VYANKATESH NARAYAN KULKARNI,THANE vs. INCOME TAX OFFICER, RANGE 3(4) , THANE

2.1 On further appeal, the Ld. CIT(A) confirmed both the n further appeal, the Ld. CIT(A) confirmed both the n further appeal, the Ld. CIT(A) confirmed both the additions. Aggrieved, the assessee is in appeal before us by way of additions. Aggrieved, the assessee is in appeal before us by way of additions. Aggrieved, the assessee is in appeal before us by way of raising grounds as reproduced above. raising grounds as reproduced above.

Ground No. 1: Addition of Ground No. 1: Addition of ₹10,85,690/- u/s 68 of the Act (Agricultural income) u/s 68 of the Act (Agricultural income) 4. The ground No. 1 of the a The ground No. 1 of the appeal relates to addition of ppeal relates to addition of Rs.10,85,690/- u/s 68 of the Act holding the agriculture income as u/s 68 of the Act holding the agriculture income as u/s 68 of the Act holding the agriculture income as unexplained cash credit. unexplained cash credit. The facts in brief qua the issue in dispute The facts in brief qua the issue in dispute are that the assessee in its computation of the income shown are that the assessee in its computation of the income shown are that the assessee in its computation of the income shown agriculture income of Rs.15,1 agriculture income of Rs.15,17,234/- comprised of lease rent comprised of lease rent income from agricultural land amounting to Rs.4,31,544/- and income from agricultural land amounting to Rs.4,31,544/ income from agricultural land amounting to Rs.4,31,544/ agriculture income of Rs.10,85,690/ agriculture income of Rs.10,85,690/- from sale of the agriculture from sale of the agriculture produce. As far as the quantum of lease rent from agricultural land produce. As far as the quantum of lease rent from agricultural land produce. As far as the quantum of lease rent from agricultural land amounting to Rs.4,31,544/ amounting to Rs.4,31,544/- is concerned, there is no dispute there is no dispute between the parties. The only dispute is in respect of agriculture between the parties. The only dispute is in respect of agriculture between the parties. The only dispute is in respect of agriculture income of Rs.10,85,690/ income of Rs.10,85,690/-. The lower authorities has rejected the The lower authorities has rejected the claim of agriculture income mainly on the ground that assessee claim of agriculture income mainly on the ground that assessee claim of agriculture income mainly on the ground that assessee failed to substantiate his claim by way of documentary evidence. failed to substantiate his claim by way of documentary evidence. failed to substantiate his claim by way of documentary evidence. Before the Ld. CIT(A), the assessee submitted that agriculture Before the Ld. CIT(A), the assessee submitted that agriculture Before the Ld. CIT(A), the assessee submitted that agriculture produce were sold on cash produce were sold on cash in local market and it was difficult to get in local market and it was difficult to get copy of bills or vouchers. copy of bills or vouchers.

4.1 The Ld. counsel for the assessee referred to Paper Book page The Ld. counsel for the assessee referred to Paper Book page The Ld. counsel for the assessee referred to Paper Book page 13 and submitted the land holding and 13 and submitted the land holding and deatil of crop/ crop/trees on said land as under:

Vyankatesh Kulkarni 2014-15 Vyankatesh Kulkarni Crop Area (acre) No of Trees No of Trees Jambul 2.62 1500 Rice 1.1 Sonchafa 7 2600 Mango 2 1340 4.2 Further, the Ld. counsel for the assessee referred to Paper Further, the Ld. counsel for the assessee referred to Paper Further, the Ld. counsel for the assessee referred to Paper Book page 14 and submitted that assessee was showing regular Book page 14 and submitted that assessee was showing regular Book page 14 and submitted that assessee was showing regular agricultural income in the return of income filed agricultural income in the return of income filed from assessment from assessment year 2012-13 to assessment year 2019 13 to assessment year 2019-2020. The r 2020. The relevant detail is reproduced as under: reproduced as under:

