MADHUR COAL MINING PVT. LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 8(1),, KOLKATA

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined. The Ld. AR stated that there are two issues for consideration; (i) Addition u/s 56(2)(viia) of the Act and (ii) Addition u/s 50D of the Act. As regards the addition u/s 56(2)(viia) of the Act, it was stated that the assessee was allotted shares from the group companies and the consideration paid was lower than the fair market value and the addition had been made on account of the difference between the consideration and the FMV. It was contended that it was a case of allotment of shares and, therefore, the provisions of section 56(2)(viia) of the Act were not applicable. It was also submitted that there are a number of Tribunal decisions in favour of the assessee but the citations were not mentioned. The assessee had also sold shares to the group companies and the Ld. AO applied the provisions of section 50D of the Act. It was contended that only when the sale price was unascertainable, the provisions of section 50D of the Act can be applied.

The Ld. DR, on the other hand, drew our attention to page 22 of the appeal order; specifically para 8.5.6, and stated that the fresh allotments are also covered. He drew our attention to para 8.5.7 of the order as well as the CBDT circular no. 3/2019 dated 29.01.2019. It was contended by the Ld. DR that the memorandum explaining the provisions stated that section 50D of the Act is an anti-abuse provision. Our attention was also drawn to page 26 para 8.6.8 of the order of the Ld. CIT(A).

We have considered the submissions made. The provisions of section 56(2)(viia) of the Act are reproduced as under: ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. “56. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested,- (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such 31consideration : Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.-For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);].”

