M/S. ZASH TRADERS,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(1), BENGALURU

ITA 747/BANG/2023Status: DisposedITAT Bangalore29 April 2024AY 2020-2131 pages
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What did the Tribunal hold?

The Tribunal held that the issue concerning the cost of acquisition of bonus shares allotted prior to 01.04.2001, which became the property of the assessee before that date, is to be decided based on the provisions of Section 55(2)(b)(i) of the Act. This section mandates the use of the Fair Market Value (FMV) as on 01.04.2001 as the cost of acquisition. The Tribunal found that the AO's approach of averaging the FMV of Rs. 1338.40 in the ratio of original shares to bonus shares was incorrect. The Tribunal reasoned that Section 55(2)(b)(i) provides a specific method for determining the cost of acquisition for such shares, and this statutory provision cannot be circumvented by averaging or by applying provisions intended for shares acquired on or after 01.04.2001. The Tribunal also noted that the insertion of Section 55(2)(aa)(B)(iiia) by the Finance Act, 1995, which deals with nil cost for certain bonus shares, is made subject to Section 55(2)(b)(i) in cases where the shares became the property before 01.04.2001. Therefore, the FMV as on 01.04.2001 should be applied to the entire holding of 1,80,13,600 shares. The Tribunal did not explicitly address the issue of nil cost for bonus shares acquired after 01.04.2001 or the alternate relief under Section 55(2)(ac) in the provided excerpt.

What were the facts?

The assessee, M/s. Zash Traders, Bangalore, is in appeal against the order of the NFAC dated 03.10.2023 for Assessment Year 2020-21. The dispute concerns the computation of capital gains on the transfer of Wipro shares. The assessee had transferred 6,12,01,078 Wipro shares. The core issue revolves around the cost of acquisition of 1,77,32,150 bonus shares which became the property of the assessee before 01.04.2001. The Assessing Officer (AO) proposed to average the Fair Market Value (FMV) of Rs. 1338.40 as on 01.04.2001 in the ratio of original shares to bonus shares (1:63), resulting in an average price of Rs. 20.91 per share. For bonus shares acquired on or after 01.04.2001 and before 01.02.2018, the AO proposed a nil cost of acquisition.

What were the issues?

The Tribunal had to decide the following questions: 1. Whether the cost of acquisition of bonus shares, which became the property of the assessee before 01.04.2001 and satisfy the conditions of Section 55(2)(b)(i) of the Income Tax Act, 1961 ('the Act'), should be determined as per Section 55(2)(b)(i) or Section 55(2)(aa)(B)(iiia) of the Act, considering that the latter is made subject to the former. Assessee's Contentions: - The cost of acquisition for shares held before 01.04.2001 should be the FMV as on 01.04.2001, i.e., Rs. 1338.40 per share, as per Section 55(2)(b)(i), and this should apply to the entire holding of 1,80,13,600 shares without averaging. The principle of averaging is already incorporated in the quoted price of listed shares. - For shares acquired between 01.04.2001 and 01.02.2018, the cost of acquisition should be the FMV as on 31.01.2018, i.e., Rs. 308.95 per share, as per Section 55(2)(ac), and not nil. - Judicial decisions relied upon by the authorities below are irrelevant post-insertion of Section 55(2)(aa)(iiia) by the Finance Act, 1995. - The impugned order erred in relying on Shashi Parvatha Reddy [2017] 87 Taxmann.com 227. - Alternate relief under Section 55(2)(ac) for bonus shares allotted prior to 01.04.2001 should be considered. Revenue's Contentions: - The judgment records the revenue's participation through its Departmental Representative (DR) but does not explicitly detail its arguments on the specific issues beyond what is reflected in the AO's actions and the grounds of appeal.

Which sections of the Income-tax Act were involved?

Section 55(2)(b)(i),Section 55(2)(aa)(B)(iiia),Section 55(2)(ac),Section 48

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Income Tax Appellate Tribunal, C BENCH: BANGALORE

Before: SHRI CHANDRA POOJARI & SHRI SOUNDARARAJAN K.

Hearing: 15.04.2024Pronounced: 29.04.2024

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of NFAC for the assessment year 2020-21 dated 3.10.2023. The assessee has raised following grounds of appeal:

1.

That the of the authorities below are liable to be quashed for being contrary to the express provisions of law and failing to follow binding precedents relevant in the facts and circumstances of the case.

2.

That te Orders of the authorities below are erroneous having varied the returned income under the head "capital gains" by an amount of Rs. 2373,26,55,269/- and computing an income of Rs. 547,

The order continues below.

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