are “pending” on the date of initiation of the search u/s. 132 of the Act or making of requisition u/s 132A of the Act, as the case may be, the same shall abate, and the A.O. gets vested with the jurisdiction to assess or reassess the total income for the said year. It was, thus, the Ld. AR’s claim that in the case of an unabated assessment, no addition in the absence of any year specific incriminating material found in the course of the search proceedings could be made while framing the assessment for the said year. The Ld. AR submitted that as no incriminating material relating to the year under consideration, i.e. A.Y.2012-13 was unearthed during the course of search proceedings conducted on the assessee on 10.10.2012, therefore, the A.O was divested of his jurisdiction from making any addition regarding the unabated assessment for the said year. 15. The Ld. AR to fortify his claim that in a case where till the date of initiation of search & seizure proceedings u/s. 132 of the Act, no notice u/s. 143(2) of the Act was issued to the assessee, then it could safely be concluded that no assessment or reassessment on the said date was pending, had drawn support from sub-section (2) of Section 153A of the Act. Elaborating further on his contention, the Ld. AR submitted that sub- section (2) of Section 153A of the Act, contemplates that if any proceedings initiated or any order of assessment or reassessment made under sub- section (1) has been annulled in appeal or any other legal proceeding, then, 21 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 notwithstanding anything contained in sub-section (1) of section 153, the assessment or reassessment relating to any assessment year which had abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. The Ld. AR, submitted that though it could be well comprehended that in a case where any proceedings initiated or any order of assessment or reassessment made under sub-section (1) of Sc. 153A, had thereafter been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any such assessment year which had earlier abated under the “2nd proviso” to sub-section (1) of Sec. 153A, shall stand revived, but it was beyond comprehension that in a case where on the date of initiation of search & seizure proceedings the availability of time limit for issuing of notice under sub-section (2) of Section 143 of the Act was to be construed as a “pending assessment”, then, on a subsequent annulment of the search assessment or reassessment made under sub- section (1) of Section 153A of the Act in appeal or any other legal proceeding, what would stand revived? The Ld. AR putting to himself a self-poser, submitted that it was incomprehensible that on a subsequent annulment of the search assessment or reassessment, the availability of time limit for issuance of notice under sub-section (2) to Section 143 of the Act which was available as on the date on which search proceedings were conducted on the 22 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 assessee, would stand revived. The Ld. A.R elaborating further on his contention, submitted, that if that be so, then it would result to a situation where the A.O after annulment of the search assessment or reassessment would get vested with the time limit (as was available with him) on the date on which search was conducted to issue notice u/s. 143(2) of the Act. The Ld. A.R, submitted that as the aforesaid interpretation would result to nothing but absurdity, therefore, the same by no means can be subscribed. It was, thus, the Ld. AR’s contention that though in a case where a notice u/s. 143(2) of the Act, had already been issued to the assessee as on the date on which search proceedings were initiated in his case u/s. 132 of the Act, could safely be construed as an assessment pending in his case on the said date, but in a case where no such notice had been issued to the assessee till the date of search proceedings, the same cannot be brought within the meaning of a “pending assessment” for the reason that the time limit for issuing such notice had yet not lapsed. The Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon’ble High Court of Kerala in the case of Sunny Jacob Jewelers Gold Hyper Market Vs. CIT (2024) 163 taxmann.com 722 (Ker.). The Ld. AR taking us through the facts involved in the aforesaid case, submitted that search proceedings in the said case were conducted on the assessee u/s. 132 of the Act on 21.08.2007 and its case for the subject year i.e. A.Y.2007-08 was, inter alia, covered in the block of six years preceding the year of search. The Ld. AR, submitted that 23 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 as no incriminating material for the subject year i.e. A.Y.2007-08 was found in the course of the search proceedings, therefore, the Hon’ble High Court, had observed, that no addition could have been made by the A.O while framing the assessment for the said year vide his order passed u/s. 153A r.w.s. 143(3) of the Act. The Ld. AR, submitted that as search & seizure proceedings in the case of the aforementioned assessee were conducted on 21.08.2007, therefore, as in the case of the present assessee before us, the time limit for issuing notice u/s. 143(2) of the Act was available with the A.O. Elaborating further on his contention, the Ld. AR submitted that as the Hon’ble High Court in the aforementioned case wherein time limit for issuing notice u/s. 143(2) of the Act was though still available with the A.O, had quashed the assessment in absence of any incriminating material relating to the subject year found in the course of search proceedings, therefore, the issue involved in the present appeal was squarely covered by the said judgment. 16. The Ld. AR, had further drawn our attention to the “Memorandum Explaining the Provision in the Finance Bill, 2023”, wherein it was emphasized that it was only in a case of pending scrutiny proceedings that the assessment would stand abated. The Ld. AR in support of his aforesaid contention had also relied on the judgment of the Hon’ble High Court of Delhi in the case of Akansha Pradeep Mishra Vs, JCIT (OSD), WP (C) 17219/2022, dated 22.05.2024 (Del). The Ld. AR, submitted that as the A.O 24 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 in the present case, wherein the assessment as on the date of search i.e. on 10.10.2012 stood abated, despite absence of any incriminating material relating to the subject year found during the course of search proceedings, vide his order passed u/s. 153A r.w.s 143(3) of the Act, dated 07.11.2016, made an independent/stray addition of Rs. 7.04 crore u/s 56(2)(vii)(c) of the Act, therefore, the same not being in conformity with the judgment of the Hon’ble Supreme Court in the case of Pr. CIT, Central-3 Vs. Abhisar Buildwell (P) Ltd, (2023) 454 ITR 212 (SC) cannot be sustained and is liable to be vacated. 