Sr. No. Sr. No. A.Y. Agricultural Income Agricultural Income

4.4 He submitted that in He submitted that in assessment year 2017 assessment year 2017-18 also the Tribunal in Tribunal in has deleted the addition of Mum/2025 has deleted the addition of Rs.9,35,860/- made u/s 68 treating the agricultural income as un made u/s 68 treating the agricultural income as un made u/s 68 treating the agricultural income as un explained cash credit explained cash credit. The Ld. counsel for the assessee also filed a . The Ld. counsel for the assessee also filed a chart of the land holding chart of the land holding given on lease as well as used for given on lease as well as used for cultivation. In the said chart 8.68 hectares of the land has been cultivation. In the said chart 8.68 hectares of the land has been cultivation. In the said chart 8.68 hectares of the land has been shown as given on lease and 15.07 hectare has been shown as used lease and 15.07 hectare has been shown as used lease and 15.07 hectare has been shown as used for cultivation. The assessee also filed a detail of the capital account for cultivation. The assessee also filed a detail of the capital account for cultivation. The assessee also filed a detail of the capital account wherein income from lease rent of Rs.4,31,544/ rom lease rent of Rs.4,31,544/- and agriculture income of Rs.10,85,690/ income of Rs.10,85,690/- has been shown. The Ld. counsel further has been shown. The Ld. counsel further referred to Paper Book page 15 to 26 which are 7/12 extract of referred to Paper Book page 15 to 26 which are 7/12 extract of referred to Paper Book page 15 to 26 which are 7/12 extract of agriculture land in the name of the assessee wherein agriculture agriculture land in the name of the assessee wherein agriculture agriculture land in the name of the assessee wherein agriculture produce particularly larly ‘Bhat’(rice); Amba(Mango) etc. have (Mango) etc. have been reported. Further, the ld. counsel referred to Paper Book page 27 to reported. Further, the ld. counsel referred to Paper Book page 27 to reported. Further, the ld. counsel referred to Paper Book page 27 to 33 which are receipt of payment issued by the purchase parties for 33 which are receipt of payment issued by the purchase parties for 33 which are receipt of payment issued by the purchase parties for the agriculture produce. the agriculture produce. l for the assessee 4.5 In view of above submission, the Ld. counse In view of above submission, the Ld. counsel for the assessee submitted that agricultural income reported by the assessee might submitted that agricultural income reported by the assessee might submitted that agricultural income reported by the assessee might be accepted and addition made u/s 68 of the Act might be deleted. be accepted and addition made u/s 68 of the Act might be deleted. be accepted and addition made u/s 68 of the Act might be deleted.

6.1 In the assessment year 2017 In the assessment year 2017-18, the agriculture income was 18, the agriculture income was comprised of lease rent of Rs.4,31,544/ comprised of lease rent of Rs.4,31,544/- and agriculture income and agriculture income from produce of Rs.9,35,860/ 9,35,860/-. The Tribunal (supra) . The Tribunal (supra) in AY 2017-18 after considering the submission of the assessee allowed claim of after considering the submission of the assessee allow after considering the submission of the assessee allow agriculture income of Rxs.9,35,860/ agriculture income of Rxs.9,35,860/- from sale of agriculture from sale of agriculture produce observing as under: produce observing as under:

