The officer has taken the cost of my bonus shares as nil and taxed the whole sale price under s.112A. Does the grandfathered value as on 31 January 2018 not apply to bonus shares?
The Mumbai Tribunal held that it does. Bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which is a special computation code for shares eligible under s.112A, and it prevails over the general rule in s.55(2)(aa) that takes the cost of bonus shares as nil. Taking the cost as nil inside the s.112A regime would tax appreciation up to 31 January 2018 and defeat the grandfathering the section was enacted to preserve. On the facts the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, was adopted as the cost of acquisition. Read all of this against the amendment the order turns on: the Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value for exactly this class of shares - equity shares not listed on 31 January 2018 but listed afterwards, on a sale of unlisted shares under an offer for sale in an initial public offering - and Parliament expressed it to take effect from 1 April 2018, that is retrospectively, from assessment year 2018-19 onwards, which covers the assessment year decided here. Parliament has therefore already legislated over the gap the principal ground relies on. The Tribunal held that insertion substantive rather than clarificatory and so incapable of reaching a transaction already completed; if that characterisation is wrong, the principal ground does not survive. This is a Tribunal decision from October 2025 on a very large sum and its final fate is not known.
Decided by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member; 'D' Bench, Mumbai) on 2025-10-10, reported as ITA No. 980/Mum/2025 (ITAT Mumbai). It bears on section 112A, section 55(2)(ac), section 55(2)(aa), section 2(22B), section 45 of the Income Tax Act 1961, in Capital Gains, How Tax Law Is Read and Assessment & Scrutiny matters.
The library has held nothing at all on s.112A or on s.55(2)(ac), and the nil-cost treatment of bonus shares acquired before 1 February 2018 is a live and recurring assessment position that hits ordinary shareholders as well as promoters. This is the first reasoned treatment of the interaction between the two provisions that could be retrieved. Treat it as a well-argued Tribunal view to be pressed, not as settled law.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2020-21 the assessee, a promoter of Polycab India Ltd., held equity shares of that company including bonus shares issued in an earlier year. In the course of the company's initial public offering he sold 20,71,963 bonus shares through an offer for sale, the shares being transferred from his demat account to the merchant banker's escrow account on 22 and 25 March 2019, the subscription period running from 5 to 9 April 2019, allotment and listing approval following on 15 April 2019 and trading beginning on 16 April 2019. The total consideration was Rs. 111,39,47,912. He returned long-term capital gain on a conservative basis and then claimed, first, that the gain was not chargeable and, alternatively, the benefit of grandfathering. The Assessing Officer rejected both claims, treated the cost of the bonus shares as nil under s.55(2)(aa) and taxed substantially the whole of the proceeds. The CIT(A) upheld that order, holding the offer for sale and the initial public offering to be one continuous and integrated commercial event, treating a later amendment as clarificatory, and holding that bonus shares carry a nil cost.
The appeal was allowed. On the principal ground the Tribunal held that where the shares were unlisted both on 31 January 2018 and on the date of transfer, the computation prescribed for s.112A assets could not be applied and the charge could not survive, and that the Finance (No. 2) Act, 2024 - which inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac) to cover unlisted equity shares sold under an offer for sale included in an initial public offering, and which is expressed to take effect from 1 April 2018 and so to apply from assessment year 2018-19 onwards - made a substantive and not a clarificatory change, which could not be applied to a transaction already completed at a time when the statute contained no such mechanism (paras 40 to 44). As an alternative finding it held that bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which overrides the general rule in s.55(2)(aa), and that the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, constitutes the cost of acquisition (paras 65 to 66 and para 70).
Reading s.55(2)(ac) with the definition of fair market value in s.2(22B), the Tribunal held that fair market value is the price the asset would ordinarily fetch if sold in the open market on the relevant date, and that even without a quoted price a reasonable estimation based on comparable valuation or book value could be adopted; that course preserves the grandfathering covenant while leaving genuine appreciation after 2018 taxable. The maxim generalia specialibus non derogant applied squarely: s.55(2)(aa) is a general rule for all bonus shares, while s.55(2)(ac) is a specific computation mechanism for equity shares subjected to securities transaction tax and eligible under s.112A. Once Parliament created that special regime, its self-contained method of computation governs all such shares, bonus shares included. Compulsorily taking the cost of bonus shares as nil within the s.112A regime would tax pre-2018 appreciation contrary to the grandfathering objective and would render the special provision nugatory (para 65).
Once Parliament created this special regime, its self-contained method of computation necessarily governs all such shares, including bonus shares. If, therefore, the cost of bonus shares were to be compulsorily taken as nil, even under the section 112A regime, the consequence would be to tax pre-2018 appreciation contrary to the grandfathering objective. Such an interpretation would render the special provision nugatory.