17. Apropos the merits of the case, the Ld. AR submitted that the 64 lac Equity shares of a face value of Rs.10/- per share of M/s. Crest Steel & Power Pvt. Ltd. (CSPPL) allotted to the assessee comprised of, viz. (i) 16331 equity shares allotted to the assessee proportionate to his shareholding; and (ii) 6383669 equity shares (right to shares) gifted/renounced to the assessee by Smt. Sheela Lodha (sister of the assessee’s wife). Elaborating further on his contention, the Ld. AR submitted that the provisions of Section 56(2)(vii)(c) of the Act takes within its ambit cases of “transfer” of equity shares, and thus, the same cannot be applied to the cases of “fresh” issuance/allotment of shares by a company to the share applicants/shareholders. The Ld. AR submitted that as the allotment of shares would not constitute a “transfer”, therefore, the provisions of Section 56(2)(vii)(c) were not applicable to the present case of allotment of shares to 25 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 the assessee. Carrying his contention further, the Ld. AR submitted that as the allotment of shares by the issuer company cannot be brought within the meaning of “receiving of any property by an individual or a HUF, from any person or persons”, therefore, the provisions of Section 56(2)(vii)(c) of the Act could not have been brought into play in the present case of allotment of shares to the assessee. The Ld. AR, submitted that the provisions of Section 56(2)(vii)(c) of the Act are only applicable in respect of transactions relating to “transfer of shares” and not to “allotment of shares”. Elaborating further on his contention, the Ld. AR submitted that Section 56(2)(vii)(c) begins with the word “any property”. It was submitted by him that the definition of the term “property” as per “Explanation (d)(ii)” of Section 56(2)(vii) of the Act takes within its sweep “share and securities”. The Ld. AR based on his aforesaid contention, submitted that for the application of Section 56(2)(vii)(c) of the Act the property should be in existence. The Ld. AR submitted that as per the Company Law till allotment there is no existence of shares, therefore, no property in existence was received by the assessee on the allotment of the subject shares. The Ld. AR submitted that the term “received” used in Section 56(2)(vii) of the Act means to get by way of transfer. Accordingly, the Ld. AR submitted that as the assessee was allotted shares and had not received the same by transfer, therefore, the transaction in question was not covered by the provisions of Section 56(2)(vii) of the Act. The Ld. AR in support of his aforesaid contention had pressed into service 26 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 the CBDT Circular No.1/2011, dated 06.04.2011. Also, the Ld. AR to fortify his aforesaid claim had relied on the judgment of the Hon’ble High Court of Gujarat in the case of Pr. CIT Vs. Jigar Jashwantlal Shah (2023) 154 taxmann.com 568 (Guj), Page 456 to 465 of LPB. The Ld. AR had drawn our attention to the aforesaid judgment of the Hon’ble High Court, wherein after referring to the CBDT Circular No.1/2011, dated 06.04.2011, the Hon’ble High Court had looked into the dichotomy between a transaction of “allotment of shares” vis-a-vis “transfer of shares”. The Hon’ble High Court, had observed, that there was a marked difference between issue/allotment of shares by a company to a subscriber and the purchase of shares from an existing shareholder, as the first case is as that of a creation whereas the second is that of transfer. The Ld. AR had further pressed into service the judgment of the Hon’ble Supreme Court in the case of Khoday Distilleries Ltd. Vs. CIT (2009) 176 Taxman 142 (SC), Page 471 to 483 of LPB. Also, the Ld. AR had relied on the orders of the ITAT, Jaipur in the case of, viz. (i) Prem Chand Sharma HUF Vs. ITO, ITA No.325/JP/2021, dated 06.04.2022; and (ii) Vijay Kumar Vijayvergiya Vs. DCIT, ITA No.238/JP/2022, dated 30.11.2022. The Ld. AR based on his aforesaid contention, submitted that as it could be safely gathered from the aforesaid judicial pronouncements and the CBDT Circular No.1/2011, dated 06.04.2011, that the transaction involving allotment of shares cannot be brought within the meaning of the provisions of Section 56(2)(vii)(c) of the Act, therefore, both the lower 27 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 authorities in violation of the clear mandate of law had grossly erred in making the impugned addition of Rs. 7.04 crore (supra). 18. We have heard the Ld. Authorized Representatives of both the parties on the aforesaid issues, viz. (i). that the A.O. in the absence of any incriminating material found in the course of the search & seizure proceedings conducted on the assessee u/s 132 of the Act on 10.10.2012 could not have made any addition qua the unabated assessment for the year under consideration, i.e A.Y. 2012-13; and (ii). that as the provisions of Sec. 56(2)(vii)(c) do not apply to allotment of shares, therefore, the addition of Rs. 7.04 crore made by triggering the said statutory provision cannot be sustained and is liable to be struck down. 19. As the Ld. AR has assailed the validity of the addition made by the A.O. vide his order passed u/s. 153A r.w.s 143(3) of the Act, dated 07.11.2016, inter alia, for the reason that in the absence of any incriminating material relating to the year under consideration found in the course of search proceedings, no addition could have been made by the A.O qua the unabated assessment of the assessee for the year under consideration, therefore, we shall first deal with the same. 20. Admittedly, it is a matter of fact borne from the record that neither anything is discernible from the assessment order nor has been placed on our record, which would reveal that any incriminating material relating to 28 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 the subject year was found in the course of the search & seizure proceedings conducted on the assessee u/s 132 of the Act. However, we are unable to concur with the Ld. AR that the assessment in the case of the assessee for the year under consideration