The Ld. AO has countered the arguments of the assessee that the provisions of section 56(2)(viia) of the Act were not applicable, with which we are in agreement. The Ld. CIT(A) confirmed the addition made by the Ld. AO after considering the submission of the assessee. The Ld. CIT(A) has gone through the contentions of the assessee and has confirmed the addition by holding as under: “8.5 Grounds of Appeal No. 1: 8.5.1 Vide above ground of appeal, the appellant has challenged the addition of Rs. 13,23,01,000/- made by the AO u/s 56(2)(viia) of the Act on account of purchase of shares at a price lower than their fair market value (FMV). 8.5.2 The appellant submitted that the shares in question were allotted by the issuing companies against subscription to share capital and not ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. acquired from an existing shareholder. It was argued that there was no "transfer" of shares in such a case, as shares do not come into existence until they are allotted. The appellant relied on various judicial pronouncements including Khoday Distilleries Ltd. v. CIT [(2008) 307 ITR 321 (SC)] and Sri Gopal Jalan & Co. v. Calcutta Stock Exchange [(1964) AIR SC 250], to contend that allotment of shares constitutes "creation" and not "transfer", and hence does not fall within the ambit of section 56(2)(viia). The appellant stated that section 56(2)(via) uses specific term 'receives' which is not being defined in the Income Tax Act. Therefore, dictionary meaning of the word is to be taken into consideration. As per advanced law lexicon dictionary, the term 'received' has been defined as "to receive means to get by a transfer, as, to receive a gift, to receive a letter, or to receive money and involves an actual receipt". The taxability for the receiver is triggered on receipt basis. In case of shares, transfer would be regarded as complete upon receipt of physical share certificate. Therefore, receipt of shares can be said to be completed only upon receipt of physical share certificate. The appellant submitted that, for something to be given by the giver there should be some existing property in the hands of the giver. In the case of fresh allotment of shares, such shares allotted to share holder cannot be treated as property of the company as such shares would not have appeared on the assets side of its Balance Sheet either as investment or stock in trade. The appellant also relied on the legislative intent behind insertion of the said provision, arguing that the provision is anti-abuse in nature and is not attracted in case of fresh allotment of shares. 8.5.3 The assessment record shows that the AO invoked section 56(2)(viia) after finding that the appellant company received unlisted shares of closely held companies for a consideration significantly lower than the FMV, as determined in accordance with Rule 11UA. Details of shares allotted to appellant, FMV or shares, purchase price of shares are mentioned in the table below: Name of Fair Market Purchase rate Difference No. shares Amount the Scrip Value of the in Rs. Purchased chargeable to purchased Scrip in Rs. tax u/s below (FMV) (B) 56(2)(viia) (Rs.) FMV(A) (B) Gujarat 100 82 18 48,54,000 8,73,72,000 NRE Energy Resources Ltd. Gaurav 88 83 5 40,79,000 2,03,95,000 Vinimay Pvt Ltd ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. Newage 88 82 6 40,89,000 2,45,34,000 Vinimay Pvt Ltd Total 13,23,01,000 8.5.4 The AO treated the difference amounting to Rs.13,23,01,000/- as income under the head "Income from Other Sources". The AO held that the shares were received for inadequate consideration and the differential between the FMV and actual consideration was taxable under section 56(2)(viia). 8.5.5 During the assessment proceedings, the appellant contended that the shares were acquired through fresh issue and allotment by the investee companies, and hence, there was no transfer from an existing shareholder and since there was no existing property in the form of shares, allotment of fresh shares cannot be treated as receipt of shares in the hands of appellant within the meaning of section 56(2)(viia) of IT Act. However, the AO rejected the contention, stating that the language of the provision is clear, purposive interpretation of provision is not required when the language of the section is very clear and section 56(2)(viia) does not exclude fresh allotment from its scope, and held that the receipt of shares at a value lower than FMV, irrespective of the mode of acquisition, attracts the provisions of section 56(2)(viia). 8.5.6 It is noted that the appellant has furnished audited balance sheets and allotment details of the three companies i.e. Gujarat NRE Energy Resources Ltd, Gaurav Vinimay Pvt Ltd, and Newage Vinimay Pvt Ltd to show that the shares were issued through fresh allotment. The AO has also acknowledged the fact that shares were received by appellant during the previous year under consideration. Now coming to argument of appellant that, fresh issuance of shares are not covered by provisions of section 56(2)(viia), the section is applicable to all the assessees who are in receipt of shares for consideration lesser than FMV. The Legislature consciously refrained from using words like "transfer of shares", intending to cover situations where fresh shares are allotted at a value lower than FMV of the shares. Contention of appellant that as per dictionary definition of received, the item received by 'receiver' should necessarily constitute property of giver in incorrect since definition of 'received as per advanced law dictionary provided by the appellant includes 'receipt of letter' and 'letter in the hands of the sender by no stretch of imagination constitutes property. Letter is something which is created / written just before sending it to the receiver by the sender akin to allotment of shares. Therefore, receipt of shares by a person irrespective of mode of receipt and also irrespective of the fact that they constitute pr-existing property in the hands of giver or not, are covered by provisions of section 56(2)(viia). As per provisions of section 56(2)(viia), ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. shares received by the company if constitute property in the hands of receiving company, it is sufficient. There is no pre condition in the section that they should constitute 'property' by figuring in balance sheet of the company that is allotting shares. 8.5.7 CBDT vide Circular No. 3/2019, dated 29.01.2019, has clarified that Section 56(2)(viia) would apply to fresh issuance of shares. In the circular it is clarified that, the argument that above section would not be applicable in case of fresh issuance of shares is not a correct approach, as it could be subject to abuse, and would be contrary to the express provisions and the legislative intent of Section 56(2)(viia) or similar provisions contained in Section 56(2). Further, the memorandum explaining provisions of Finance Bill 2010 stated that section 56(2)(via) of the Act was introduced as an anti- abuse provision to prevent the practice of transferring shares of a private company for no or in adequate consideration. In the present case, it is an admitted fact that shares were allotted to appellant at a price lower than the fair market value of shares which practice the section wanted to plug. 8.5.8 In Sudhir Memon HUF v. Asstt. CIT [2014] 45 taxmann.com 176, Hon'ble Mumbai tribunal has interpreted the word “Receive” used under section 56 (2) (viia) and held that 'Receipt' is a word or term of wide import and would include the acquisition of the subject matter of receipt by modes other than by way of transfer as well. The scope of the word 'receipt' should not be restricted to the word 'transfer' only. Thus, it was held by the ITAT that Section 56(2)(vii) would be applicable in case of fresh allotment of shares. Hon'ble tribunal opined that giving a restrictive scope of the word "receipt" would be tantamount to reading down the provision of law, which is in consistent with clear intent of law. Relevant portion of decision of Hon'ble ITAT is reproduced as under: "We are completely unimpressed. The argument, attractive on its face, fails miserably the moment the nature of the transaction, i.e., the allotment of the shares (through which the relevant shares stand acquired or received), upon which only the shares come into existence and are received by the allottee thereof, is clarified. The same has been subject to dilation and elucidation by the apex court inter alia in Shree Gopal and Company (supra) and Khoday Distilleries Ltd. (supra) relied upon by the parties themselves before us. As stated explicitly in the former case, a share is a chose in action. A chose in action implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. A share does not exist prior to its allotment, and in that sense comes into existence only on its allotment. Allotment of a share is only the appropriation of the ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. authorized share capital, being un-appropriated, to a particular person. In nutshell, the difference between the issue of a share to a subscriber and a purchase of a share from an existing shareholder is the difference between the creation and transfer of a chose in action (refer pgs.865, 866). How could, therefore, purchase be equated with allotment? In fact, the purchase or transfer implies existence of a property, while the shares, where out of un-appropriated capital, come into existence only on their allotment. It becomes, thus, in the context of the provision, completely irrelevant and of no consequence that the shares in the issuing company are not its property, and that it does not become, therefore, any poorer as a result of the allotment of shares therein. 'Receipt' is a word or term of wide import, and would include acquisition of the subject matter of receipt defined capital assets in the present context, by modes other than by way of transfer as well. We find no reason to limit or restrict the scope of the word 'receipt' in the provision to cases of 'transfer only. Doing so would not only amount to reading down the provision, which the tribunal is even otherwise not competent to, being not a court of law, but reading it in a manner totally inconsistent with the unambiguous language and the clear intent (of the Legislature) conveyed thereby, but also its context as well as the drift of section, in complete violence thereto." 8.5.9 Hon'ble Tribunal in above decision has examined decisions relied on by appellant in its submissions and thereafter came to the conclusion that provisions of section 56(2)(viia) cover cases of fresh allotment of shares like that of appellant. Therefore, addition made by the AO of Rs. 13,23,01,000/- under section 56(2)(viia) is upheld. Accordingly, Ground of Appeal No. 1 is Dismissed.”

