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Facts
The assessee company received share capital and share premium from non-resident investors. The Assessing Officer treated the share premium as unexplained cash credit under Section 68 of the Income Tax Act. The CIT(A) deleted this addition.
Held
The Tribunal held that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the non-resident investors and the transactions. The CIT(A) had rightly deleted the addition made by the Assessing Officer.
Key Issues
Whether the share premium received from non-residents is unexplained cash credit under Section 68 of the Income Tax Act, when the assessee has provided evidence of identity, creditworthiness, and genuineness of the transaction.
Sections Cited
143(3), 68, 56(2)(viib)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI C.N. PRASAD, JUDICIALMEMBER & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2018-19, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT’, in short] in appeal No. ITBA/NFAC/S/250/2022-23/1047942896(1) dated 12.12.2022 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 12.01.2019 by the Assessing Officer, ACIT, Circle-5(1), Delhi (hereinafter referred to as ‘ld. AO’).
The only issue to be decided in this appeal of the revenue is as to whether the Learned CIT(A) was justified in deleting the addition made by the Learned AO under section 68 of the Act in respect of share premium received from non-residents in the facts and circumstances of the case. Page | 1
We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of developing vehicle tracking systems and providing services in relation there to such as information regarding vehicle health and engine performance. The assessee is targeting the still nascent Business to Consumer (B2C) market for GPS tracking devices and aiming to become a market leader in this space by moving early. The assessee company had gradually expanded its business operations and had sought investments to further aid its growth. Starting from financial year 2015-16, the assessee company has received four rounds of funding from various non-resident investors including BA India (a Mauritian resident) and Chalet LLC ( a US resident). The details of the funding received through received in four rounds are provided in the following table:-
S. Tranche Investor Date of Amount (in Amount (in No. Remittance USD) INR) as per FIRC 1. $300k Brian Dec 23, 2013 99,992.00 61,64,506.80 tranche Acton Chalet Jan 31, 2014 99,992.00 62,09,503.20 LLC Komojo Mar 7, 2014 100,000.00 61,13,000.00 Inc Sub-total (approx.) 300k 2. $2M Chalet Apr 6, 2015 29,995.00 18,65,689.00 tranche (FY LLC 2015- 16) Chalet Apr 6, 2015 119,992.00 74,63,502.40 LLC Chalet Aug 24, 2015 149,992.00 99,44,469.60 LLC Chalet Oct 19, 2016 372,184.00 2,47,83,732.56 LLC Komojo Sep 28, 2015 666,667.00 4,40,06,688.67 Inc BA India Feb 19, 2016 639,038.02.00 4,36,14,344.36 BA India Apr 5, 2016 INR received, No 3,93,433.00 USD amount in FIRC Sub-total (approx.) 2M 3. $2M Chalet Oct 10, 2017 124,992.00 80,99,481.60 tranche (FY LLC 2017- 18) Chalet Nov 1, 2018 975.46 62,000.00 LLC Chalet Jan 18, 2019 200,000.00 1,42,26,000.00 LLC Chalet Jan 30, 2019 472.26 33,313.00 LLC
BA India Feb 5, 2018 INR received, No 6,48,87,885.00 USD amount in FIRC
Sub-total (approx.) 1.3M 4. BA India 4,999,998.95 34,36,12,928 $5M Jul 15, 2019 Sub-total (approx.) 5M tranche (FY v 2019- 20)
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 Share Premium (INR Date of Receipt (as Shares as per FIRC) 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:-
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.
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 Page | 4 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.
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.
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 Page | 5 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.
In the result, the appeal of the revenue is dismissed.