“11.I have considered the rival contentions of both t 11.I have considered the rival contentions of both the parties and he parties and gone through the orders of lower authorities. I find that in the gone through the orders of lower authorities. I find that in the gone through the orders of lower authorities. I find that in the computation of income, the assessee has claimed agriculture income computation of income, the assessee has claimed agriculture income computation of income, the assessee has claimed agriculture income of Rs. 13,67,404/ of Rs. 13,67,404/- out of which the assessee has shown rent out of which the assessee has shown rent against his land pooled in AOP of Rs. 44,31,544/ against his land pooled in AOP of Rs. 44,31,544/- and remaining of and remaining of Rs. 9,35,860/ Rs. 9,35,860/- was from agriculture produce. The assessing officer was from agriculture produce. The assessing officer treated the entire receipt as income from other sources for the want treated the entire receipt as income from other sources for the want treated the entire receipt as income from other sources for the want of proper evidence. Before Id. CIT(A), the assessee furnished certain of proper evidence. Before Id. CIT(A), the assessee furnished certain of proper evidence. Before Id. CIT(A), the assessee furnished certain details of agriculture activitie details of agriculture activities and income and expenditure of s and income and expenditure of agriculture activities. The assessee also claimed that he is into agriculture activities. The assessee also claimed that he is into agriculture activities. The assessee also claimed that he is into organic farming, hence no expenditure incurred on fertilizers and organic farming, hence no expenditure incurred on fertilizers and organic farming, hence no expenditure incurred on fertilizers and pesticides were very minimum. Maintaining of details in agriculture pesticides were very minimum. Maintaining of details in agriculture pesticides were very minimum. Maintaining of details in agriculture activities is difficult. activities is difficult. The assessee furnished details of AOP. The Id. The assessee furnished details of AOP. The Id. CIT(A) accepted the fact that assessee is engaged in agriculture CIT(A) accepted the fact that assessee is engaged in agriculture CIT(A) accepted the fact that assessee is engaged in agriculture activities but the same is not proved by documentary evidence. activities but the same is not proved by documentary evidence. activities but the same is not proved by documentary evidence. Before Tribunal, the assessee has filed computation of income of Before Tribunal, the assessee has filed computation of income of Before Tribunal, the assessee has filed computation of income of Manas Krushi Fa Manas Krushi Farm (AOP), financial statement of Manas Krushi rm (AOP), financial statement of Manas Krushi Farm along with memorandum of association and its ITR for A.Y. Farm along with memorandum of association and its ITR for A.Y. Farm along with memorandum of association and its ITR for A.Y. 2017-18. The assessee has certified that all such evidences were 18. The assessee has certified that all such evidences were 18. The assessee has certified that all such evidences were furnished before lower authorities. However, the extract of furnished before lower authorities. However, the extract of furnished before lower authorities. However, the extract of agriculture land is fi agriculture land is filed for the first time before Tribunal and the led for the first time before Tribunal and the assessee has fairly accepted on index of paper book that such assessee has fairly accepted on index of paper book that such assessee has fairly accepted on index of paper book that such extracts were not furnished before lower authorities. The extract of extracts were not furnished before lower authorities. The extract of extracts were not furnished before lower authorities. The extract of 7/12 is record of agriculture holding is maintained by State 7/12 is record of agriculture holding is maintained by State 7/12 is record of agriculture holding is maintained by State Government. The a Government. The assessee has furnished copy of certified copy of ssessee has furnished copy of certified copy of such evidence. The assessee has shown agriculture holding of such evidence. The assessee has shown agriculture holding of such evidence. The assessee has shown agriculture holding of village Sazivali Taluka, Sahapur District Thane wherein the village Sazivali Taluka, Sahapur District Thane wherein the village Sazivali Taluka, Sahapur District Thane wherein the assessee owned 8.39 hector of land. I find that agriculture holding assessee owned 8.39 hector of land. I find that agriculture holding assessee owned 8.39 hector of land. I find that agriculture holding on activities is no on activities is not disputed by Id. CIT(A). No doubt that all such t disputed by Id. CIT(A). No doubt that all such documents were not furnished before lower authorities still I find documents were not furnished before lower authorities still I find documents were not furnished before lower authorities still I find that such evidence cannot that such evidence cannot be disputed as has been maintained has been maintained by State Government, thus, keeping in view the size and location of by State Government, thus, keeping in view the size and location of by State Government, thus, keeping in view the size and location of the agriculture land in Taluka Sahapur District Thane, therefore, the agriculture land in Taluka Sahapur District Thane, therefore, the agriculture land in Taluka Sahapur District Thane, therefore, the agriculture receipt of Rs. 9,35,860/ agriculture receipt of Rs. 9,35,860/- is not abnormal and is is not abnormal and is acceptable. So far as other receipt of Rs. 4,31,544/ acceptable. So far as other receipt of Rs. 4,31,544/- received from Manas Krushi Farm is concerned, I find that there is no suffi Manas Krushi Farm is concerned, I find that there is no suffi Manas Krushi Farm is concerned, I find that there is no sufficient evidence to convince me about the rental income received from such evidence to convince me about the rental income received from such evidence to convince me about the rental income received from such AOP as neither the memorandum of AOP was furnished nor other AOP as neither the memorandum of AOP was furnished nor other AOP as neither the memorandum of AOP was furnished nor other evidence to substantiate such fact was filed before lower evidence to substantiate such fact was filed before lower evidence to substantiate such fact was filed before lower authorities. Therefore, action of assessing officer for treatmen authorities. Therefore, action of assessing officer for treatmen authorities. Therefore, action of assessing officer for treatment of Rs. 4,31,544/- in treating as income from other sources is upheld and in treating as income from other sources is upheld and in treating as income from other sources is upheld and remaining addition of Rs. 9,35,860/ remaining addition of Rs. 9,35,860/- is deleted. In the result, this is deleted. In the result, this ground of appeal is ground of appeal is partly allowed.”

18. (supra) has accepted 6.2 Thus, the Trib he Tribunal in A.Y. 2017-18 (supra) has agricultural income of agricultural income of ₹9,35,860/- from sale of produce, noting that from sale of produce, noting that the assessee possessed substantial landholdings, 7/12 extracts the assessee possessed substantial landholdings, 7/12 extracts the assessee possessed substantial landholdings, 7/12 extracts were Government records, and the quantum of income was not were Government records, and the quantum of income was not were Government records, and the quantum of income was not abnormal given the nature of cultivation. Having regard to the abnormal given the nature of cultivation. Having regard abnormal given the nature of cultivation. Having regard consistency of disclosures, acceptance by the Revenue in other consistency of disclosures, acceptance by the Revenue in other consistency of disclosures, acceptance by the Revenue in other years, and more importantly the binding precedent in assessee’s years, and more importantly the binding precedent in assessee’s years, and more importantly the binding precedent in assessee’s own case by the Co- -ordinate Bench (supra), we are persuaded to ordinate Bench (supra), we are persuaded to hold that the agricultural income of ₹10,85,690/- cannot b hold that the agricultural income of cannot be treated as unexplained cash credit. Accordingly, the order of the Ld. CIT(A) as unexplained cash credit. Accordingly, the order of the Ld. CIT(A) as unexplained cash credit. Accordingly, the order of the Ld. CIT(A) sustaining the addition is set aside and the addition is deleted. The sustaining the addition is set aside and the addition sustaining the addition is set aside and the addition ground no. 1 of the appeal is accordingly allowed. f the appeal is accordingly allowed.