We have considered the submissions made and have gone through the order of the Ld. CIT(A). It is difficult to agree with the argument of the Ld. AR that section 56(2)(viia) of the Act applies only for the receipt of share and not for the allotment of share since only on allotment of shares, the shareholder receives the shares and not prior to the alloetmnet. The Ld. CIT(A) has relied upon the decision of Sudhir Memon HUF (supra) in which it has been held that a share does not exist prior to its allotment and the purchase or transfer implies existence of the property and the shares out of un-appropriated capital ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. comes into existence only on their allotment. It has also been held that ‘receipt’ is a word of wide import and would include the acquisition of the subject matter of receipt by modes other than by way of transfer as well and, therefore, there is no reason to limit or restrict the scope of the word 'receipt' in the provision to cases of 'transfer’ only, as doing so would not only amount to reading down the provision, which the Tribunal is even otherwise not competent to do, being not a court of law, but reading it in a manner totally inconsistent with the unambiguous language and the clear intent of the legislature would be in complete violence thereof. We are in agreement with the decision of the Coordinate Bench of the ITAT, Mumbai and see no reason to interfere with the order of the Ld. CIT(A) who has passed a very reasoned order on the facts of the case and, therefore, his order is confirmed and the Ground nos. 1 and 2 of the appeal are dismissed.

