SHARE

| Oct-13-2021

Genuine issue of Shares to Shareholders not to be considered under Anti-Abuse Provisions of the IT Act

In Income Tax Officer v. Shri Rajeev Ratanlal Tulshyan [I.T.A. No.5748/Mum/2017 A.Y. 2014-15 dated October 01, 2021] [along with cross objection filed by Shri Rajeev Ratanlal Tulshyan (“the Respondent”)], the Income Tax Officer ("the Appellant") filed an appeal for the Assessment Year (“AY”) 2014-2015 arising out of an Order passed by Learned Commissioner of Income Tax (Appeals), Mumbai [“CIT (A)”] dated July 16, 2017 in the matter of the assessment framed by the Learned Assessing Officer (“AO”) under Section 143(3) of the Income Tax Act, 1961 ("the IT Act") on December 30, 2016.

In the case, the Appellant raised the following grounds:

  1. The CIT (A) erred in restricting the addition of ₹ 42,87,75,000/- to ₹ 1,50,87,320/- under section 56(2)(vii)(c)(ii) of the IT Act, without appreciating the fact that the addition was made as income from other sources totaling to ₹ 42,87,75,000/-.
  1. The CIT (A) erred in restricting the addition without appreciating the fact that the Respondent had failed to discharge its onus of explaining the charging at ₹ 10.85 per share.

In the cross-objection filed by the Respondent, the following grounds were raised:

  1. The CIT (A) erred in not appreciating that the Respondent 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) of the IT Act ought not have been invoked.
  1. The CIT (A) erred in not appreciating that the Respondent had been in fact "allotted" the right shares on creation which cannot be equated to as "received" as envisaged under Section 56(2)(vii)(c)(ii) of the IT Act.
  1. The CIT (A) erred in facts and law in not appreciating that the rise in shareholding of the Respondent is substantially due to inaction on part of his relatives to exercise the right issue of shares offered to them and that the addition made to that extent ought to have been excluded from the rigors of section 56(2)(vii)(c)(ii) of the IT Act.

After taking all the facts and evidences in perusal, the Income Tax Appellate Tribunal (“ITAT”), Mumbai Bench pronounced its judgment in line with the intent of legislatures, the Central Board of Direct Taxes (CBDT) issued an Circular No. 10/2018 on December 31, 2018 clarifying that keeping in view the legislative intent to apply anti-abuse measures, Section 56 (2) of the IT Act shall not be applicable in case of receipt of shares as a result of fresh issuance of shares, including by way of issue of bonus shares, rights shares and preference shares. Inferring from these observations, the Tribunal held that the anti-abuse provisions under section 56(2) of the IT Act shall not be applicable to genuine issue of shares to the existing shareholders.

(Author can be reached at info@a2ztaxcorp.com)

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.

Similar reads

Income Tax deduction allowed by Karnataka High Court on loss suffered by assessee on Foreign Rate Fluctuation

The Hon’ble Karnataka High Court in P.R Commissioner of Income Tax v. M/s United Spirits Ltd. [I.T.A. No. 548/2015 c/w I.T.A No. 37/2010 decided on September 2, 2021] answered in favor

Oct-13-2021

Read More

Wrong deduction claimed which resulted in reduction of Tax liability can’t amount to concealment of income

In Pr. Commissioner of Income Tax v. Sonu Realtors Private Limited [INCOME TAX APPEAL NO.956 OF 2017 dated October 11, 2021], Pr. Commissioner of Income Tax (“the Appellant”) filed the appeal being

Oct-13-2021

Read More

Rental income from sub-lease shall be considered as Business Income since same was business of assessee

In Shri Shanthilal Movji Bhai Thakker v. The Income Tax Officer [ITA No. 2267-2270/Chny/2019 decided on November 3, 2021] Income Tax Appellate Tribunal, Chennai (“ITAT”) held that rental income from

Oct-13-2021

Read More

Initiation of Assessment Proceedings can’t be done if no incriminating material seized at time search

The Hon’ble Orissa High Court (“Orissa HC”) in the matter of Smt. Smrutisudha Nayak v. Union of India and Others [W.P. (C) Nos. 10587 OF 2009 dated October 27, 2021], held that assessment proceedings

Oct-13-2021

Read More

Guarantee commission not ‘Levy’ for the purposes of disallowance under Section 40(a)(iib) of the IT Act

In M/s. Krishna Bhagya Jala Nigam Ltd. v. Assistant Commissioner of Income Tax, Bangalore [ITA 3064 /BANG/2018, decided on November 10, 2021], Hon’ble Income Tax Appellate Tribunal, Bangalore (“ITAT”)

Oct-13-2021

Read More