ITAT Upholds CIT(A)'s Order, Rejects Revenue Appeals on Section 56 & 17

The ITAT dismissed the Revenue's appeals, upholding the CIT(A)'s order. It was held that Section 56(2)(vii)(c) of the IT Act was not applicable as shares were allotted uniformly to existing shareholders. Section 17 was deemed inapplicable as the shares were not treated as perquisites. The A.O. was directed to grant credit for TDS on salary and interest to the assessee. The order was pronounced on 07/12/2018, with both Revenue appeals being dismissed.

---

---

Issues Involved:
1. Applicability of Section 56(2)(vii)(c) of the IT Act.
2. Consideration of Section 17 of the IT Act.
3. Credit for TDS on salary and interest.

Issue-wise Detailed Analysis:

1. Applicability of Section 56(2)(vii)(c) of the IT Act:

The primary issue was whether the addition made under Section 56(2)(vii)(c) of the IT Act, amounting to Rs. 3,01,25,58,196/-, was justified. The Assessing Officer (A.O.) contended that the difference between the fair market value of shares (Rs. 1538.64 per share) and the subscribed value (Rs. 100 per share) should be taxed as income. The assessee argued that shares come into existence only upon allotment, hence Section 56(2)(vii)(c) should not apply. The CIT(A) referred to the ITAT's decision in Sudhir Menon (HUF) for A.Y. 2010-11, which held that Section 56(2)(vii)(c) does not apply to shares allotted on a rights basis at face value. The ITAT upheld this view, noting that the shares were allotted pro-rata to existing shareholders, and there was no disproportionate allotment. Therefore, the provisions of Section 56(2)(vii)(c) were not applicable.

2. Consideration of Section 17 of the IT Act:

The A.O. argued that if Section 56 was not applicable, the transaction should be considered under Section 17 of the IT Act, treating the shares as perquisites or profits in lieu of salary. The CIT(A) disagreed, stating that the ITAT in Sudhir Menon (HUF) held there was no inadequate consideration involved, hence Section 17 could not be applied. The ITAT concurred, noting that the shares were allotted uniformly to all shareholders, not specifically to the assessee as an employee. The shares were offered at the same price to all shareholders, thus not constituting a perquisite under Section 17.

3. Credit for TDS on Salary and Interest:

The assessee contended that the A.O. erred in not granting credit for TDS amounting to Rs. 7,43,13,801/- on salary and Rs. 2,529/- on interest. The CIT(A) directed the A.O. to rectify this issue, and the ITAT upheld this directive.

Conclusion:

The ITAT dismissed the Revenue's appeals, affirming the CIT(A)'s order. It was concluded that:
- Section 56(2)(vii)(c) was not applicable as the shares were allotted pro-rata to existing shareholders.
- Section 17 did not apply as the shares were not allotted as perquisites but were offered uniformly to all shareholders.
- The A.O. was directed to grant credit for TDS on salary and interest as claimed by the assessee.

Order Pronouncement:

The order was pronounced in the open court on 07/12/2018. Both appeals filed by the Revenue were dismissed.

---