SAB DEVELOPERS PRIVATE LIMITED,CHANDIGARH vs. INCOME TAX OFFICER, WARD-5(1), CHANDIGARH, CHANDIGARH

The Ld. AR advanced arguments supporting the case of the assessee and stated that the transactions have happened prior to the said provisions coming into force. For the same, our attention has been drawn to various documents as submitted by the assessee to lower authorities. The copy of the same has also been placed on record before us. The Ld. Sr. DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The assessee’s return of income was processed u/s 143(1). However, the case was reopened and notice u/s 148 was issued on 12- 10-2015. The reasons for reopening were furnished to the assessee. It transpired that the assessee purchased 6,45,559 unquoted shares of M/s Bharatnet Technology Ltd. @Re.1/- per share from various persons. However, the market value of such shares as per Net Asset Value (NAV) of investee-company as computed u/r 11UA was approx. Rs.21/- per share. Therefore, Ld. AO formed an opinion that the differential of the two valuation attracted the provisions of Sec. 56(2)(viia) and required addition thereof. 3.2 The assessee refuted the allegations of Ld. AO and stated that the said shares were acquired by the assessee on 10-05-2010 whereas the said provisions of Sec. 56(2)(viia) came into effect only on 01-06-2010. A confirmation certificate from Practicing Company Secretary was placed on record to support the same. As per the provisions of Sec.113 of the Companies Act, the assessee was duly issued endorsed transfer deed and share certificates by Investee Company. Therefore, the assessee holds the ownership of said shares from 10-05-2010 only. The share certificates would be conclusive, authentic and legally registered documents which confirm the date of transfer as 10-05-2010. The copies of share certificates were also furnished to Ld. AO. Further, as required u/s 159 of the Companies Act, all the transfers of shares that has taken place during the year was to be intimated to Registrar of Companies (ROC) while filing the Annual Return which was duly done by M/s Bharatnet Technology Ltd. The certified copy of the duly filed and approved annual return was also furnished to Ld. AO. The said copy would be authentic and conclusive evidence that the shares were transferred on 10-05-2010. 3.3 However, considering the fact that the consideration passed on by the assessee to the buyers during the month of November, 2010, Ld. AO rejected the claim of the assessee by applying the tests of human probabilities. Finally, the differential of Rs.20/- per shares was added u/s 56(2)(viia) which led to impugned addition of Rs.129.11 Lacs in the hands of the assessee. Appellate Proceedings 4. The assessee reiterated that it had furnished share certificates, confirmation from Practicing Company Secretary and copies of Annual Return as filed with Registrar of Companies indicating that the shares were transferred and registered in its name on 10-05-2010. Under Corporate Law, once the shares are transferred and share certificates are issued, the purchasers become the legal owner irrespective of payment timing. It was also emphasized that the consideration could be paid later on as per mutual agreement and business convenience. However, Ld. CIT(A) held that corporate laws filings, although formally correct, do not conclusively establish the actual passing of consideration and beneficial ownership as required u/s 56(2)(viia). Income Tax laws emphasize substance over form and legal documentation could not be used as a shield when the underlying financial transactions indicate a different reality. Finally, the impugned addition was confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 5. From the facts it emerges that in support of the claim that the ownership of the impugned shares stood transferred on 10-05-2010, the assessee had furnished copy of Annual Return duly certified and approved by the Registrar of Companies as well as confirmation certificate form a Practicing Company Secretary certifying that the shares were transferred in favor of the assessee on 10-05-2010. The copies of share certificates were also furnished which had endorsement of 10-05-2010. In law, the transfer of shares, being moveable property, is effectuated / completed by delivery of shares and subsequent endorsement of transfer on the share certificates. Once this is done, the shares get transferred to the transferee for all purposes. Upon such an endorsement, the transferee becomes the absolute owner of shares in law. Whether the consideration has passed before or after the transfer of shares would be immaterial and the same could not negate the legal title of transferee in the said shares. Once the shares certificates are delivered along with transfer deeds, the obligation of transferor under the contract is over and it is to be presumed that he parted with the ownership upon such an action. The transfer of ownership of shares is considered complete when all legal formalities and documentation are duly executed and registered. The same include execution of share transfer deed which is to be submitted to the company along with shares certificates. The company’s board of directors approves the said transfer and updates the same in the register of members. Upon such endorsements, the ownership is legally transferred in favor of the transferee. Any transfer of shares during the year is reported to the ROC in the Annual return. Apparently, the said action of endorsements has duly been completed on 10-05- 2010 which is also evidenced by the certificate of Practicing Company Secretary who is competent enough to give such certification. After endorsement on share certificates, the assessee legally becomes entitled to the benefit of such shares. The endorsement on share certificates is conclusive evidence of transfer of ownership of the shares. When the assessee has duly established the same, it could not be disputed that the transfer has happened on a later date unless some positive evidence to that effect is placed on record. In our considered opinion, the addition could not be made on mere human probabilities. In the present case, the assessee’s claim is backed up by concrete evidence. This being so, the action of lower authorities in sustaining the impugned addition could not be sustained in law. If the date of transfer of shares is taken as 10-05-2010, the same clearly fall before the date on which the provisions of Sec. 56(2)(viia) has come into force. Therefore, the impugned addition is not sustainable in law. We order so. 6. The appeal stand allowed. Order pronounced on 10/11/2025 Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 10/11/2025 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF ASSISTANT REGISTRAR