Grounds Nos. 2 to 4: Addition of Grounds Nos. 2 to 4: Addition of ₹13,33,16,700/ 13,33,16,700/- u/s 56(2)(vii)(c) (Allotment of shares) 56(2)(vii)(c) (Allotment of shares)

7.1 The brief facts qua the issue in dispute are that the Assessing The brief facts qua the issue in dispute are that the Assessing The brief facts qua the issue in dispute are that the Assessing Officer noticed increase in its capital Officer noticed increase in its capital of assessee during the year of assessee during the year under consideration under consideration by Rs.13,33,16,700/-. The Ass . The Assessing Officer noted that assessee was a member of a co noted that assessee was a member of a co-operative society namely operative society namely Manas Group Industrial Sankul Ltd. (hereinafter shall be referred Manas Group Industrial Sankul Ltd. (hereinafter shall be referred Manas Group Industrial Sankul Ltd. (hereinafter shall be referred as ‘Society’). During the year under consideration, the said society as ‘Society’). During the year under consideration, the said society as ‘Society’). During the year under consideration, the said society was converted into a joint stock company was converted into a joint stock company namely Manas Kudus namely Manas Kudus Industriual Sankul Pvt. Ltd. Before converting the society into Industriual Sankul Pvt. Ltd. Before converting the society into Industriual Sankul Pvt. Ltd. Before converting the society into company the assessee carried out revaluation of its underlying company the assessee carried out revaluation of its underlying company the assessee carried out revaluation of its underlying assets including land land. After said revaluation, society was converted After said revaluation, society was converted into private limited company and post t into private limited company and post the conversion the assessee he conversion the assessee was allotted shares against said re was allotted shares against said re-valued reserve. According to the . According to the Assessing Officer since the assessee received shares of private Assessing Officer since the assessee received shares of private Assessing Officer since the assessee received shares of private limited company without paying any consideration, the Assessing limited company without paying any consideration, the Assessing limited company without paying any consideration, the Assessing Officer treated this event as ta Officer treated this event as taxable u/s 56(2)(vii)(c) of the Act. xable u/s 56(2)(vii)(c) of the Act.

7.2 Before the Ld. CIT(A), the assessee contested that he had not Before the Ld. CIT(A), the assessee contested that he had not Before the Ld. CIT(A), the assessee contested that he had not infused any additional fund as capital which had resulted into any additional fund as capital which had resulted into any additional fund as capital which had resulted into increase in capital. The assessee filed a copy of the resolution increase in capital. The assessee filed a copy of the resolution increase in capital. The assessee filed a copy of the resolution passed by the society, th the society, the documents filed with ROC for allotment e documents filed with ROC for allotment of the shares, copy of the order issued by District Registrar of Co- of the shares, copy of the order issued by District Registrar of Co of the shares, copy of the order issued by District Registrar of Co operative Society and other documents. The Ld. CIT(A) forwarded operative Society and other documents. The Ld. CIT(A) forwarded operative Society and other documents. The Ld. CIT(A) forwarded those documents to the Assessing Officer and called for a remand those documents to the Assessing Officer and called for a remand those documents to the Assessing Officer and called for a remand report. In report. In the remand the rem and report, report, the the Assessing Assessing Officer Officer also also acknowledged that there were no additional funds being invested by acknowledged that there were no additional funds being invest acknowledged that there were no additional funds being invest the assessee for issuance of shares. The extract of the remand the assessee for issuance of shares. The extract of the remand the assessee for issuance of shares. The extract of the remand report mentioned in the impugned appellate order is reproduced as report mentioned in the impugned appellate order is reproduced as report mentioned in the impugned appellate order is reproduced as under:

“As As As per per per remand remand remand report, report, report, Society Society Society had had had paid up paid paid up up capital capital of capital of of Rs.1,28,40,600/ Rs.1,28,40,600/- consisting of 1,28,046 shares of 100 each fully consisting of 1,28,046 shares of 100 each fully paid up. Further the Co paid up. Further the Co-operative society made the revaluation of operative society made the revaluation of land on 30.08.2013. As per revaluation, the fair market value of land on 30.08.2013. As per revaluation, the fair market value of land on 30.08.2013. As per revaluation, the fair market value of land was Rs. 73,18,28,206/ s Rs. 73,18,28,206/-. This fair market value of Rs. . This fair market value of Rs. 73,18,28,206/ 73,18,28,206/- included the land development expenses of Rs. included the land development expenses of Rs. 19,86,75,058/ 19,86,75,058/-. Therefore, the upward valuation of the land was . Therefore, the upward valuation of the land was taken at Rs. 53,31,53,148/ taken at Rs. 53,31,53,148/-. Now, the Cooperative society issued . Now, the Cooperative society issued additional sha additional shares to its members during FY 2013- -14. The total number of shares becomes 54,57,744 of Rs. 100 each including the number of shares becomes 54,57,744 of Rs. 100 each including the number of shares becomes 54,57,744 of Rs. 100 each including the initially issued shares. Further the revalued land is shown of Rs. initially issued shares. Further the revalued land is shown of Rs. initially issued shares. Further the revalued land is shown of Rs.

