Prakash Chand Sharma HUF Vs ITO (ITAT Jaipur)
Facts- The assessee is an existing shareholder of M/s Prakash Deep Finance Co. Ltd. having 99,500/- shares of Rs. 10/- each amounting to Rs. 9,95,000/- since 2007. During the year PDFCL allotted 3,00,000 shares to the assessee at face value of Rs. 10/- each for Rs. 30 lakhs on 31.03.2014. The AO however held that FMV of shares u/s 56(2)(vii)(c) read with rule 11UA as on 31.03.2014 is Rs. 11.52 per share and this shares were allotted at a value lower by Rs. 1.52 per share. Accordingly, he made addition of Rs. 4,56,000/- (3,00,000*1.52) by holding that the contention of assessee that section 56(2)(vii)(c) (ii) is applicable only when an assessee receives any movable property at lower than FMV but the allotment of shares by the company cannot be equated with receipt of shares is not correct as change of name or words will not deter the applicability of legal provisions.
The AO arrived the findings as held that provisions of section 56(2)(vii)(c)(ii) of the IT act read with provisions of Rule-11UA of the IT Act, 1962 are clearly applicable in this case. Therefore, an amount of Rs. 4,56,000/-is hereby added to total income of the assessee.
Conclusion- By following the view taken by the Coordinate Bench of ITAT in case of ACIT vs. Venkanna Choudhary [2020] 180 ITD 166 (Visakhapatnam-Trib.) dated 30-092019 it is held that transaction within the family and close relative are covered by the proviso to section 56(2)(viii)(c) and there is no application of the said section for taxing the income under the head ‘Income from other sources’. The provisions of s. 56(2)(viii)(c)(ii) shall not apply in case of money or any property received from any close relative.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal by the assessee is directed against the order of the ld. CIT(A), National Faceless Appeal Centre, Delhi [hereinafter referred to as (NFAC)] for the AY 2008-09.
2. At the outset of hearing, the Bench observed that there is delay of 180 days in filing the appeal by the assessee for which the ld. AR of the assessee filed a condonation application dated 3012.2021 along with affidavit of CA of the assessee dated 30.12.2021 mentioning therein that delay in filing the appeal by the assessee is occurred due to lockdown and not functioning of the income tax side. Thus, the ld. AR of the assessee prayed that the assessee is prevented by sufficient cause in late filing the appeal before ITAT and the delay occurred may kindly be condoned.
3. During the course of hearing, the ld. DR has no objection to assessee application for condonation of delay and prayed that court may decide the issue as deem fit and proper in the case.
4. We have heard the rival contentions and perused the materials available on record. The prayer as mentioned by the assessee for condonation of delay of 180 days has merit and we concur with the submission of the assessee. Thus the delay of 180 days in filing the appeal by the assessee is condoned.
5. The assessee has raised the following grounds:-
“1. The Ld. CIT(A), NFAC has erred on facts and in law in confirming the addition of Rs. 4,56,000/- u/s 56(2)(vii)(c)(ii) of the Act by not accepting the contention of assessee that :-
(i) section 56(2)(vii) is not applicable as it is applied to tax those receipts which are received without consideration or for inadequate consideration whereas the present case is allotment of shares which cannot be equated with receipt of shares.
(ii) even if section 56(2)(vii)(c) is applicable, the same would not be subject to tax in view of Explanation (e) of said section
2. The appellant craves to alter, amend and modify any ground of appeal.”
6. Brief facts of the case are that the assessee is an existing shareholder of M/s Prakash Deep Finance Co. Ltd. (in short PDFCL) having 99,500/- shares of Rs. 10/- each amounting to Rs. 9,95,000/- since 2007. During the year PDFCL allotted 3,00,000 shares to the assessee at face value of Rs. 10/- each for Rs. 30 lakhs on 31.03.2014. The AO however held that FMV of shares u/s 56(2)(vii)(c) read with rule 11UA as on 31.03.2014 is Rs. 11.52 per share and this shares were allotted at a value lower by Rs. 1.52 per share. Accordingly, he made addition of Rs. 4,56,000/- (3,00,000*1.52) by holding that the contention of assessee that section 56(2)(vii)(c) (ii) is applicable only when an assessee receives any movable property at lower than FMV but the allotment of shares by the company cannot be equated with receipt of shares is not correct as change of name or words will not deter the applicability of legal provisions.
7. The AO arrived the findings as held that provisions of section 56(2)(vii)(c)(ii) of the IT act read with provisions of Rule-11UA of the IT Act, 1962 are clearly applicable in this case. Therefore, an amount of Rs. 4,56,000/-is hereby added to total income of the assessee. Total income of the assessee is recommended as under:-
