Revenue's appeal dismissed as Section 56(2)(vii)(c) doesn't apply to bonus shares received by assessee

The ITAT Delhi dismissed the revenue's appeal regarding addition under section 56(2)(vii)(c) for bonus shares received by the assessee. The AO had found that the assessee sold only original shares, not bonus shares, but attempted to invoke section 56(2)(vii)(c). The Tribunal held that when bonus shares are issued, no property transfer occurs to shareholders as money remains with the company, and overall shareholder wealth remains unchanged pre and post bonus. Following precedent in SMT ARUNA CHANDHOK case with identical facts, the Tribunal ruled that section 56(2)(vii)(c) provisions do not apply to bonus share situations, rejecting the AO's claim of double benefit to the assessee.

---

---

Issues:
Appeal against deletion of addition of bonus shares under section 56(2)(vii)(c) for A.Y. 2015-16.

Detailed Analysis:
1. The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 36,10,63,656 made under section 56(2)(vii)(c) of the Act for bonus shares received.
2. The assessee declared total income of Rs. 8,83,90,720 for A.Y. 2015-16, including income from various sources such as salary, house property, business, capital gain, and other sources.
3. The Assessing Officer (AO) observed that the assessee had earned long term capital gain but set off the gain with losses from the sale of certain shares and mutual funds, not including the bonus shares received.
4. The AO invoked section 56(2)(vii)(c) to compute the addition based on the fair market value (FMV) of the bonus shares received by the assessee.
5. The CIT(A) deleted the addition after considering the judicial opinions and arguments presented by the assessee, emphasizing that bonus shares are in the nature of Capitalization Shares.
6. The CIT(A) highlighted that the market price of shares tends to decrease proportionally after a bonus issue, and the cost of acquisition of bonus shares is nil under section 55(2)(aa)(i) of the Income Tax Act.
7. The Tribunal upheld the CIT(A)'s decision, citing previous judgments and emphasizing that bonus shares do not result in a double benefit for the assessee, as the overall wealth remains the same post-bonus issue.
8. The Tribunal rejected the Revenue's appeal, stating that the bonus shares issued are a reallocation of company funds and do not attract section 56(2)(vii)(c) as there is no inflow of fresh funds or change in the capital structure.

This detailed analysis covers the issues involved in the legal judgment regarding the addition of bonus shares under section 56(2)(vii)(c) for the relevant assessment year.

---