i.e. A.Y. 2012-13 was unabated on the date when the search & seizure proceedings were conducted on him. As observed by us hereinabove, it is a matter of an admitted fact, that though no notice u/s. 143(2) of the Act for the subject year, i.e A.Y. 2012-13 was issued to the assessee till the date on which search & seizure proceedings u/s 132 were conducted on him i.e. till 10.10.2012, but at the same time, we cannot remain oblivion of the material fact that on the said date the time limit for issuing a notice u/s 143(2) of the Act was still available with the A.O. Although, the Ld. AR’s claim that a conjoint reading of the “2nd proviso” to Section 153A of the Act a/w. sub-section (2) of Section 153A, reveals that in a case where no notice u/s. 143(2) of the Act was issued to the assessee till the date of search but the time limit for issuing the same had yet not lapsed, cannot be brought within the meaning of a “pending assessment”, though at the first blush appeared to be very convincing, but we are afraid that the same defies all logic and, thus, does not merit acceptance. We, say so, for the reason that if the claim of the Ld. AR is accepted, then, in a case where search & seizure proceedings are conducted which, inter alia, covers a year where no notice under sub-section (2) of Section 143 had been issued by the A.O but the time limit for issuing the same had yet not lapsed; and 29 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 no incriminating material relating to the said year is found in the course of search proceedings, then, as per the assessee’s version the A.O pursuant to the search proceedings would stand divested of his jurisdiction to make any regular addition/disallowance while framing the assessment u/s. 153A of the Act, and, thus, would stand precluded from making any such addition/disallowance, which, otherwise he could have validly made in exercise of his power u/s .143(2) of the Act. Although the legislature had made available on the statute the “2nd proviso” to Section 153A of the Act to avoid multiple litigations, but the same cannot be construed in the manner desired by the Ld. AR, as the same would divest the A.O. from making regular additions/disallowances in a case where the time limit for issuing notice u/s. 143(2) of the Act had yet not lapsed on the date on which the search proceedings were conducted on the assessee. In fact, the contention advanced by the Ld. AR, if accepted, would render the powers vested with the A.O to make regular additions/disallowances u/s. 143(3), i.e. even in a case where the time limit to issue notice u/s. 143(2) is available with him as on the date of search as meaningless and redundant. 21. Apropos the judgments of the Hon’ble High Court of Kerala in the case of Sunny Jacob Jewellers Fold Hyper Market Vs. CIT (supra) and that of the Hon’ble High Court of Delhi in the case of Akansha Pradeep Mishra Vs. JCIT (OSD) (supra), as had been pressed into service by the Ld. AR, we are afraid that though in both the said judgments it has been held that in the absence 30 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 of any incriminating material found in the course of search proceedings, the assessment framed by the A.O u/s. 153A of the Act cannot be sustained, but it has not been so held in either of the said judgments that in a case where as on the date on which search proceedings are conducted, the time limit for issuing notice u/s. 143(2) of the Act is available with the A.O., the same is not to be construed as an assessment pending within the meaning of the “2nd proviso” to Section 153A of the Act. We may herein observe that the Hon’ble Apex Court in the case of Pr. CIT, Central-3 Vs. Abhisar Buildwell (P) Ltd, (2023) 454 ITR 212 (SC), while referring to the “2nd proviso” to Section 153A of the Act, had observed, that if in a case, where no incriminating material relating to a year was found during the course of search proceedings and the assessment for the said year is unabated or completed, and the A.O was to assess or reassess the income or total income taking into consideration the other material, there would be two assessment orders which shall not be permissible under the law. For the sake of clarity, the observation of the Hon’ble Supreme Court is culled out as under: “If, even in a case of search where no incriminating material is found during the course of search, and the assessment is unabated or completed, the Assessing Officer were to assess or reassess the income or total income taking into consideration the other material, there would be two assessment orders, which shall not be permissible under the law. The second proviso to Section 153A and sub-section (2) of Section 153A would then be redundant. Rewriting provisions is not permissible under the law.” 31 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 We, thus, in terms of our aforesaid observations are unable to persuade ourselves to subscribe to the Ld. AR’s contention, that, as the A.O till the date on which search & seizure proceedings were conducted on the assessee u/s 132 of the Act i.e on 10.10.2012, had not issued notice u/s 143(2) but had the time limit available with him for issuing the same, it was to be construed as an unabated assessment and in absence of any incriminating material relating to the said year found in the course of the search proceedings, divested him from making the independent/stray addition of Rs. 7.04 crore u/s 56(2)(vii)(c) of the Act. We, thus, are unable to concur with the claim of the assessee that the A.O had erred in law and facts of the case in making an addition of Rs.7.04 crore (supra) while framing the assessment vide his order passed u/s. 153A r.w.s. 143(3) of the Act, and, thus, reject the same. Thus, the Ground of appeal No.III raised by the assessee is dismissed in terms of our aforesaid observations. 