AI Drafter 
TaxTMI 
TaxTMI 
2026 (2) TMI 692
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....ice to the contention raised in Ground No. (1) above, the Ld. Commissioner of Income-tax (Appeals), NFAC failed to appreciate that Shares received on Allotment by a Company could not attract the provisions of Section 56(2)(viia) and thus the Commissioner of Income-tax (Appeals), NFAC was wrong in confirming the Addition of Rs. 13,53,09,500 to the Income of the appellant. 3. That the appellant craves leave to add, delete or modify any Ground or Grounds of Appeal before or at the time of the Hearing of the Appeal." 3. Brief facts of the case are that the assessee had e-filed its return of income for the assessment year under consideration on 29.09.2015 showing total income at Rs. 'NIL' and the current year's loss of Rs.22,93,83,105/-. During the relevant financial year, the assessee acquired the shares of the following group companies: Sl. No. Scrip Name No. of shares I Gujarat NRE Energy Resources Ltd. 16,51,300 Ii Gujarat NRE Energy Resources Ltd. 56,80,000 Iii Madhur Coal Mining Pvt. Ltd. 1,98,750 Iv Madhur Coal Mining Pvt. Ltd. 33,35,000 v. Newage Vinimay Pvt. Ltd. 52,23,000 3.1 The Assessing Officer (hereinafte....
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....section 50D of the Act. 4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the only issue for consideration is whether the share subscription can be covered u/s 56(2)(viia) of the Act. The valuation of the three companies were carried out and the fair market value was more than the price paid. The provisions of section 56(2)(viia) of the Act were applied by the Ld. AO. However, he submitted that any issue of shares is not covered u/s 56(2)(viia) of the Act. The assessee is a private limited company and the provisions of section 56(2)(viia) of the Act were introduced with effect from 01.06.2010 to stop the transfer of shares below the fair market value. It was stated that only an allotment of share comes into existence and the shares were allotted, the price fixed by the issuing company was paid, the shares were allotted to the group companies and not to any outsider. The assessee relied upon the decision of Khoday Distilleries Ltd. vs. Commissioner of Income-tax [2009] 176 Taxman 142 (SC)/[2008] 307 ITR 312 (SC)/[2008] 220 C....
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....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 31consideration: Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.-For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);]." 8. The Ld. AO has countered the arguments of the assessee that the provisions of section 56(2)(viia) of the Act were not applicable, with which we are in agreement. The Ld. CIT(A) confirmed the addition made by the Ld. AO after considering the submission of the assessee. The Ld. CIT(A) has gone through the contentions of the assessee and has confirmed the addition by holding as und....
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....ies for a consideration significantly lower than the FMV, as determined in accordance with Rule 11UA. Details of shares allotted to appellant, FMV or shares, purchase price of shares are mentioned in the table below: Name of the Scrip purchased below FMV(A) Fair Market Value of the Scrip in Rs. (FMV) (B) Purchase rate in Rs. Difference No. shares Purchased Amount chargeable to tax u/s 56(2)(viia) (Rs.) (B) Gujarat NRE Energy Resources Ltd. 100 82 18 48,54,000 8,73,72,000 Gaurav Vinimay Pvt Ltd 88 83 5 40,79,000 2,03,95,000 Newage Vinimay Pvt Ltd 88 82 6 40,89,000 2,45,34,000 Total 13,23,01,000 8.5.4 The AO treated the difference amounting to Rs. 13,23,01,000/- as income under the head "Income from Other Sources". The AO held that the shares were received for inadequate consideration and the differential between the FMV and actual consideration was taxable under section 56(2)(viia). 8.5.5 During the assessment proceedings, the appellant contended that the shares were acquired through fresh issue and allotment by the investee companies, and hence, th....
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....re is no pre condition in the section that they should constitute 'property' by figuring in balance sheet of the company that is allotting shares. 8.5.7 CBDT vide Circular No. 3/2019, dated 29.01.2019, has clarified that Section 56(2)(viia) would apply to fresh issuance of shares. In the circular it is clarified that, the argument that above section would not be applicable in case of fresh issuance of shares is not a correct approach, as it could be subject to abuse, and would be contrary to the express provisions and the legislative intent of Section 56(2)(viia) or similar provisions contained in Section 56(2). Further, the memorandum explaining provisions of Finance Bill 2010 stated that section 56(2)(via) of the Act was introduced as an anti-abuse provision to prevent the practice of transferring shares of a private company for no or in adequate consideration. In the present case, it is an admitted fact that shares were allotted to appellant at a price lower than the fair market value of shares which practice the section wanted to plug. 8.5.8 In Sudhir Memon HUF v. Asstt. CIT [2014] 45 taxmann.com 176, Hon'ble Mumbai tribunal has interpreted the wor....
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....oorer as a result of the allotment of shares therein. 'Receipt' is a word or term of wide import, and would include acquisition of the subject matter of receipt defined capital assets in the present context, by modes other than by way of transfer as well. We find no reason to limit or restrict the scope of the word 'receipt' in the provision to cases of 'transfer only. Doing so would not only amount to reading down the provision, which the tribunal is even otherwise not competent to, being not a court of law, but reading it in a manner totally inconsistent with the unambiguous language and the clear intent (of the Legislature) conveyed thereby, but also its context as well as the drift of section, in complete violence thereto." 8.5.9 Hon'ble Tribunal in above decision has examined decisions relied on by appellant in its submissions and thereafter came to the conclusion that provisions of section 56(2)(viia) cover cases of fresh allotment of shares like that of appellant. Therefore, addition made by the AO of Rs. 13,23,01,000/- under section 56(2)(viia) is upheld. Accordingly, Ground of Appeal No. 1 is Dismissed." 9. We have considered the s....