Share Capital and Premium from NRI: ITAT Upholds Deletion of Addition u/s 68 as it Received through Proper Channels [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the deletion of addition under Section 68 of IncomeTax Act,1961,on share premium received from non-resident investors by the assessee, a company engaged in vehicle tracking and related services, citing proven identity, creditworthiness, and genuineness of the investment

The Revenue-appellant appealed against the order passed by Commissioner of Income Tax(Appeals)[CIT(A)]. In this case, Bits N Bytes Pvt. Ltd,respondent-assessee,was in the business of developing vehicle tracking systems and offering related services like vehicle health and engine performance updates.

It focused on the emerging B2C market for GPS tracking devices and aimed to grow quickly by entering early. To support its expansion, the company raised four rounds of funding from non-resident investors starting from FY 2015-16, including BA India (Mauritius) and Chalet LLC (USA).

During the year, Bits N Bytes Pvt. Ltd, respondent-assessee, received FDI from two non-resident investors Chalet LLC and BA India through the allotment of 844 equity shares at a premium of ₹81,483.87 per share. While the Assessing Officer (AO) accepted the share capital, the share premium of ₹6.87 crore was treated as unexplained under Section 68, stating that the high premium was not justified.

The assessee submitted various documents, including valuation reports, investor details, bank records, RBI and MCA filings, and earlier financials to prove the identity, creditworthiness, and genuineness of the transactions. Similar documents were also filed for Chalet LLC. These were not disputed by the AO.

The assessee explained that Section 56(2)(viib) and the proviso to Section 68 did not apply, as the funds came from non-resident investors through proper banking channels in line with FEMA and RBI rules.

The CIT(A) asked the AO for a remand report, but no response was received. After reviewing all the documents, the CIT(A) held that the assessee had proved the source of funds and deleted the addition.

The two member bench comprising C.N. Prasad (Judicial Member) and M.Balaganesh (Accountant Member) found that the assessee had received share capital and premium from the same non-resident investors who had invested in earlier years. In those years, similar additions made by the AO were already deleted by the CIT(A).

The assessee submitted all necessary documents to support the current year’s transactions, and the AO did not raise any objections. The DR also did not dispute the evidence. Considering this, the appellate tribunal upheld the CIT(A)’s decision and dismissed the revenue’s appeal.

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