22. We shall now deal with the Ld. AR’s claim that the provisions of Section 56(2)(vii)(c) of the Act cannot be applied to the transaction of allotment of shares by a company. As observed by us hereinabove, it is the Ld. AR’s claim that the provisions of Section 56(2)(vii)(c) of the Act would get triggered only in a case where an individual or HUF receives, in any previous year, “any property”, other than immovable property. The Ld. AR, states that as per the Company law, till the allotment, there is no existence of shares, therefore, on allotment of the same there is no property in existence that 32 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 could be held to have been received by the assessee-allottee. Accordingly, it is the Ld. AR’s claim, that as the word “receive” employed in Section 56(2)(vii)(c) of the Act means to get by a transfer, therefore, the allotment of 64 lac equity shares of M/s Crest Steel and Power Ltd. to the assessee cannot be construed as a receipt of shares by transfer and, thus, the said transaction could not have been subjected to the rigors of Section 56(2)(vii)(c) of the Act. 23. Before proceeding any further, we think it apt to cull out the details of allotment of 64 lac equity shares (right shares) by M/s. Crest Steel and Power Ltd. to the assessee, which is comprised of two parts, viz. (i) 16,331 equity shares (right shares) allotted to the assessee proportionate to his shareholding; and (ii) 63,83,669 of equity shares (right to shares) gifted/renounced to the assessee by Smt. Sheela Lodha i.e. sister of the assessee’s wife. As the allotment of the shares (right shares) to the assessee is comprised of two parts, therefore, we are of the view that the same requires to be dealt with separately, as under: A). Re: 16331 equity shares (right shares) allotted to the assessee proportionate to his shareholding: 24. The assessee had placed on record a ‘Chart’ which, inter alia, depicts the shareholding of the assessee, viz. Shri Rajesh Kumar Jain (0.02%) a/w. 33 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 that of the other shareholders) which for the sake of clarity, is culled out as under: Accordingly, the Ld. AR states that 16331 equity shares (right shares) were allotted to the assessee proportionate to his shareholding (0.02%) at the stage of allotment. B). Re: 6383669 equity shares (right to shares) gifted/renounced to the assessee by Smt. Sheela Lodha i.e his wife’s sister. 25. The Ld. AR states that 6383669 equity shares (right to shares) were gifted/renounced by Smt. Sheela Lodha, sister of the assessee’s wife, i.e. a person falling within the meaning of “relative” as per “Explanation (e)(i)(C) to Section 56(2)(vii) of the Act. The Ld. AR states that as the aforesaid 6383669 equity shares (right to shares) were gifted/renounced in the favour of the 34 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 assessee by Smt. Sheela Lodha i.e. a relative, therefore, the provisions of Section 56(2)(vii)(c) of the Act would not apply to the said transaction. The Ld. AR to fortify his aforesaid contention had drawn our attention to the “2nd proviso” to Section 56(2)(vii)(c) of the Act, which, inter alia, contemplates that the provisions of Section 56(2)(vii)(c) of the Act will not apply to any sum of money or any property received by the assessee from any relative. For the sake clarity, the “2nd proviso” to Section 56(2)(vii)(c) of the Act is culled out as under: “Provided further that this clause shall not apply to any sum of money or any property received— (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under section 12AA 8[or section 12AB]. (h) bay way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of Section 47.]” (emphasis supplied by us) Also, the Ld. AR to support his aforesaid claim that Smt. Sheela Lodha (sister of the assesee’s wife) was covered within the meaning of “relative”, had drawn our attention to the “Explanation (e)(i)(C)” to Section 56(2)(vii) of the Act, which reads as under: 35 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 “(e) \"relative\" means,— (i) in case of an individual— (A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; (G) spouse of the person referred to in items (B) to (F)” (emphasis supplied by us) The Ld. AR states that as Smt. Sheela Lodha (supra), i.e a relative, had renounced/gifted 6383669 equity shares (right to shares) in favor of the assessee, viz. Shri Rajesh Kumar Jain, therefore, the very application of Section 56(2)(vii)(c) stood ousted. The Ld. AR in support of his aforesaid contention had taken us through a “Chart” disclosing the renouncement pattern of right shares, wherein, it is, inter alia, stated that 6383669 equity shares (right to shares) were gifted/renounced by Smt. Sheela Lodha (supra) to the assessee, which for the sake of clarity is culled out as under: 36 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 Also, the Ld. AR to dispel all doubts as regards the veracity of his aforesaid claim of renunciation/gifting of 6383669 equity shares (right to shares), had drawn our attention to the “Form of renunciation” in “Form-B”, dated 25.03.2012, wherein it is, inter alia, stated that Smt. Sheela Lodha (supra) had renounced 6383669 equity shares (right to shares) in favor of the assessee, viz. Shri Rajesh Kumar Jain, Page 28 of the application for admission of additional evidence. Also, the Ld. AR had taken us through the application filed by the assessee, viz. Shri Rajesh Kumar Jain i.e. the renouncee, dated 25.03.2012 in “Form C” wherein, he had pursuant to the 37 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 renouncement of 6383669 equity shares (right to shares) by Smt. Sheela Lodha (supra) in his favor had applied for the same, Page 29 of the application for admission of additional evidence. Apart from that, the Ld. AR had drawn our attention to the copy of the resolution that was passed at the Meeting of the Board of Directors of M/s. Crest Steel and Power Pvt. Ltd. that was held on 03.03.2012, wherein it was resolved to offer up to 9,56,81,333 equity shares of a face value of Rs.10/- per share on right basis, at par, to the persons who at the record date i.e. 03.03.2012 were holders of the equity shares of the company on a proportionate basis in the ratio of 1: 1.6 (fraction of a new equity shares rounded off to the nearest whole number of new share), Page 14 to 15 of the application for admission of additional evidence. Also, the Ld. AR had taken us through the certified true copy of the resolution passed at the meeting of Board of Directors of M/s. Crest Steel and Power Pvt. Ltd. that was held on 30.03.2012, wherein it was resolved that 9,00,00,000 (9 crore) equity shares of Rs.10/- each were to be allotted to the allottees, wherein at Sr. No.3, it was stated that 64,00,000 equity shares were allotted to the assessee, viz. Shri Rajesh Kumar Jain, Page 16-17 of application for additional evidence. 