AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1576
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. The Appellant denies himself liable to be assessed on a total of an amount being Rs. 18,24,97,708/-, as against the returned an amount being Rs. 4,91,280/-, under the facts and circumstances of the case. 3. Whether the learned Authorities below are justified in disallowing Rs. 15,75,000/- on investments an amount being Rs, 31,50,00,000/-, under the facts and circumstances of the case. 4. Whether the learned Authorities below are justified in disallowing Rs. 15,75,000/-under section 14A of the Act, under the facts and circumstances of the case. 5. Whether the learned Authorities below are justified in making the addition of an amount being Rs. 18,03,62,857/- under section 56[2][viia] of the Act, under the facts and circumstances of the case. 6. Whether the learned Authorities below are correct in computed fair market value of each of Rs. 15.82/- under section 11UA r.w.s 56[2][viia] of the Act, under the facts and circumstances of the case. 7. The Appellant denies the liability to pay interest under section 234B & 234C of the Act, in view of the fact that there is no liability to additional tax ad determined by the learned Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue (for short, "F.M.V."), therefore, why an addition under Section 56(2)(viia) of the Act be not made in its case. In reply, the assessee company objected to the addition proposed by the A.O for reasons as under (extracted from the assessment order): "3.6. The arguments of the assessee are summarized as under: a) Section 56(2)(viia) contemplates existence of three separate entities recipient, the company whose shares are received and the person who has gives the shares. The provisions of sec. 56(2)(viia) contemplates the presence three persons. In the case of fresh allotment there are only two entities the share applicant and the company issuing shares. Therefore, the case of allotment of shares does not fit into the scenario contemplated in sec. 56(2)(viia). b) The section is meant to be an anti abuse provision to prevent the practice of transferring unlisted shares of a company without consideration or at prices less than FMV to a firm or company. The intent of legislation is to tackle transfer of shares and not the cases of primary allotment of the share. c) The assessee entered into an understanding with Kineta Global Limited and their promoters ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessment order was assailed before him, viz. (i). disallowance under Section 14A: Rs. 15,75,000/-; and (ii). addition u/s 56(2)(viia) : Rs. 18,03,62,857/-. In compliance, the A.O. filed his "remand report" on 10.01.2020. Thereafter, the CIT(A) finding no infirmity in the addition/disallowance made by the A.O. upheld the same. 8. The assessee company being aggrieved with the order of CIT(A) has carried the matter in appeal before us. 9. Shri Pawan Kumar Chakrapani, C.A. - the learned Authorized Representative (for short "ld.AR") for the assessee company, at the threshold of hearing of the appeal, submitted that the A.O. had grossly erred in law and on the facts of the case in invoking the provisions of Section 56(2)(viia) of the Act. Elaborating on his contention, the Ld. AR submitted that the assessee company; M/s. Kineta Metals and Minerals Limited (for short, "Company"); along with Shri. Vallabhaneni Balashowry and Mrs. Vallabhaneni Bhanumathi i.e., promoters of M/s. Kineta Metals and Minerals Limited had entered into a "Share Subscription and Shareholders Agreement" on 18.02.2010 (for short, "agreement"), wherein the assessee company had agreed to infuse in one or mor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....details of the payments that were made by the assessee company in tranches, i.e over the period 20/03/2010 to 20/04/2010 towards share subscription of M/s. Kineta Metals and Minerals Limited (supra), Page 7 of APB. Carrying his contention further, the Ld. AR submitted that as per the aforesaid "agreement" the assessee company had agreed to allow M/s. Kineta Metals and Minerals Limited (supra) to use its land situated at IDA, Cherlapally Village, Ghatkesar Mandal, Rangareddy District, Andhra Pradesh either for its own purpose or by its associates/affiliates; or for leasing out the same and dealing with it in any other manner as it may deem fit. Also, it was agreed that the land belonging to the assessee company, if required, would be provided as a collateral security for the loans that were to be raised by the company from the banks/financial institutions. 10. Coming back to the issue in hand, i.e. application of the provisions of Section 56(2)(viia) of the Act, the Ld. AR submitted that the same had been made available on the statute by the legislature vide the Finance Act, 2010 w.e.f. 01.06.2010. The Ld. AR submitted that as the assessee company had already vide the aforesaid "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allotment of new shares cannot be regarded as a transfer of shares, therefore, the pre-condition contemplated in Section 56(2)(viia) i.e there must be an existence of the shares before the same are received being conspicuously absent in the transaction of allotment of shares in the case of the present assessee company, thus, rendered the invocation of the said statutory provision as unworkable. The Ld. AR to buttress his aforesaid claim had taken us through the aforesaid judicial pronouncements. 