Income-tax Officer v. Chhattisgarh Metaliks and Alloys (P.) Ltd. – [2023]
A private limited company called the assessee manufactured, cast, rolled, and dealt in iron and steel goods. The assessee received share application contributions from current shareholders in the pertinent assessment year.
The case was picked for scrutiny, and during the hearing, the Assessing Officer (AO) discovered that the shares had been issued at a price of Rs. 100 per share whereas the unquoted shares’ fair market value was Rs. 85 per share. The assessee’s response did not satisfy the AO, who therefore made an addition in accordance with section 56(2). (viib).
The Raipur Tribunal heard the case.
According to the Tribunal, the shareholding percentage was constant both before and after the shares were distributed, and the shares were offered to the current shareholders on a pro rata basis.
However, allocating shares to current shareholders proportionate to their current holdings (similar to the issuance of right shares) has no impact on the wealth of the shareholder (or the issuing firm) as a consequence of a bonus issue. Also, their stake therein as a percentage stays the same. Also, if shares are divided (in the same proportion for all shareholders), the allocation of additional shares would be comparable to exchanging a ₹1,000 note for two ₹ 500 notes.
As a result, in the instance of the assessee, the requirements of section 56(2)(viib) were not triggered.