26. Controversy involved in the present appeal boils down to a narrow compass, i.e. (i) as to whether or not 16,331 equity shares (right shares) allotted the assessee at a face value of Rs.10/- per share would attract the provisions of Section 56(2)(vii)(c) of the Act? ; and (ii) as to whether or not 38 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 63,83,669 equity shares (right to shares) that were gifted/renounced by Smt. Sheelsa Lodha, sister of the assessee’s wife, would be a hit by the provisions of Section 56(2)(vii)(c) of the Act of the Act? 27. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities. At the threshold, we may herein observe, that both the aforesaid issues are squarely covered by the judgment of the Hon’ble High Court of Gujarat in the case of Pr. CIT Vs. Jigar Jashwantlal Shah (2023) 154 taxmann.com 568 (Guj.). The indulgence of the Hon’ble High Court in the aforementioned case was, inter alia, sought by the revenue for adjudicating the following two substantial questions of law: “(I) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition u/s.56(2)(vii)(c) of the Act in respect of the additional 82,200 shares allotted to assessee due to renouncement of rights by wife & father of the assessee? (II) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition u/s.56(2)(vii)(c) in respect of the additional shares allotted to the assessee? In the case before the Hon’ble High Court the assessee was allotted 2,00,000 right shares of M/s.Kintech Synergy Limited at a face value of Rs.10/- per share, which comprised of, viz. (i) 1,03,000 equity shares (right shares) allotted to the assessee as per his proportionate shareholding; (ii) 82,200 equity shares (right shares) allotted to the assessee due to renouncement of 39 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 the rights in his favor by his wife and his father; and (iii) 14,800 equity shares were allotted to the assessee as a result of third party shareholder renunciation in favor of the assessee. The assessee had claimed before the lower authorities that as the shares were not “received” by transfer but allotted by way of right shares allotment, hence, the provisions of Section 56(2)(vii)(c) of the Act were not applicable to such allotment of shares by the company. However, the aforesaid claim of the assessee was rejected by the A.O, who after considering the correct “Fair Market Value” (FMV) of the shares, to the extent the same exceeded the consideration paid by the assessee for receipt of shares, brought the difference in the said value to tax u/s. 56(2)(vii)(c) of the Act, viz. (i) the additional 1,03,000 shares that were allotted on a proportionate basis to assessee’s shareholding; (ii). additional 82,200 shares that were allotted to the assessee due to renouncement of the right to shares in his favor by his wife and his father; and (ii) 14,800 additional shares that were allotted to the assessee due to renouncement of the right to shares by a third party. 28. On appeal, the CIT(Appeals) though held that the provisions of Section 56(2)(vii)(c) of the Act would not apply to the right shares that were allotted to the assessee proportionate to his existing holding, but he principally approved the addition made by the A.O regarding the additional 97000 shares [82,200 shares (+) 14,800] that were allotted to the assessee due to renouncement of the rights in his favor by his wife, father, and a third party. 40 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 29. The Tribunal on further cross-appeals by the assessee and the department, upheld the view taken by the CIT(Appeals) that the right shares allotted to the assessee proportionate to his existing shareholding would not be hit by the provisions of Section 56(2)(vii)(c) of the Act. Although, the Tribunal held that the renunciation of right shares by the assessee’s wife and his father by not exercising their right to subscription would also not attract the provisions of Section 56(2)(vii)(c) of the Act, but upheld the applicability of the said statutory provision on the renunciation of right to shares by a third party who had chosen not to exercise his right to subscribe in favor of the assessee. 30. Aggrieved, the revenue assailed the order passed by the Tribunal before the Hon’ble High Court. The Hon'ble High Court, observed that as the shares had come into existence only when the allotment was made by the company as right shares, therefore, the same could not be said to have been “received from any person”, which was the fundamental requirement for invoking the provisions of Section 56(2)(vii)(c) of the Act. The Hon’ble High Court was of the view that the intention of the legislature that the property must pre-exist for triggering the provisions of Section 56(2)(vii)(c) of the Act could safely be gathered from the words used in the said statutory provision. Also, it was observed, that in so far the 82,200 shares allotted to the assessee due to renouncement of the respective right to subscribe by the wife and father of the assessee were concerned, as both of the persons 41 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 renouncing their respective rights fell within the meaning of “relative”, therefore, the allotment of the said shares would also not be hit by the provisions of Section 56(2)(vii)(c) of the Act. At the same time, the Hon’ble High Court approved the view taken by the Tribunal, to the extent, it had upheld the addition u/s.56(2)(vii)(c) of the Act regarding the 14,800 shares that were allotted to the assessee on renouncement of rights by a third party. The Hon’ble High Court held the allotment of shares based on renounciation of rights by a third party in favor of the assessee as an allocation of shares disproportionate to the existing shareholding of the assessee. 31. Apropos the facts involved in the present case before us, we are of the view that our indulgence has been sought by the assessee for adjudicating two issues, viz. (i) that as to whether or not 16,331 equity shares (right shares) allotted to the assessee at a face value of Rs.10/- per share would attract the provisions of Section 56(2)(vii)(c) of the Act?; and (ii). that as to whether or not 63,83,669 equity shares (right to shares) that were gifted/renounced by Smt. Sheela Lodha, sister of the assessee’s wife would be hit by the provisions of Section 56(2)(vii)(c) of the Act? 32. We find that both the aforesaid issues are squarely covered in favor of the assessee by the judgment of the Hon’ble High Court of Gujarat in the case of Pr. Commissioner of Income Tax Vs. Jigal Jashwantlal Shah, (2024) 460 ITR 628 (Guj.), wherein it was held as under: 42 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 “6. Sec.56(2)(vii)(c) of the Act, reads as under: “56…. XXX XXX XXX (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head \"Income from other sources\", namely :— XXX XXX XXX (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— XXX XXX XXX (c) any property, other than immovable property,— (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub- section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub- clause (b) as they apply for valuation of capital asset under those sections : Provided further that this clause shall not apply to any sum of money or any property received— (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or 43 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under section 12AA; or (h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.