12. Apropos the disallowance made by the A.O. under Section 14A of the Act, the Ld. AR submitted that as the assessee company during the subject year had not received any exempt income, therefore, the A.O. could not have worked out any disallowance as per the pre-amended Section 14A of the Act. The Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Chettinad Logistics (P) Ltd. (2018) 95 Taxmann.com 250 (SC). It was, thus, the Ld. A.Rs claim that the A.O. in the absence of any exempt income having been received by the assessee company during the subject year had grossly erred in law and facts of the case in maki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e company. 15. Apropos the claim of the assessee's counsel that the provisions of Section 56(2)(viia) of the Act were not applicable in the case of a fresh allotment and are applicable only in case of transfer of shares, the Ld. DR submitted that nothing to the said effect can be gathered from a plain literal interpretation of the said statutory provision. The Ld. DR submitted that as Section 56(2)(viia) of the Act has been made available on the statute to discourage share transactions at a suppressed value, therefore, the fine distinction attempted to be drawn by the assessee's counsel between a "fresh allotment" vis-a-vis "transfer of shares" is devoid and bereft of any substance. 16. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 17. We find substance in the Ld. AR's claim that as the assessee company has during the subject year not received any exempt income, therefore, as per the pre-amended Section 14A of the Act i.e. as was ava....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance Act, 2022 has inserted an "Explanation" to Section 14A of the Act, as per which, notwithstanding anything to the contrary contained in the Act, the provisions of Section 14A shall apply in a case where the income, not forming part of the total income under the Act, has not accrued or arisen or has not been received during the subject year and the expenditure has been incurred during the said previous year in relation to such exempt income, but the same is effective from April 1, 2022 and cannot be presumed to have retrospective effect. Our aforesaid view is fortified by the judgment of Hon'ble High Court of Delhi in the case of Pr. CIT Vs. Era Infrastructure (India) Ltd. (2022) 114 CCH 219 (Delhi) and that of the Hon'ble High Court of Madhya Pradesh in Pr. CIT Vs. Keti Constructions (2024) 162 taxmann.com278 (MP), wherein it has been held that the amendment made available on the statute vide the Finance Act, 2022 in Section 14A is effective from 01.04.2022 and cannot be permitted with retrospective effect. The Grounds of appeal Nos.3 and 4 are allowed for statistical purposes in terms of our aforesaid observations. 20. We shall now deal with the multi-faceted contention....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ur aforesaid observations finding no substance in the aforesaid claim of the assessee company, reject the same. 22. We shall now deal with the claim of the Ld. AR that as the assessee company has not received any shares from any person or persons but on the contrary, the shares of the aforesaid company viz. M/s. Kineta Metals and Minerals Limited (supra) were issued to the assessee company during the process of share allotment, therefore, it being a case of fresh allotment of share capital and not a transfer of existing shares from an existing shareholder, the provisions of Section 56(2)(viia) of the Act could not have been invoked in its case. 23. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both parties in the backdrop of the orders of the lower authorities. It is the claim of the Ld. AR that the provisions of Section 56(2)(viia) that have been made available on the statute vide the Finance Act, 2010, w.e.f 01.06.2010 are applicable only in the case of "transfer" of shares and not in a case of a "fresh allotment". On a perusal of Section 56(2)(viia) of the Act, we find that the same is applicable where a firm or company, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....28 (Guj). The indulgence of the Hon'ble High Court in the aforementioned case was, inter alia, sought by the revenue for adjudicating the scope of a similarly worded Section 56(2)(vii)(c) of the Act on the following question of law:- "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 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, inter alia, claimed 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred 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 (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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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. **** **** **** 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 r....