74,03,19,564/ 74,03,19,564/- in the balance sheet of Society on 31.03.2014. in the balance sheet of Society on 31.03.2014. Afterwards, So Afterwards, Society was converted into ManasKudus Industrial ciety was converted into ManasKudus Industrial SankulPvt Ltd (MKISPL) on 23.12.2014 under Indian Companies Act SankulPvt Ltd (MKISPL) on 23.12.2014 under Indian Companies Act SankulPvt Ltd (MKISPL) on 23.12.2014 under Indian Companies Act 2013.All the shares of members of Co 2013.All the shares of members of Co-operative society namely operative society namely "MCOISL" was transferred into converted Pvt. Ltd company namely "MCOISL" was transferred into converted Pvt. Ltd company namely "MCOISL" was transferred into converted Pvt. Ltd company namely "MKISPL". The share "MKISPL". The shares of the Pvt. Ltd. company were same as it was s of the Pvt. Ltd. company were same as it was in Co-operative operative society.” 7.3 After considering the submission of the assessee, the Ld. After considering the submission of the assessee, the Ld. After considering the submission of the assessee, the Ld. CIT(A) rejected the contention observing as under: CIT(A) rejected the contention observing as under:

“The contention of the appellant are considered that no fresh funds The contention of the appellant are considered that no fresh funds The contention of the appellant are considered that no fresh funds are being infused for issuance of shares but at the same time, since e being infused for issuance of shares but at the same time, since e being infused for issuance of shares but at the same time, since the appellant has credited said revaluation gain to his capital, the the appellant has credited said revaluation gain to his capital, the the appellant has credited said revaluation gain to his capital, the taxability of said event cannot be ignored. in the present case, credit taxability of said event cannot be ignored. in the present case, credit taxability of said event cannot be ignored. in the present case, credit of revaluation gain to shareholders' capital acc of revaluation gain to shareholders' capital accounts can be said to ounts can be said to be in effect distribution of the capital assets valued at their fair be in effect distribution of the capital assets valued at their fair be in effect distribution of the capital assets valued at their fair market value (FMV).the shareholders' capital accounts stood market value (FMV).the shareholders' capital accounts stood market value (FMV).the shareholders' capital accounts stood enhanced upon revaluation, which became available for disposalin enhanced upon revaluation, which became available for disposalin enhanced upon revaluation, which became available for disposalin open market by way of sale of shares at m open market by way of sale of shares at much higher price than its uch higher price than its original cost incurred by the appellant. original cost incurred by the appellant. Moreover, in case of newly formed company the appellant had Moreover, in case of newly formed company the appellant had Moreover, in case of newly formed company the appellant had received shares which were equivalent to enhanced capital amount received shares which were equivalent to enhanced capital amount received shares which were equivalent to enhanced capital amount appearing in balance sheet of the Society. Said shares are freel appearing in balance sheet of the Society. Said shares are freel appearing in balance sheet of the Society. Said shares are freely transferable and being issued to appellant without consideration or transferable and being issued to appellant without consideration or transferable and being issued to appellant without consideration or at consideration which is equivalent to amount originally invested at consideration which is equivalent to amount originally invested at consideration which is equivalent to amount originally invested by the appellant as shareholder of Society. In other words, the by the appellant as shareholder of Society. In other words, the by the appellant as shareholder of Society. In other words, the appellant received shares of much higher value against appellant received shares of much higher value against appellant received shares of much higher value against the meager consideration (i.e. shares held in Society). Thus, the provisions of consideration (i.e. shares held in Society). Thus, the provisions of consideration (i.e. shares held in Society). Thus, the provisions of Section 56(2)(vii) (c) are very well attracted in the impugned case. Section 56(2)(vii) (c) are very well attracted in the impugned case. Section 56(2)(vii) (c) are very well attracted in the impugned case. The Ld. AO had already carried out addition on account of receipt of The Ld. AO had already carried out addition on account of receipt of The Ld. AO had already carried out addition on account of receipt of shares without consideration, the same shares without consideration, the same stands confirmed in the stands confirmed in the hands of the appellant.” 7.4 Thus the Ld. CIT(A) concluded mainly for the reason that there Thus the Ld. CIT(A) concluded mainly for the reason that there Thus the Ld. CIT(A) concluded mainly for the reason that there is an increase in capital without any consideration or in other is an increase in capital without any consideration is an increase in capital without any consideration words the assessee received shares of much higher value against words the assessee received shares of much higher value against words the assessee received shares of much higher value against the meagre consideration. consideration.