—For the purposes of this clause,— (a) \"assessable\" shall have the meaning assigned to it in the Explanation 2 to subsection (2) of section 50C; (b) \"fair market value\" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed; (c) \"jewellery\" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2; (d) \"property\" means the following capital asset of the assessee, namely:— (i) immovable property being land or building or both; (ii) shares and securities; (iii) jewellery; (iv) archaeological collections; (v) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; or (ix) bullion;” 7. The aforesaid provision of Sec.56(2)(vii)(c) of the Act was inserted vide amended Act with effect from 01.07.2010. Explanatory notes explaining the provisions of Finance Bill reads as under: “Taxation of certain transactions without consideration or for inadequate consideration Under the existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the 44 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 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 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 purposes of section 56(2)(vii) includes immovable property being land or building or both, shares and securities, jewellery, archeological collection, drawings, paintings, sculpture or any work of art. A. These are anti-abuse provisions which are currently applicable onl 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 interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). Section 2(18) provides the definition of a company in which the public are substantially interested. It is also proposed to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (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 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 provisions of section 56(2). These amendments are proposed to take effect from 1st June 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 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 45 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 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 stock-in-trade, raw material and consumable stores of any business of such recipient. C. In several cases of immovable property transactions, there is a time gap between the booking of a property and the receipt of such property on registration, which results in a taxable differential. It is, therefore, proposed to amend clause (vii) of section 56(2) so as to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property. These amendments are proposed to take effect retrospectively from 1st October, 2009 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years. D. It is proposed to amend the definition of ‘property’ as provided under section 56 so as to include transactions in respect of ‘bullion’. This amendment is proposed to take effect from 1st June, 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. E. It is proposed to amend section 142A(1) to allow the Assessing Officer to make a reference to the Valuation Officer for an estimate of the value of property for the purposes of section 56(2). This amendment is proposed to take effect from 1st July, 2010.” 8 Conjoint reading of the provision as well as the explanatory note of the said provision, it is clear that only when an individual or a HUF receives any property for consideration which is less than the FMV, the provisions of Sec.56(2)(vii)(c) would be attracted. In the facts of the case, the shares had come into existence only when the allotment is made by the company as right shares cannot be said to be “received from any person”. The shares which have been allotted to the assessee were not “received from any person” which is the fundamental requirement for invoking sec.56(2)(vii)(c). In other words, the property must pre-exist for application of Sec.56(2) (vii)(c), which is clear from the intention of the legislature. 46 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 9. The Tribunal, applying the above reasoning, relied upon the decisions in the case of Sudhir Menon (HUF) vs. A.C.I.T, Mumbai., dated 12.03.2014 of the ITAT Mumbai ‘A’ Bench, and on a decision of the Hon’ble Supreme Court in the case of Ms.Dhun Dadabhoy Kapadia vs. CIT reported in 63 ITR 651 (SC). The Tribunal, also relied on a decision in the case of H. Holck Larsen Vs. Commissioner of Income-tax, reported in 85 ITR 285 (BOM.), to hold that as long as there is no disproportionate allotment of shares, there was no scope of any property being received by them on the said allotment of shares, as there was only an apportionment of the value of their existing share holding over a large number of shares and hence no addition under Sec.56(2)(vii)(c) would arise. It was, therefore, held that if the shares are allotted strictly on proportionate basis based on existing shareholding, then though the provisions per se are applicable, but will not operate adversely because the gain accruing on allotment of fresh shares will be offset by the loss in value of existing shares. 10. The Tribunal, in support of its finding relied upon the decision in the case of Deputy Commissioner of Income Tax, Circle-2, Jaipur Vs. Smt. Veena Goyal, reported in 119 taxmann.com 362 (Jaipur – Trib.) and on a decision in the case of Income-tax Officer Vs. Rajeev Ratanlal Tulshyan, reported in 136 taxmann.com 42 (Mumbai – Trib.). The Tribunal, therefore held that the provisions of sec.56(2)(vii)(c) would not apply in respect of allocation of 1,03,000 right shares allotted to the assessee proportionate to its share holding in the company. 