TaxTMI 
TaxTMI 
2021 (10) TMI 166
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....om other sources totalling to Rs. 42,87,75,000/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition without appreciating the fact that the assessee has failed to discharge its onus of explaining the charging @ Rs. 10.85 per share with proper explanations and supporting evidences. 1.2 The assessee has filed cross-objection on following grounds: - 1. (a) The Id. CIT(A) erred in facts and law in applying the provisions of section 56(2)(vii)(c)(ii) of the Act and confirming the addition to the extent of Rs. 1,50,87,320/-. (b) The Id. CIT(A) erred in facts and law in not appreciating that the appellant had applied for and was allotted shares in right issue only to the extent to which he was entitled to in proportion of his existing-shareholding and therefore section 56(2)(vii)(c)(ii) ought not have been invoked. (c) The Id. CIT(A) erred facts and law in not appreciating that the appellant had been in fact "allotted" the right shares on creation which cannot be equated to as "received" as envisaged u/s. 56(2)(vii)(c)(ii) of the Act. (2) Without prejudice and without accepting the applicability of the provisions of....
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....ted. 2.3 However, Ld. AO noticing that the percentage of share holding of the assessee in KFPL increased from 90.37% as on 31/03/2013 to 96.88% as on 31/03/2014, opined that there was disproportionate allotment of shares and therefore, the stated provisions would apply in assessee's case. 2.4 Accordingly, Ld. AO worked out intrinsic value per share as on 31/03/2013 at Rs. 11.85 per share on the basis of formula laid down in Rule 11U and 11UA which was as follows: - (A-L) X (PV) (PE) Where A would represent book value of the assets in the balance-sheet, L would represent book value of liabilities shown in the balance-sheet, PE would be total amount of paid up equity share capital as shown in the balance-sheet and PV would be paid-up value of such equity shares. 2.5 Finally, the differential amount of Rs. 10.85 per share (Rs. 11.85 per share less issue price of Re.1/- per share) was added to the income of the assessee which resulted into an addition of Rs. 4285.75 Lacs in the hands of the assessee. Appellate Proceedings 3.1 During appellate proceedings, the assessee assailed the impugned additions by way of elaborate written submissions which have already been extracted in th....
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....uity shares held as on 31.03.2014 % Holding as on 31.03.2014 Rajeev R. Tulshyan 87,50,000 90.37% 4,82,50,000 96.88% Adila Ltd. 6,76,746 6.99% 6,76,746 3.38% Other shareholders 2,55,000 2.63% 8,75,656 1.70% Total 96,76,746 100% 4,98,02,402 100% 3.3 On the basis of above tabulation, it was demonstrated that the assessee was offered shares only as per his proportionate entitlement and nothing more and therefore, in terms of the cited decision, the provisions of Sec.56(2)(vii) were not attracted. It was further argued that it was not a case of tax evasion or money laundering but a pure genuine commercial arrangement in the normal course of business. The intention of the provisions was to check evasion of tax and the provisions were introduced as anti-abuse provisions. The amendment was introduced to overcome the money laundering activities undertaken on abolition of Gift Tax Act; Since the Gift tax Act was not applicable to issue of shares, the provisions of Sec.56(2) would not apply to transaction of such nature as per the decision of Bangalore Tribunal in DCIT V/s Dr. Rajan Pal (ITA No.1290/Bang/2015). Another argument was that that the provisio....
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....ght issue / proportionate allotment, apart from issue price, there is also an inherent consideration in the form of diminution in the value of the existing shares held by the assessee. 3.5 In the alternative, the assessee submitted that the addition was to be restricted only to disproportionate allotment of shares to assessee and after factoring in the value of the existing shares which would be 150.87 Lacs as tabulated on page nos. 24 and 25 of the appellate order. 3.6 Finally, the assessee summed up the arguments as follows: - (i) The provisions of section 56(2)(vii)(c) of the Act should not be made applicable to a genuine transaction of issue of shares having regard to the purpose of introduction of the said section. (ii) The section applies only where the property (in existence) is received by the appellant and not at the time where the property comes into existence. (iii) The appellant cannot be fastened with liability of taxation based on action or inaction of a third person when a proportionate / equitable offer was proposed to each shareholder and shares were allotted as per their proportionate eligibility only. (iv) Without prejudice, the addition if any has to b....
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....ing appellate proceedings as well as before us, we find that there is clear fallacy in the conclusion of lower authorities that the allotment was dis-proportionate and skewed in favor of the assessee in view of the fact that assessee's shareholding increased from 90.37% to 96.88% at year end. The said conclusion has overlooked the fact that there were two right offers during the year and the right issue was offered, on both occasions, to existing shareholders in the ratio of 7:8 on first occasion and 5:8 on the second occasion. The issue was offered to existing shareholders in proportion to their holding at the same price i.e. Re.1/- per share. The same is supported by Board Resolution dated 09/08/2013 and 06/03/2014 and this fact is nowhere in dispute. The assessee subscribed his entitlement but the other shareholders did not subscribe to the entitlements. Resultantly, the assessee's overall holding increased at year-end and the holding ratio got skewed in assessee's favor. The said conclusion is duly evidenced from assessee's tabulation during appellate proceedings as extracted by us in preceding para 3.2 of the order. This being so, the ratio of decision of Mumbai Tribunal in Su....
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.... attract the anti-abuse provision. Further, the provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. 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...." On the basis of the same, it could be inferred that provisions of section 56(2)(vii) were introduced as an anti-abuse measure and to prevent laundering of unaccounted income under the garb of gifts, after abolition of the Gift Tax Act. Upon perusal of orders of lower authorities, we find that there are no such allegations and no case of tax evasion or tax abuse has been made out against the assessee. In fact, the transactions are ordinary transactions of issue of right shares to existing shareholders in proportion to their existing shareholding and therefore, no case of abuse or tax evasion could be made out against the assessee. 4.4 This proposition is supported by the fact that in line with the intent of legislatures, CBDT issued another Circular No. 10/2018 on 31/12....