7.5 Before us, the Ld. counsel for the assessee made two fold Before us, the Ld. counsel for the assessee made two fold Before us, the Ld. counsel for the assessee made two fold arguments. Firstly, he submitted that revaluation of the land was arguments. Firstly, he submitted that revaluation of the land was arguments. Firstly, he submitted that revaluation of the land was carried out by the society in financial year 2013 carried out by the society in financial year 2013-14 corresponding 14 corresponding to assessment year 2014 to assessment year 2014-15 and accordingly the value of share value of share of the assessee in society was increase society was increased. In the assessment year under . In the assessment year under consideration only society has been converted into a private limited consideration only society has been converted into a private limited consideration only society has been converted into a private limited company and corresponding to the corresponding to the value of share held in the society held in the society has been issued to all the memb been issued to all the members in the form of shares in the form of shares. According to the Ld. counsel therefore event of issue of to the Ld. counsel therefore event of issue of increase in value of increase in value of share of the members the members of society including assessee had happened including assessee had happened in assessment year 2014 in assessment year 2014-15 and not in the year under 15 and not in the year under consideration, therefore, the Asse consideration, therefore, the Assessing Officer have no jurisdiction ssing Officer have no jurisdiction to made addition in the year under consideration. Secondly, the Ld. to made addition in the year under consideration. Secondly, the Ld. to made addition in the year under consideration. Secondly, the Ld. counsel for the assessee submitted that the shares issued to the counsel for the assessee submitted that the shares issued to the counsel for the assessee submitted that the shares issued to the assessee are in the form of bonus shares paid without any assessee are in the form of bonus shares paid without any assessee are in the form of bonus shares paid without any consideration which is not tax consideration which is not taxable in terms of section 56(2)(vii)(c) of able in terms of section 56(2)(vii)(c) of the Act in view of decision of the Co the Act in view of decision of the Co-ordinate Bench of the Banglore ordinate Bench of the Banglore Tribunal in the case of DCIT v Tribunal in the case of DCIT v. Dr. Rajan Pai [48 ITR (T) 170] which . Dr. Rajan Pai [48 ITR (T) 170] which has been further upheld by the Hon’ble Karnataka High Court in has been further upheld by the Hon’ble Karnataka High Court in has been further upheld by the Hon’ble Karnataka High Court in the case of PCIT v. Dr. Ranjan Pai [431 ITR (T) 250]. Further, the CIT v. Dr. Ranjan Pai [431 ITR (T) 250]. Further, the CIT v. Dr. Ranjan Pai [431 ITR (T) 250]. Further, the Ld. counsel relied on the decision of the Co Ld. counsel relied on the decision of the Co-ordinate Bench of the ordinate Bench of the Delhi Tribunal in the case of DCIT v. Smt Mamta Bhandari [178 ITD Delhi Tribunal in the case of DCIT v. Smt Mamta Bhandari [178 ITD Delhi Tribunal in the case of DCIT v. Smt Mamta Bhandari [178 ITD 89] and decision in the case of JCIT v. Bhanu Chopra [195 ITD 89] and decision in the case of JCIT v. Bhanu Chopra [195 ITD 89] and decision in the case of JCIT v. Bhanu Chopra [195 ITD 767].

7.6 On the contrary, the Ld. DR relied on the order of the lower On the contrary, the Ld. DR relied on the order of the lower On the contrary, the Ld. DR relied on the order of the lower authorities.

7.7 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The issue in dispute is in respect . The issue in dispute is in respect of increase in the capital reported by the as of increase in the capital reported by the assessee amounting to sessee amounting to Rs.13,33,16,700/-. The assessee explained that said capital has . The assessee explained that said capital has . The assessee explained that said capital has increase due to revaluation of the assets increase due to revaluation of the assets in previous year in previous year corresponding to AY 2014 corresponding to AY 2014-15 by the society in which he was by the society in which he was member , which got converted to a private limited comp , which got converted to a private limited comp , which got converted to a private limited company in the year under consideration year under consideration and further distribution of the revaluation and further distribution of the revaluation reserve to its shareholders shareholders by way of additional shares. This event by way of additional shares. This event of revaluation of assets of revaluation of assets happened in financial year corresponding to happened in financial year corresponding to assessment year 2014 assessment year 2014-15. In the year under consideration, the said der consideration, the said society has been converted society has been converted into private limited companies private limited companies. The shares of the private limited com shares of the private limited company corresponding to the share pany corresponding to the share held in society had been issued to all members including to the been issued to all members including to the assessee. Thereafter additional sha Thereafter additional shares have been were issued to the were issued to the assessee in financial year corresponding to assessment year under assessee in financial year corresponding to assessment year assessee in financial year corresponding to assessment year consideration, therefore no addition could be made in respect of therefore no addition could be made in respect of therefore no addition could be made in respect of receipt of additional shares receipt of additional shares received without any consideration in without any consideration in the year under considera the year under consideration. Further, we find that additional Further, we find that additional shares have been issued merely on account of distribution of shares have been issued merely on account of shares have been issued merely on account of reserve already available with the company reserve already available with the company. Though the . Though the value of share held by the assessee in earlier society has increased which held by the assessee in earlier society has increased which held by the assessee in earlier society has increased which ultimately got converted converted into additional shares of the company. shares of the company. Since the additional shares additional shares of the company have been received been received by the assessee on account of on account of distribution of reserve available reserve available in company, invoking of section 56(2)(vii)(c) of the Act is not applicable invoking of section 56(2)(vii)(c) of the Act is not applicable invoking of section 56(2)(vii)(c) of the Act is not applicable over the facts of the case. Moreover, such additional shares are in over the facts of the case. Moreover, such additional shares over the facts of the case. Moreover, such additional shares the form of bonus shares bonus shares, hence, also same are not taxable in the also same are not taxable in the hands of the assessee hands of the assessee.

