ELIPE DHARMA RAO, J

1. The Revenue has come forward with the present Tax Case Appeal against the order passed by the Income Tax Appellate Tribunal Madras 'D' Bench, dated 16.2.2007 in GTA.No.10/Mds/2004 for the assessment year 1997-1998.

2. The facts in brief are as follows :-

Revenue is the Appellant. Respondent/Assessee is a concern dealing in readymade garments. The assessee had allotted shares at the face value of Rs.100/- to the following persons :-

(a) Shri P. Govindasamy: 10,000 shares valued at Rs.10 lakhs

(b) Shri P. Palanisam: 10,000 shares valued at Rs.10 lakhs

(c) Shri P. Kumarasamy: 10,000 shares valued at Rs.10 lakhs

As per Rule 5 under Schedule 2 of the Gift Tax Act, the value of unquoted shares of the company as on 31.3.1997 worked out to Rs.408.71 per share. Since the assessee had allotted shares to the persons who are interested in the company for inadequate consideration, a notice under Section 16(2) was issued for the deemed gift. However, a Nil return was filed by the assessee on 7.2.2001 and it was stated that allotment of shares of the company does not involve any transfer and for a gift there should be movable or immovable property and there should