Provisions of section 56(2)(vii)(c) of the Act not applicable to the bonus shares: ITAT

In this case, the Assessee had declared an income of Rs. 31,99,25,740/- by filing its return of income dated 25.08.2015 which resulted in an addition of Rs. 47,21,93,975/- u/s 56(2)(vii)(c) read with section 2(24)(xv) of the Act.

This addition was deleted by CIT(A) and thus, the Jt. Commissioner of Income Tax has preferred an appeal with the Income Tax Appellate Tribunal (The “ITAT”) against order of CIT(A).

As per Hon’ble Tribunal, in various cases such as Rajan Pai Bangalore Vs. Department of Income Tax and Sudhir Menon HUF (supra) and even by the Hon‟ble Apex Court in the case of CIT Dalmia Investment Co. Ltd. (Supra) it has been held that that the provisions of section 56(2)(vii)(c) of the Act are not applicable to the bonus shares.

Further even the CBDT Vide Circular No. 06/2014 issued on dated 11.02.2014 clarified that bonus units at the time of issue would not be subjected to additional income tax u/s 115R of the Act, since issue of bonus units is not akin to distribution of income by way of dividend. This may be inferred from provisions of section 55 of the Act which prescribed that the “cost of acquisition” of bonus units shall be treated as Nil for purposes of computation of capital gains tax.

Further, the CBDT vide circular 717 dated 14.08.1995 clarified that “in order to overcome the problem of complexity, a simple method has been laid down for computing of cost of acquisition of bonus shares. For the sake of clarity and simplicity, the cost of bonus shares is to be taken as “Nil” while the cost of original shares is to be taken as the amount paid to acquire them. This procedure will also applicable to any other security where a bonus issue has been made.”

Therefore in view of aforesaid analysis and respectfully following the Judgments referred above of the Hon’ble Apex Court and the Hon’ble tribunal and the Circulars issued by the CBDT, the appeal of the revenue was dismissed by ITAT.

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