7.8 Applying the ratio of the afores Applying the ratio of the aforesaid precedents relied upon by aid precedents relied upon by the assessee, we find merit in the contention of the assessee. It is we find merit in the contention of the assessee. It is we find merit in the contention of the assessee. It is well-settled that revaluation of assets and consequent issuance of settled that revaluation of assets and consequent issuance of settled that revaluation of assets and consequent issuance of additional shares does not result in any real accretion of wealth to additional shares does not result in any real accretion of wealth to additional shares does not result in any real accretion of wealth to the shareholder but i the shareholder but is merely a case of capital reallocation. The s merely a case of capital reallocation. The Hon’ble Karnataka High Court in Hon’ble Karnataka High Court in PCIT v. Dr. Ranjan Pai PCIT v. Dr. Ranjan Pai [431 ITR 250] affirmed the view of the Bangalore Tribunal that bonus shares 250] affirmed the view of the Bangalore Tribunal that bonus shares 250] affirmed the view of the Bangalore Tribunal that bonus shares or shares issued consequent upon capitalization of reserves cannot or shares issued consequent upon capitalization of reserves cannot or shares issued consequent upon capitalization of reserves cannot be regarded as “property received without consideration” within the s “property received without consideration” within the s “property received without consideration” within the meaning of section 56(2)(vii)(c) of the Act. The Court noted that in meaning of section 56(2)(vii)(c) of the Act. The Court noted that in meaning of section 56(2)(vii)(c) of the Act. The Court noted that in such cases the intrinsic value of the shareholding remains such cases the intrinsic value of the shareholding remains such cases the intrinsic value of the shareholding remains unchanged and there is no element of gratuitous transfer which unchanged and there is no element of gratuitous transfer which unchanged and there is no element of gratuitous transfer which could attract the charging provision. act the charging provision.

7.9 Similarly, the Delhi Tribunal in Similarly, the Delhi Tribunal in DCIT v. Smt. Mamta Bhandari DCIT v. Smt. Mamta Bhandari [178 ITD 89] and in [178 ITD 89] and in JCIT v. Bhanu Chopra [195 ITD 767] held that [195 ITD 767] held that section 56(2)(vii)(c) is designed to bring to tax real and substantive section 56(2)(vii)(c) is designed to bring to tax real and substantive section 56(2)(vii)(c) is designed to bring to tax real and substantive receipts of property at les receipts of property at less than fair value, and not cases where s than fair value, and not cases where shares are allotted in consequence of capitalization of reserves or shares are allotted in consequence of capitalization of reserves or shares are allotted in consequence of capitalization of reserves or conversion of an entity, which are in the nature of internal re- conversion of an entity, which are in the nature of internal re conversion of an entity, which are in the nature of internal re adjustments of capital. adjustments of capital. The relevant part of the decision is The relevant part of the decision is reproduced as under: reproduced as under:

