आदेश/ORDER 

Manoj Kumar Aggarwal (Accountant Member)

1.1 Aforesaid appeal by revenue for Assessment Year (AY) 2014-15 arises out of the order of Ld. Commissioner of Income-Tax (Appeals)-21, Mumbai, [in short referred to as ‘CIT(A)’] dated 16/06/2017 in the matter of assessment framed by learned Assessing Officer (AO) u/s 143(3) on 30/12/2016. The revenue has filed revised grounds which read as under:

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1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.42,87,75,000/- to Rs.1,50,87,320/- under section 56(2)(vii)(c)(ii) of the Income-tax Act, without appreciating the fact that the addition was made as income from other sources totalling to Rs.42,87,75,000/-.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition without appreciating the fact that the assessee has failed to discharge its onus of explaining the charging @ Rs.10.85 per share with proper explanations and supporting evidences.

1.2 The assessee has filed cross-objection on following grounds: - 

1. (a) The Id. CIT(A) erred in facts and law in applying the provisions of section 56(2)(vii)(c)(ii) of the Act and confirming the addition to the extent of Rs.1,50,87,320/-.

(b) The Id. CIT(A) erred in facts and law in not appreciating that the appellant had applied for and was allotted shares in right issue only to the extent to which he was entitled to in proportion of his existing-shareholding and therefore section 56(2)(vii)(c)(ii) ought not have been invoked.

(c) The Id. CIT(A) erred facts and law in not appreciating that the appellant had been in fact "allotted" the right shares on creation which cannot be equated to as "received" as envisaged u/s. 56(2)(vii)(c)(ii) of the Act.

(2) Without prejudice and without accepting the applicability of the provisions of section 56(2)(vii)(c)(ii) of the Act, the Id. CIT(A) erred in facts and law in not appreciating that the rise in shareholding of the appellant is substantially due to inaction on part of his relatives to exercise the right issue of shares offered to them and that the addition made to that extent ought to have been excluded from the rigors of section 56(2)(vii)(c)(ii) of the Act.

As evident, the sole subject matter of dispute is addition as made by Ld. AO u/s 56(2)(vii)(c)(ii). The assessee being resident individual is stated to be director and a major shareholder in an entity namely M/s Kennington Fabrics Private Limited (KFPL).

1.3 The Ld. AR as well as Ld. CIT-DR advanced arguments along with written submissions. Reliance has been placed on various case laws. The Ld. AR has submitted that the case is squarely covered in assessee’s favor by the decision of this Tribunal in Sudhir Menon HUF V/s ACIT (45 taxmann.com 176) and various other decisions. The copies of the same have been placed on record. The Ld. CIT-DR, on the other hand, controverted the arguments put forth by Ld. AR.

1.4 We have carefully heard the rival submissions and perused relevant material on record. The judicial pronouncements as cited during the course of hearing have duly been deliberated upon. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.

Assessment Proceedings

2.1 The dispute stems from the fact that the assessee was a director and a major shareholder in an entity namely M/s Kennington Fabrics Private Limited (KFPL). During the year, KFPL offered right issue and the assessee was allotted 3.95 Crores shares of KFPL at face value of Re.1/- each in the right issue. However, it was alleged by Ld. AO that the consideration of Re.1/- per share was less than fair market value (FMV) of shares as calculated in accordance with the provisions of Sec.56(2)(vii)(c)(ii) read with rule 11U & 11UA and therefore, the difference between FMV and the consideration paid by the assessee would be taxable in the hands of the assessee u/s 56(2)(vii).

2.2 The assessee, inter-alia, relied on the decision of Mumba