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Handle my notice → Ask a CA on WhatsAppThe Mumbai Tribunal held that it does. Bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which is a special computation code for shares eligible under s.112A, and it prevails over the general rule in s.55(2)(aa) that takes the cost of bonus shares as nil. Taking the cost as nil inside the s.112A regime would tax appreciation up to 31 January 2018 and defeat the grandfathering the section was enacted to preserve. On the facts the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, was adopted as the cost of acquisition. Read all of this against the amendment the order turns on: the Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value for exactly this class of shares - equity shares not listed on 31 January 2018 but listed afterwards, on a sale of unlisted shares under an offer for sale in an initial public offering - and Parliament expressed it to take effect from 1 April 2018, that is retrospectively, from assessment year 2018-19 onwards, which covers the assessment year decided here. Parliament has therefore already legislated over the gap the principal ground relies on. The Tribunal held that insertion substantive rather than clarificatory and so incapable of reaching a transaction already completed; if that characterisation is wrong, the principal ground does not survive. This is a Tribunal decision from October 2025 on a very large sum and its final fate is not known. This was decided by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member; 'D' Bench, Mumbai) and bears on section 112A, section 55(2)(ac), section 55(2)(aa), section 2(22B), section 45 of the Income Tax Act 1961. It is reported as ITA No. 980/Mum/2025 (ITAT Mumbai). The library has held nothing at all on s.112A or on s.55(2)(ac), and the nil-cost treatment of bonus shares acquired before 1 February 2018 is a live and recurring assessment position that hits ordinary shareholders as well as promoters. This is the first reasoned treatment of the interaction between the two provisions that could be retrieved. Treat it as a well-argued Tribunal view to be pressed, not as settled law. If it applies to you, the first step is this: Separate the two questions in the order: whether the gain is chargeable at all, and if it is, what the cost of acquisition is. The Tribunal decided the second as an alternative to the first, and the second is the part that will apply to most files.
For assessment year 2020-21 the assessee, a promoter of Polycab India Ltd., held equity shares of that company including bonus shares issued in an earlier year. In the course of the company's initial public offering he sold 20,71,963 bonus shares through an offer for sale, the shares being transferred from his demat account to the merchant banker's escrow account on 22 and 25 March 2019, the subscription period running from 5 to 9 April 2019, allotment and listing approval following on 15 April 2019 and trading beginning on 16 April 2019. The total consideration was Rs. 111,39,47,912. He returned long-term capital gain on a conservative basis and then claimed, first, that the gain was not chargeable and, alternatively, the benefit of grandfathering. The Assessing Officer rejected both claims, treated the cost of the bonus shares as nil under s.55(2)(aa) and taxed substantially the whole of the proceeds. The CIT(A) upheld that order, holding the offer for sale and the initial public offering to be one continuous and integrated commercial event, treating a later amendment as clarificatory, and holding that bonus shares carry a nil cost. The matter was decided on 2025-10-10 by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member; 'D' Bench, Mumbai). On those facts the ITAT held as follows. The appeal was allowed. On the principal ground the Tribunal held that where the shares were unlisted both on 31 January 2018 and on the date of transfer, the computation prescribed for s.112A assets could not be applied and the charge could not survive, and that the Finance (No. 2) Act, 2024 - which inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac) to cover unlisted equity shares sold under an offer for sale included in an initial public offering, and which is expressed to take effect from 1 April 2018 and so to apply from assessment year 2018-19 onwards - made a substantive and not a clarificatory change, which could not be applied to a transaction already completed at a time when the statute contained no such mechanism (paras 40 to 44). As an alternative finding it held that bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which overrides the general rule in s.55(2)(aa), and that the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, constitutes the cost of acquisition (paras 65 to 66 and para 70).
Reading s.55(2)(ac) with the definition of fair market value in s.2(22B), the Tribunal held that fair market value is the price the asset would ordinarily fetch if sold in the open market on the relevant date, and that even without a quoted price a reasonable estimation based on comparable valuation or book value could be adopted; that course preserves the grandfathering covenant while leaving genuine appreciation after 2018 taxable. The maxim generalia specialibus non derogant applied squarely: s.55(2)(aa) is a general rule for all bonus shares, while s.55(2)(ac) is a specific computation mechanism for equity shares subjected to securities transaction tax and eligible under s.112A. Once Parliament created that special regime, its self-contained method of computation governs all such shares, bonus shares included. Compulsorily taking the cost of bonus shares as nil within the s.112A regime would tax pre-2018 appreciation contrary to the grandfathering objective and would render the special provision nugatory (para 65). In the words reproduced by the source cited on this page: "Once Parliament created this special regime, its self-contained method of computation necessarily governs all such shares, including bonus shares. If, therefore, the cost of bonus shares were to be compulsorily taken as nil, even under the section 112A regime, the consequence would be to tax pre-2018 appreciation contrary to the grandfathering objective. Such an interpretation would render the special provision nugatory."