“5. We have considered the rival submissions and do not find any We have considered the rival submissions and do not find any We have considered the rival submissions and do not find any justification to interfere with the Orders of the Ld. CIT(A) in deleting justification to interfere with the Orders of the Ld. CIT(A) in deleting justification to interfere with the Orders of the Ld. CIT(A) in deleting the addition. The Ld. CIT(A) deleted the addition following the the addition. The Ld. CIT(A) deleted the addition following the the addition. The Ld. CIT(A) deleted the addition following the relevant provisions of Law in the light of Order of ITAT, relevant provisions of Law in the light of Order of ITAT, relevant provisions of Law in the light of Order of ITAT, Mumbai Bench in the case of Sudhir Menon (HUF) (supra), in which it was Bench in the case of Sudhir Menon (HUF) (supra), in which it was Bench in the case of Sudhir Menon (HUF) (supra), in which it was held that provisions of Section 56(2)(vii)(c) of the I.T. Act, would not held that provisions of Section 56(2)(vii)(c) of the I.T. Act, would not held that provisions of Section 56(2)(vii)(c) of the I.T. Act, would not apply to bonus shares. The ITAT, Delhi Bench in the case of Meenu apply to bonus shares. The ITAT, Delhi Bench in the case of Meenu apply to bonus shares. The ITAT, Delhi Bench in the case of Meenu Satija (supra), on identical facts quashed t Satija (supra), on identical facts quashed the proceedings under he proceedings under section 263 of the I.T. Act. Therefore, ratio of the decision of the section 263 of the I.T. Act. Therefore, ratio of the decision of the section 263 of the I.T. Act. Therefore, ratio of the decision of the Tribunal in the case of Meenu Satija (supra), squarely apply to the Tribunal in the case of Meenu Satija (supra), squarely apply to the Tribunal in the case of Meenu Satija (supra), squarely apply to the facts and circumstances of the case. Whether this order have been facts and circumstances of the case. Whether this order have been facts and circumstances of the case. Whether this order have been passed under section 263 or meri passed under section 263 or merit would not make any difference. t would not make any difference. The principle of law have been clearly decided in favour of the The principle of law have been clearly decided in favour of the The principle of law have been clearly decided in favour of the assessee on the identical facts. The Tribunal has also relied upon assessee on the identical facts. The Tribunal has also relied upon assessee on the identical facts. The Tribunal has also relied upon the decision of Mumbai Bench in the case of Sudhir Menon (HUF) the decision of Mumbai Bench in the case of Sudhir Menon (HUF) the decision of Mumbai Bench in the case of Sudhir Menon (HUF) (supra), which is relied upon (supra), which is relied upon by the Ld. CIT(A) as well. No infirmity by the Ld. CIT(A) as well. No infirmity have been pointed out in the Order of Ld. CIT(A). The issue is, have been pointed out in the Order of Ld. CIT(A). The issue is, have been pointed out in the Order of Ld. CIT(A). The issue is, therefore, covered by the Order of ITAT, Delhi Bench in the case of therefore, covered by the Order of ITAT, Delhi Bench in the case of therefore, covered by the Order of ITAT, Delhi Bench in the case of Meenu Satija (supra). The Departmental Appeal has no merit and Meenu Satija (supra). The Departmental Appeal has no merit and Meenu Satija (supra). The Departmental Appeal has no merit and the same is accordin the same is accordingly dismissed. 7.10 Further, the Mumbai Tribunal in Further, the Mumbai Tribunal in Sudhir Menon (HUF) v. ACIT Sudhir Menon (HUF) v. ACIT [148 ITD 260] held that allotment of bonus shares does not involve [148 ITD 260] held that allotment of bonus shares does not involve [148 ITD 260] held that allotment of bonus shares does not involve any fresh inflow of property or consideration, as the shareholder’s any fresh inflow of property or consideration, as the shareholder’s any fresh inflow of property or consideration, as the shareholder’s proportionate interest in the company remains identical both before proportionate interest in the company remains identical both before proportionate interest in the company remains identical both before and after the allotment. This principle was reiterated in Meenu and after the allotment. This principle was reiterat and after the allotment. This principle was reiterat Satija v. PCIT [ITA No. 1020/Del/2016], where it was held that [ITA No. 1020/Del/2016], where it was held that [ITA No. 1020/Del/2016], where it was held that section 56(2)(vii)(c) could not be invoked in the case of allotment of section 56(2)(vii)(c) could not be invoked in the case of allotment of section 56(2)(vii)(c) could not be invoked in the case of allotment of bonus shares, since there was no real “receipt” in the hands of the bonus shares, since there was no real “receipt” in the hands of the bonus shares, since there was no real “receipt” in the hands of the shareholder.

7.11 Viewed in this light, th Viewed in this light, the present case falls squarely within the e present case falls squarely within the ratio of the aforesaid judicial authorities. The assessee’s enhanced ratio of the aforesaid judicial authorities. The assessee’s enhanced ratio of the aforesaid judicial authorities. The assessee’s enhanced shareholding was merely the consequence of capitalization of shareholding was merely the consequence of capitalization of shareholding was merely the consequence of capitalization of revaluation reserve and subsequent conversion of the co-operative revaluation reserve and subsequent conversion of the co revaluation reserve and subsequent conversion of the co society into a company, without any inflow of new assets or benefit any, without any inflow of new assets or benefit any, without any inflow of new assets or benefit in real terms. It was a case of substitution of one form of capital in real terms. It was a case of substitution of one form of capital in real terms. It was a case of substitution of one form of capital (membership interest in the society) with another (shareholding in (membership interest in the society) with another (shareholding in (membership interest in the society) with another (shareholding in the company). Thus, the allotment of shares cannot be regarded as the company). Thus, the allotment of shares cannot be regarded as the company). Thus, the allotment of shares cannot be regarded as a transfer of property “without consideration” so as to attract sfer of property “without consideration” so as to attract sfer of property “without consideration” so as to attract section 56(2)(vii)(c).