Ground nos. 3 & 4 relate to addition of ₹5,24,71,800/- made by the Ld. AO by applying the provisions of section 50D of the Act and confirmed by the Ld. CIT(A) on account of capital gains arising from the transfer of shares of the group companies to the related parties. The Ld. CIT(A) has decided the issue as under: “8.6 Grounds of Appeal No. 2: 8.6.1 Vide above ground of appeal, the appellant has challenged the addition of Rs.5,24,71,800/- made by the AO u/s 50D of the Act, on account of capital gains arising from the transfer of shares of group companies to related parties. 8.6.2 During the course of assessment proceedings, AO noticed that appellant company sold shares of two companies for value below fair market value and admitted loss on sale of shares. Details of shares sold, their sale value, number of shares sold, FMV of shares sold are given in the table below: ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. Name of Fair Market Sale Differe No shares Amount the Scrip Value of the rate nce sold chargeable to sold below Scrip in Rs. in tax u/s 50D FMV(A) (FMV) (B) Rs. (Rs.) Gujarat 100 94 6 16,51,300 99,07,800 NRE Energy Resources Ltd. Gujarat 100 82 18 20,00,000 3,60,00,000 NRE Energy Resources Ltd Gaurav 88 85 3 21,88,000 65,64,000 Vinimay Pvt Ltd Total 5,24,71,800 8.6.3 The AO after noticing that shares are sold at value lower than FMV has invoked provisions of section 50D on the ground that the consideration received or accruing from such transfer was not ascertainable or could not be determined in view of Supreme Court decision in Durga Prasad More. The AO therefore held the fair market value (FMV) of the shares on the date of transfer will be deemed to be the full value of consideration as per provisions of section 50D. He computed capital gain taxable as per provisions of section 50D at Rs 5,24,71,800/-. 8.6.4 During the appeal proceedings, the appellant contended that the actual consideration was determinable and had been disclosed in the return of income, as well as in the table provided in para 4.1 of the assessment order. It was further submitted that the AO was aware of the per-share values and number of shares sold, and hence, the precondition for invoking section 50D i.e. that consideration was not ascertainable did not arise. The appellant also argued that section 50CA, which deals with deemed valuation of unlisted shares where consideration is lower than FMV, was introduced only from A.Y. 2018-19 and could not be applied retrospectively. 8.6.5 I have carefully considered the contentions of the appellant and the facts on record. It is observed that although the appellant has disclosed certain per-share sale values, no supporting documents such as share purchase agreements, sale deeds, independent valuation reports have been furnished either during the assessment or appellate proceedings to substantiate that the consideration disclosed was actually received and represented a fair and arm's length transaction. The transactions involve sale of shares to related parties, which inherently lack transparency and raise legitimate doubt regarding the genuineness of the reported sale values. ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. 8.6.6 Section 50D of the Act provides that where the consideration received or accruing as a result of the transfer of a capital asset is not ascertainable or cannot be determined, the fair market value on the date of transfer shall be deemed to be the full value of consideration. The provision is designed to address cases where the declared consideration either does not reflect the actual transaction value or is incapable of verification. In the instant case, the lack of any contemporaneous evidence to support the consideration declared, combined with the fact that the shares were sold at prices significantly below FMV to related parties, justifies the AO's conclusion that the actual consideration was not ascertainable in terms of section 50D. 8.6.7 Further, the appellant has claimed substantial short-term capital loss on these transactions, despite being a company with negligible business activity and minimal fixed assets. The pattern of transactions, particularly involving shares of group concerns, indicates an arrangement structured to generate artificial losses to offset taxable gains, which cannot be allowed in law. The FMV adopted by the AO was based on credible valuation indicators and was not disputed by the appellant with any contrary evidence or valuation report. 8.6.8 The argument that section 50CA applies prospectively from A.Y. 2018- 19 is irrelevant as the AO has not invoked section 50CA. Section 50CA addresses undervaluation in general, whereas section 50D specifically applies where the consideration itself is not ascertainable and both are introduced as anti-abuse provisions. The AO's application of section 50D is, therefore, consistent with the legal framework applicable to A.Y. 2015-16. 8.6.9 In view of the above discussion, it is held that the addition of Rs.5,24,71,800/-made by the Assessing Officer under the head "Short-Term Capital Gain" by invoking the provisions of section 50D is justified. The appellant has not produced any credible evidence to rebut the findings, of the AO. Accordingly, Ground of Appeal No. 2 is dismissed.”

The Ld. AR could not counter the findings of the Ld. CIT(A) by any cogent reason. Further, the Ld. DR reiterated that this was an anti- abuse provision. Since the Ld. AO has adopted the fair market value of the scrip as worked out by the assessee and the shares were sold to group companies, therefore, the provisions of section 50D of the Act, which are as under, are applicable: “50D. Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.”

Therefore, there is no reason to interfere with the finding of the Ld. CIT(A) and the appeal order is hereby confirmed and ground nos. 3 & 4 are also dismissed.

In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 2nd January, 2026. [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 02.01.2026 Bidhan (Sr. P.S.) ITA No.: 1784/KOL/2025 Assessment Year: 2015-16 Madhur Coal Mining Pvt. Ltd. Copy of the order forwarded to:

CIT(A)-NFAC, Delhi.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order