11. With regard to the issue whether the section 56(2)(vii)(c) of the Act can be invoked in respect of additional 82,200 shares received by the assessee since the wife and father of the assessee did not exercise the rights issued and renounced the right in favour of the assessee, reliance was placed on a settled principle of law that what cannot be done directly cannot be done indirectly as well. The Tribunal, therefore, held that had the wife and father of the assessee directly transferred their shares in favour of the assessee, provisions of Sec.56(2)(vii)(c) of the Act could not have been invoked since both of them are falling in the definition of “relatives” which are excluded from within the purview of operation of Sec.56(2)(vii)(c) of the Act. As a consequence it was held that the renunciation of right shares by wife and father of the assessee by not exercising the right to subscribe would not attract the provisions of Sec.56(2) (vii)(c) of the Act. The Tribunal relied upon the decision in the case of Kumar Pappu Singh v. Deputy Commissioner of Income-tax, Circle-1, Andhra Pradesh, reported in 101 taxmann.com 122 (Visakhapatnam – Trib.) and in the case of Assistant Commissioner of Income-tax, Circle - 4(1), 47 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 Visakhapatnam Vs. Y. Venkanna Choudary, reported in 112 taxmann.com 71 (Visakhapatnam – Trib.). The Tribunal, therefore, held that the provision of Sec.56(2) (vii)(c) of the Act cannot be invoked in respect of additional 82,800 shares received by the assessee. 12. With regard to the application of Sec.56(2)(vii) (c) of the Act for the balance 14,800 shares allotted to the assessee as a result of third pary share-holder declining to apply for right shares in favour of the assessee, the Tribunal held against the assessee because renunciation of rights in favour of the assessee by third party who are not related does lead to disproportionate allocation of shares in favour of the assessee. 13. With regard to the reduction in valuation of shares to Rs.205.55 per share by computing the FMV per share on date of allotment, taking into consideration the book value as on 31.03.2012 and adding further consideration received on account of issuance of additional shares, the Tribunal upheld the decision of the CIT(A) holding that the CIT(A) has not erred in facts and in law in computing the FMV of shares on the above lines. The Tribunal relied on a decision in the case of ACIT Vs. Y.Venkanna Choudary reported in [2019] 112 taxmann.com 71 (Vishakhapatnam -Trib) and in the case of Sadhvi Securities (P) Ltd v. Asstt. CIT reported in [2019] 109 taxmann.com 245/179 ITD 197 (Delhi – Trib.), wherein, it is held that in case the balance sheet was not drawn on the date of allotment, the previous balance-sheet which was approved in the AGM has to be considered for valuation of FMV of the shares. The Tribunal, therefore, held that since the shares were allotted before balance- sheet for A.Y 2013-14, the CIT(A) did not erred in computing the FMV per share considering the previous balance-sheet approved in AGM for valuation of FMV of the shares. 14. Mr.Varun Patel, learned Senior Standing Counsel appearing with Mr.Dev D. Patel, learned advocate for the revenue, would submit that the CIT(A) erred in law in holding the addition under Sec.56(2)(vii)(c). He would further submit that the CIT(A) erred in law and on facts adopting the valuation of shares at Rs.205 per share instead of Rs.255 per share determined by the Assessing Officer as per Rule 11UA(1)(c)(b). 15. Mr.B.S.Soparkar, learned counsel appearing for the assessee would support the order of the CIT(A) holding that the provisions of Sec.56(2)(vii)(c) cannot be invoked as was rightly held by the appellate authority, as what was found by the appellate authority that the additional 82,200 shares received by the assessee were as a result of the fact that the assessee’s father and wife did not 48 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 exercise to opt for the issue and renounced the rights in favour of the assessee. Consequently, such renunciation of right shares by way of not exercising the right to subscribe to them in favour of the assessee, as held by the CIT(A) and confirmed by the ITAT would not attract the provisions of Sec.56(2)(vii)(c). 16. Mr. Soparkar, learned counsel, in support of his submission, relied on the following decisions: (i) Miss Dhun Dadabhoy Kapadia Vs. Commissioner of Income- Tax, reported in 63 ITR 651 (SC). (ii) H. Holck Larsen Vs. Commissioner of Income tax, reported in 85 ITR 285 (BOM.). (iii) Sudhir Menon HUF Vs. Assistant Commissioner of Income- tax -21(2), Bandra Mumbai, reported in 45 taxmann.com 176 (Mumbai – Trib.). (iv) Kumar Pappu Singh v. Deputy Commissioner of Income-tax, Circle-1, Andhra Pradesh, reported in 101 taxmann.com 122 (Visakhapatnam – Trib.) (v) Sadhvi Securities (P.) Ltd. Assistant Commissioner of Income- tax, Central Circle-5, New Delhi, reported in 109 taxmann.com 245 (Delhi – Trib.). (vi) Assistant Commissioner of Income-tax, Circle - 4(1), Visakhapatnam Vs. Y. Venkanna Choudary, reported in 112 taxmann.com 71 (Visakhapatnam – Trib.). (vii) Deputy Commissioner of Income Tax, Circle-2, Jaipur Vs. Smt. Veena Goyal, reported in 119 taxmann.com 362 (Jaipur – Trib.). (viii) Income-tax Officer Vs. Rajeev Ratanlal Tulshyan, reported in 136 taxmann.com 42 (Mumbai – Trib.). (ix) Prakash Chand Sharma HUF Vs. Income-tax Officer, reported in 139 taxmann.com 286 (Jaipur - Trib.) 17. The Tribunal, therefore, has not committed any error in answering all the four issues which are raised by it holding that sec.56(2)(vii)(c) of the Act cannot be invoked in respect of allocation of 1,03,000 right shares allotted to the assessee proportionate to his share holding in the company as it cannot be said that the assessee has received as there is transfer of the shares which preexisted prior to the issuance of shares by the Company as there is vital difference between “creation” and “transfer of shares”. The words “allotment of shares” having used 49 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person who has right to choose for such allotment. Therefore, there is a difference between issue of a share to a subscriber and the purchase of a share from an existing shareholder as in the first case, because, the first case is that of creation, whereas, the second is that of “transfer” entitle to the right in action. 