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TMI Blog2020 (9) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(22)(e) are not applicable. The substance of section 2(22)(e) is any payment made by a company that too by way of advance or loan which shows that for invoking the provisions of section 2(2)(e), there must be a payment by way of advance or loan. This vital aspect is missing in the case of the assessee as neither there is any payment nor the company made any advance or loan to the assessee, thus debit balance worked out by the assessee company will not fall within the ambit of the provisions of section 2(22)(e) and thus are not applicable in the case of the assessee. Detailed finding recorded by the ld. CIT(A) are as per the material on record, accordingly, we do not find any reason to interfere in the order of the ld. CIT(A) for deleting the addition so made. Hence, we uphold the same. Addition u/s 56(2(vii)(c) - Allotment of shares - difference calculated between fair market value and that of face value under section 56(2)(vii)(c) - CIT-A deleted the addition - HELD THAT:- Mumbai Bench of ITAT in the case of ACIT Vs Subodh Mennon [ 2018 (12) TMI 981 - ITAT MUMBAI] have held that only when a higher than a propionate allotment of fresh shares issued by a company is received by a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited the value of shares to her running account and therefore her account never represented a debit balance. However, two Cheque of ₹ 35,00,000/- each which were credited in the books on 01.02.2013 & 2.2.2013 but the cheques was presented by the company after some time but during the current financial year, in the books of the assessee there was a credit balance of ₹ 20,00,000/- on 4.2.2013 even after debit of ₹ 70 Lacs for Share Application money but the learned ACIT has treated the same as deemed dividend u/s 2(22)(e) of the Income Tax Act and made the addition. 6. By the impugned order, the ld. CIT(A) had deleted the addition after observing as under: "(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is seen that before allotment of shares, the balance of the appellant in the books of accounts of the M/s Pinkcity Jewel House Pvt. Ltd. was credit of ₹ 20,00,000/-. It is also noted that the debit balance of ₹ 50,00,000/-appeared in the books of accounts of the company as the entry of allotment of shares was passed before clearance of cheques paid by the appellant against such allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er due to the fact the cheque were cleared later on treated ₹ 50 Lacs as deemed dividend. 8. Provisions of Section 2(22)(e) of the Act comes to play only if the company makes any payment to such shareholder, by way of advance or loan and that too to the extent the company possesses accumulated profit, provided that his/her holding is not less than ten percent of voting power. From provisions of section 2(22)(e) it is clearly evident that the provisions of this section come to play only if the company makes any payment of advance or loan to a shareholder holding not less than ten percent of voting power. In the case of assessee, the company has not paid any sum and in fact amount is being debited by way of Journal Entry and no amount or money has been given as loan or advance to the shareholder. The debit balance has been notionally worked out by the assessing officer by working out the balance in ledger account of shareholder on the basis of clearing date of cheque received (not paid) in the bank account, which is not correct. As per accounting principles entries in the books of accounts are required to be made on the basis of transactions entered which is the receipt of che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he difference of ₹ 10.37 as benefit transferred to the appellant. Considering the provision of section 56(2)(vii)(c) of the Act, the AO taxed ₹ 1,16,14,400/- (11,20,000 * 10.37) as deemed income of the appellant. The relevant portion of the assessment order is reproduced as under: "8. ADDITION ON A/C SHARE ALLOTMENT U/S 56(2)(Vii)(C Further, as mentioned above in the reasons recorded for re-opening of the case, the assessee was allotted 11,20,000 shares by M/s Pinkcity Jewel House Pvt. Ltd. Jaipur and the assessee is also a director in the said company. The shares were allotted on face value of ₹ 10/- only. Whereas as per the section 56(2)(vii)(c) the value of the share at the time of allotment is of ₹ 20.37, thus it can clearly be concluded that the shares were issued, less by ₹ 10.37 than the fair market value, therefore difference required to be added as income in the hands of director assessee. Out of total shares issued by the company i.e. 32,00,000 the assessee was allotted 11,20,000 shares. Thus difference of ₹ 10.37 on these share which come to ₹ 1,16,14,4001 (1120000 X 10.37) is deemed to be an income of the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the appellant: no gain has arisen in hands of the appellant. (iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The shareholding pattern of the M/s Pinkcity Jewel House Pvt. Ltd before and after the allotment of additional shares, as submitted by the appellant, is as under: "Memberwise Share Holding Pattern and Analysis S.No. Category Name No of Shares As on 31.3.2012 % of Share Holding No of Shares As on 31.3.2013 % of Share Holding 1 Director Manuj Goyal 1353000 30% 2313000 30% 2 Share Holder Veena Goyal 1578500 35% 2698500 35% 3 Director Kajal Goyal 1578500 35% 2698500 35% Total 4510000 100% 7710000 100% No of Shares Allotted During FY 2012-13 S.No.. Category Name No of Shares As on 31.3.2012 No of Shares Allotted during FY 2012.13 % of Share Allotment No Of Shares As on 31.3.2013 1 Director Manuj Goyal 1353000 960000 30% 2313000 2 Share Holder Veena Goyal 1578500 1120000 35% 2698500 3 Director Kajal Goyal 1578500 1120000 35% 2698500 Total 4510000 3200000 100% 7710000 (iv) From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Legislature itself-Consequences would not alter meaning of statutory provision where such meaning is plain and unambiguous-'Income' being word of widest 'amplitude, would include gains derived in any manner=Provision of section 56(2)(vii)(c) would not apply and specified amount could not be assessed as income in hands of assessee on ground of inadequate consideration-Appeal partly allowed. Held Section 56(2)(vii)(c) gets attracted whenever an individual or Hindu undivided family (HUF) receives without consideration a property (as defined) the FMV of which is in excess of ₹ 50,000/-, or where at a consideration the difference between the FMV and such consideration exceeds the said amount Issue of bonus shares is by definition capitalization of its profit by the issuing-company. There is neither any increase nor decrease in the wealth of the shareholder (or of the issuing company) on account of a bonus issue, and his percentage holding therein remains constant." (v) Thus, the Hon'ble ITAT while deciding the allotment of additional shares on proportional basis, held that as long as additional shares are allotted on prorata to the shareholders bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for shares as income of the assessee. This issue was subject matter of dispute in the case of Sudhir Mennon HUF vs. ACIT (TS146 ITAT 2014) (Mum.) before ITAT Mumbai Bench. The facts of the case of Sudhir Mennon was that he held 15000 shares of Dorf Catal Chemicals Pvt. Ltd. During 2009-10, the company M/s Dorf Catal Chemicals Pvt. Ltd. Offered additional shares 313624 shares to Sudhir Mennon HUF (shareholder), the HUF subscribe and was allotted 1,94,000 shares at the face value of ₹ 100/- each. The book value of shares as at 31.03.2009 was ₹ 1538/-. The assessing officer treated the difference of ₹ 1438/- per share (₹ 1538/- - ₹ 100/-) as inadequate consideration u/s 56(2)(vii)(c) of the Act and taxed ₹ 27 lacs as additional income in the hands of the assessee. The Mumbai ITAT following the Judgment of the Hon'ble Supreme Court in the case of Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651 (SC) and Hon'ble Bombay High Court in the case of H. Holck Larsen vs. CIT (1972) 85 ITR 285 (Bom) held that as long as there is no disproportional allotment of shares, there was no scope for any property being received by the tax payer as there was only an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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