It was decided by the ITAT on 2025-10-10 and is reported as ITA No. 980/Mum/2025 (ITAT Mumbai). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 112A, section 55(2)(ac), section 55(2)(aa), section 2(22B), section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed. On the principal ground the Tribunal held that where the shares were unlisted both on 31 January 2018 and on the date of transfer, the computation prescribed for s.112A assets could not be applied and the charge could not survive, and that the Finance (No. 2) Act, 2024 - which inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac) to cover unlisted equity shares sold under an offer for sale included in an initial public offering, and which is expressed to take effect from 1 April 2018 and so to apply from assessment year 2018-19 onwards - made a substantive and not a clarificatory change, which could not be applied to a transaction already completed at a time when the statute contained no such mechanism (paras 40 to 44). As an alternative finding it held that bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which overrides the general rule in s.55(2)(aa), and that the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, constitutes the cost of acquisition (paras 65 to 66 and para 70). It arises in Capital Gains, How Tax Law Is Read and Assessment & Scrutiny matters, on section 112A, section 55(2)(ac), section 55(2)(aa), section 2(22B), section 45 of the Income Tax Act 1961, and was decided by Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member; 'D' Bench, Mumbai. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read s.55(2)(ac) as it now stands before you argue any of this. The Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii), covering equity shares unlisted on 31 January 2018 and listed later on an offer for sale in an initial public offering, expressly with effect from 1 April 2018. From assessment year 2018-19 the officer will say the machinery gap no longer exists, and the answer turns on whether that insertion is substantive, as this Tribunal held, or clarificatory. Identify the date on which the bonus shares were allotted. The argument only arises where they were held on 31 January 2018 and the s.112A regime applies to the sale. Establish that securities transaction tax was paid on the transfer, and on the acquisition where s.112A requires it, since that is what brings the shares within s.55(2)(ac) at all. For shares quoted on a recognised exchange on 31 January 2018, use the highest quoted price on that date as the statute prescribes. Only where there is no quotation does the valuation argument in this order become necessary. Where no quoted price exists, obtain a valuation report supporting the fair market value as on 31 January 2018 before the assessment is completed, not afterwards; the Tribunal accepted the value from the report the assessee had produced. Tell the client plainly that this is a Tribunal decision of October 2025 on a very large addition, that the Revenue's remedies against it are open, and that the officer is unlikely to accept it without an appeal.
Superseded by amendment. Labelled superseded by amendment because Parliament has already legislated over the gap the principal ground depends on. The Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value as on 31 January 2018 for equity shares that were not listed on that date but were listed afterwards, where the transfer is a sale of unlisted equity shares under an offer for sale included in an initial public offering - precisely the shares in this order - and it is expressed to take effect from 1 April 2018, that is from assessment year 2018-19 onwards, which covers assessment year 2020-21 decided here. The Tribunal set the amendment out at paragraphs 40 to 42 and held at paragraph 44 that supplying an entirely new computational rule for a category of assets previously unaddressed was a substantive change rather than a clarification, and so could not reach a transaction already completed. The principal ground therefore survives only if that characterisation is right, and it is contestable. Note also what clause (AA) supplies: the value it fixes is the cost of acquisition scaled by the Cost Inflation Index for 2017-18, so where the cost of bonus shares is taken as nil the figure the formula yields is nil as well. Do not assume the alternative bonus-share ground is untouched by the amendment; that has to be argued. Validity in the ordinary sense could not be established either: this is an order of 10 October 2025 deleting an addition of over Rs. 100 crore, no appellate treatment of it was located, and given the amount an appeal by the Revenue to the Bombay High Court must be regarded as likely. A coordinate bench of the same Tribunal followed it three weeks later in Inder Jaisinghani v. DCIT, Central Circle-5(2), Mumbai (ITA No. 974/Mum/2025, order dated 31 October 2025, Sandeep Gosain JM and Girish Agrawal AM), on the same Polycab offer-for-sale facts and to the same effect on the Rs. 500 figure; a second order of the same Tribunal is corroboration, not appellate approval. Re-check this entry before relying on it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraphs 59, 60 and 65 were transcribed verbatim from the source page; the rest of the order, which runs to 70 paragraphs, was read in the source page's rendering only. Paragraphs 59 and 60 record the assessee's counsel's contentions and are not the Tribunal's own findings; the Tribunal adopts them in paragraph 65, which is where the quotation below is taken from. The fair market value of Rs. 500 per share is adopted at paragraph 66, not 65, and the appeal is allowed at paragraph 70. The text of the inserted clause (AA) is set out at paragraph 40, its stated effect from 1 April 2018 at paragraph 41, and the Tribunal's reason for treating the insertion as substantive at paragraph 44. The source page renders the order's apostrophes as a different character; quotation marks inside the order have therefore not been reproduced. The figures stated in the facts are as recorded on the source page and were not separately verified against a certified copy. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed. On the principal ground the Tribunal held that where the shares were unlisted both on 31 January 2018 and on the date of transfer, the computation prescribed for s.112A assets could not be applied and the charge could not survive, and that the Finance (No. 2) Act, 2024 - which inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac) to cover unlisted equity shares sold under an offer for sale included in an initial public offering, and which is expressed to take effect from 1 April 2018 and so to apply from assessment year 2018-19 onwards - made a substantive and not a clarificatory change, which could not be applied to a transaction already completed at a time when the statute contained no such mechanism (paras 40 to 44). As an alternative finding it held that bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which overrides the general rule in s.55(2)(aa), and that the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, constitutes the cost of acquisition (paras 65 to 66 and para 70).
TaxSphere, “Ramesh Jaisinghani v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/ramesh-jaisinghani-112a-grandfathering-bonus-shares-cost/ (validity last checked 2026-09-07)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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