DCIT, CIRCLE-4(2), NEW DELHI vs. BITS N BYTES SOFT P.LTD, NEW DELHI

$5M tranche (FY 2019- 20) BA India Jul 15, 2019 4,999,998.95 34,36,12,928 Sub-total (approx.) 5M v

During the year under consideration, the Assessee company received share capital in the form of Foreign Direct Investment (FDI) from two non-resident investors, Chalet LLC and BA India, against the allotment of 844 equity shares of Rs 10 each at a premium of Rs 81483.87 per share. The details of the same are as under:- Name No. of Shares Share Premium (INR as per FIRC) Date of Receipt (as per FIRC) BA India 540 4,36,14,344/- 19 th February 2016 3,93,433/- 5th April 2016 Chalet LLC 304 2,47,83,733/- 19th October 2016 Total 844 6,87,72,3867-

The share capital portion received from the aforesaid investors have been accepted to be genuine by the Learned AO. However, with regard to the share premium received from the aforesaid two non-resident investors, the Learned AO concluded that Assessee had not justified the charging of premium at Rs 81483.87 per share and accordingly proceeded to treat the share premium portion of Rs 6,87,72,386/- received from two non- residents supra as unexplained cash credit under section 68 of the Act in the assessment. The Assessee furnished the following documents before the Learned AO in order to prove the three ingredients of section 68 of the Act viz. identity of the investors , credit worthiness of the investors and genuineness of the transactions:- M/s. Bits N Bytes Pvt. Ltd a) Certificate of Incorporation of BA India; b) Share Valuation report justifying the chargeability of premium; c) Shareholders Agreement; d) FIRCs issued by HDFC bank duly mentioning the purpose of remittance; e) Form FC-GPR filed with Reserve Bank of India (RBI) for proof of amount received towards share allotment; f) Form PAS-3 filed with Ministry of Corporate Affairs (MCA) for allotment of shares at the premium; g) Bank statements of BA India for the relevant period; h) Audited financials of BA India for the calendar year 2017; and i) Corporate tax return of BA India for 2016-17. 6. Similar documents were filed in respect of Chalet LLC also by the Assessee before the Learned AO. The filing of these documents before the Learned AO is not disputed by the revenue before us. All these documents are also part of the Paper Book placed on record by the assessee before us. We find that the assessee had also filed its justification for the need to raise funds from the non-resident investors, before the Learned AO. The assessee duly gave its explanation before the Learned AO regarding the non-applicability of provisions of section 56(2)(viib) and section 68 of the Act in respect of amounts received from aforesaid two non-resident investors. It was duly brought to the notice of the lower authorities that the said two non-resident investors had already made investment with the assessee company in earlier years, which had been added by the Learned AO but deleted by the Learned CIT(A). The assessee duly justified the issuance of shares at premium by taking strength of the Share Valuation Report using Discounted Cash Flow (DCF) method by a Chartered Accountant. The assessee also submitted that the share capital and share M/s. Bits N Bytes Pvt. Ltd premium had been received through regular banking channels after due compliance with the relevant provisions of the Foreign Exchange Management Act, 1999 and the RBI guidelines. The Learned CIT(A) even sought for a remand report from the Learned AO after hearing the contentions of the assessee and its written submissions. But the Learned AO chose not to comply with the same and did not furnish the remand report despite several reminders issued by the Learned CITA. 7. We find that the Learned CIT(A) duly appreciated all the relevant documents furnished by the assessee before the Learned AO to prove the three ingredients of Section 68 of the Act by establishing the nature and source of credit of share capital and share premium thereon. The Learned CIT(A) also took cognizance of the fact that the proviso to Section 68 of the Act introduced in the statute with respect from Assessment Year 2013- 14 onwards would not be applicable to the facts of the instant case as the monies have been received from non-resident investors. On due appreciation of all the relevant documents, the Learned CIT(A) categorically held that assessee company had duly proved the identity of the investors, genuineness of the transaction and credit worthiness of the investors beyond reasonable doubt. With these observations, the Learned CIT(A) deleted the addition made by the Learned AO. 8. At the outset, we find that the assessee company had received share capital and share premium from the existing investors i.e. the very same non-resident investors had indeed made investment with the assessee company in the earlier years also. In those years, it was submitted that the addition was made under Section 68 of the Act by the Learned AO which stood deleted by the Learned CIT(A). We find that the assessee had furnished all the relevant documents that could be filed from its side qua the receipt of share capital and share premium in the M/s. Bits N Bytes Pvt. Ltd instant case which are already listed hereinabove. No adverse inference whatsoever was drawn by the Learned AO with regard to those documents. Even the Learned DR before us could not controvert any of those evidences before us. In these circumstances, we do not deem it fit to interfere with the order of the Learned CIT(A) deleting the addition made under Section 68 of the Act. Accordingly, the grounds raised by the revenue are dismissed. 9. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 30/06/2025. - - (C.N. PRASAD) ACCOUNTANT MEMBER