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Bonus Shares Have Nil Acquisition Cost for Capital Gains Calculation: ITAT Bangalore
Case Law Details
- Case Name
- Zash Traders Vs ACIT (ITAT Bangalore)
- Appeal Number
- Only available for paid members
- Date of Judgement/Order
- Only available for paid members
- Related Assessment Year
- 2020-21
- Courts
- All ITAT, ITAT Bangalore
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Zash Traders Vs ACIT (ITAT Bangalore)
In the case of Zash Traders vs. ACIT (Income Tax Appellate Tribunal, Bangalore), the dispute revolves around the taxation treatment of bonus shares under the Income Tax Act, specifically focusing on the interpretation of Section 55(2)(aa)(B)(iiia) and its application in computing capital gains. Here’s a detailed summary of the case and the arguments presented:
Background and Legal Framework
Section 55 of the Income Tax Act defines various terms relevant to the computation of capital gains, including “cost of acquisition.” Before the intro...
Author Info
Question: I am an NRI retail investor. I purchased 3,651 shares of a stock in my NRI PINS account, which subsequently underwent a 1-to-1 bonus issue, mathematically halving the stock price. I liquidated the entire holding on the same day to recover my capital. My actual net economic profit across the complete lifecycle was a mere ₹2,884.29.
However, because my original buy and the subsequent bonus sales occurred across decoupled accounts managed by the same broker (ICICI Direct), their system completely blanketed my initial purchase transaction. They treated the bonus shares, sold in my NON PINS account, as “zero cost” in complete isolation, calculated an artificial short-term capital gain of ₹80,322, and locked up ₹19,213.02 in TDS—which is seven times my actual profit!
As independent experts, is it legally permissible for an intermediary to enforce punitive tax withholdings solely because their internal software suffers from a technical gap and cannot track a client’s unified ledger? What recourse do I have when the broker’s system blindness creates an artificial financial loss on paper?