18. In view of the above, the provisions of Sec.56(2) would not be applicable to the issue of new shares which is also submitted by the explanatory notice to the Finance Bill, 2010, wherein, it is clarified that sec.56(2)(vii)(c) of the Act ought to be applied only in the case of transfer of shares. It is trite law that allotment of new shares cannot be regarded as transfer of shares. Therefore, in order to apply the provisions of sec.56(2)(vii)(c), there must be an existence of property before receiving it. As per advanced Law Lexicon Dictionary, the tern “receive” has been defined as “To receive means to get by a transfer, as to receive a gift , to receive a letter or to receive money and involves an actual receipt.” Issu of new shares by company as a right shares is creation of property and merely receiving such shares cannot be considered as a transfer under Sec.56(2)(vii)(c) and accordingly, such provision would not be applicable on the issuance of shared by the Company in the hands of the allottee. 19. The Apex Court in the case of Khoday Distilleries Ltd. vs. CIT reported in [2008] 307 ITR 312 (SC) (176 Taxmann 142)], after referring to the decision in the case of Shri Gopal Jalan & Co. vs. Calcutta Stock Exchange Association Ltd., reported in 1964 (3) SCC 698, noted the question arose as to the amendment of the word “allotment” held that the word “allotment” means appropriation out of previously unappropriated capital of a company, of a certain numer of shares to a person and till such allotment, the shares do not exist as such”. Therefore, it is only on allotment that the shares come into existence. In every case, the words “allotment of shares” having used to indicate the creation of shares appropriation out of unappropriated share given to a particular person which is also referred to in the notice of clause to the Finance Bill 2010. Therefore, the aim and intention behind amending the provision of Sec.56 is to prevent the practice of transferring unutilized shares at a price which are allotted for the first time by way of right shares. The amendment is therefore never meant to aim the “fresh issue” or “fresh allotment” of shares by a company. 50 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 20. With regard to issue of 82,200 shares, the name of wife and father of the assessee would also not be hit by provision of Sec.56(2)(viii)(c) as both of them would be covered by definition of relative covered in the exemption of relative, and therefore, the provision of section 56 would not be applicable at all. The findings recorded about valuation of shares to Rs.205.55 is concerned, there are concurrent findings of fact which do not require any interference as the CIT(A) has rightly computed the FMV on the basis of the balance sheet which was available on record for the previous year and which was approved in AGM. 21. In view of the foregoing reasons, we are of the opinion that no question of law, much less any substantial question of law would arise from the impugned common judgement and order passed by the Tribunal. Both the appeals are accordingly, dismissed with no orders as to costs.” (emphasis supplied by us) 33. As the facts and the issue involved in the present appeal before us remain the same as were there before the Hon’ble High Court of Gujarat in its aforesaid judgment in case of Pr. Commissioner of Income Tax Vs. Jigal Jashwantlal Shah, (supra), therefore, we respectfully follow the same. We, thus, herein conclude, viz. (i) 16,331 equity shares (right shares) allotted to the assessee proportionate to his existing shareholding ratio would not attract the provisions of Section 56(2)(vii)(c) of the Act; and (ii) 63,83,669 equity shares (right to shares) that were gifted/renounced by Smt. Sheela Lodha, sister of the assessee’s wife, would not be hit by the provisions of Section 56(2)(vii)(c) of the Act. 34. Before parting, we may herein observe, that though we have principally in terms of our aforesaid observations concurred with the Ld. 51 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 AR’s contention that the provisions of Section 56(2)(vii)(c) of the Act would not apply to 64 lac equity shares (right shares) allotted to the assessee, but at the same time, cannot remain oblivion of the fact that both the claims of the assessee, which forms the very foundation for seeking inapplicability of the provisions of Sec. 56(2)(vii)(c) of the Act, viz. (i) 16,331 equity shares (right shares) were allotted to the assessee proportionate to his existing shareholding; and (ii) 63,83,669 equity shares (right to shares) were gifted/renounced by Smt. Sheela Lodha, sister of the assessee’s wife, would require to be verified. As both the aforesaid two material aspects, viz. (i). whether the 16,331 equity shares (right shares) were allotted to the assessee proportionate to his existing shareholding; and (ii). Smt. Sheela Lodha, i.e the renouncer, was the sister of the assessee’s wife and, thus, fell within the meaning of “relative” as contemplated in “Explanation (e)(i)(C) of Section 56(2)(vii) of the Act, would require necessary verification, therefore, the A.O is directed to look into both the aforesaid aspects. If the assessee’s claim on the aforesaid issues is found to be in order, then the addition of Rs.7.04 crore (supra) made by the A.O u/s. 56(2)(vii)(c) of the Act would stand vacated. Thus, the Ground of appeal No. IV raised by the assessee is allowed in terms of our aforesaid observations. 35. As we have in terms of our aforesaid observation principally concurred with the Ld. AR’s claim that the provisions of Section 56(2)(vii)(c) cannot be applied to, viz. (i)16331 equity shares (right shares) allotted to the assessee 52 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 proportionate to his existing shareholding; and (ii) 63,83,669 equity shares (right to shares) that were gifted/renounced by Smt. Sheela Lodha, sister of the assessee’s wife; therefore, we refrain from adverting to the contentions advanced by the assessee as regards the issue regarding the determination of FMV of the subject shares at a value which was higher than that disclosed by the assessee in the course of the assessment proceedings, which, thus, are left open. 36. In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in open court on 09th day of December, 2024. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; Ǒदनांक / Dated : 09th December, 2024. ***##SB, Sr. PS 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, Raipur-1 (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, रायपुर बɅच, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, 53 Rajesh Kumar Jain Vs. ACIT, CC-2, Naya Raipur ITA No. 42/RPR/2024 // True Copy // Senior Private Secretary आयकर अपीलȣय अͬधकरण, रायपुर / ITAT, Raipur. "