TMI Blog2022 (11) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... ors in the past years. Having held so, we also cannot lose sight of the fact that the assessee by their own admission was unable to provide all the primary evidences Viz, income tax returns, bank statement, etc of the foreign investors concerning the relevant year for verification. Understandably, these foreign investors are of repute and given the fact that the assessee was only as start-up, it may not be in a position to obtain from them all relevant documents, as desired by the AO/NFAC. However, this cannot absolve the foreign investors from verification of their creditworthiness by the income tax authorities. In our humble opinion, the right course of action for the revenue was to make independent enquiries from these investors through appropriate channel such as FT TR etc, particularly when such manner and line of enquiry had already been laid down by the CBDT in their SOP dated 19.11.2020 or from the AO s of the respective foreign investors. I Revenue ought not to have simply pushed the entire burden on to the assessee to provide the details and documents of foreign share holders, particularly when the CBDT empowered them to make independent enquiries from them. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O, NFAC proposed a draft assessment order, wherein it observed that merely because the assessee had filed all primary evidences regarding the investors, it could not be said that the onus stood discharged u/s 68 of the Act. The AO noted that, the losses incurred by the company had increased over the years in contradiction to the valuation reports furnished by the Chartered Accountants, and therefore according to them, the share premium charged upon issuance of shares was unreasonable. Relying on the decision of the Hon ble Supreme Court in the case of Pr. CIT Vs NRA Iron Steel Pvt Ltd (103 taxmann.com 48), the NFAC proposed to add back Rs.115,56,95,385/- under Section 68 of the Act. In response the assessee furnished its rebuttal/submission vide letter dated 12-04-2021. It explained that, the assessee company was a start-up promoted by Mr Anuj Raykan, with the intent to Make-in-India fresh health beverages/juices using cold-pressed technology. It was brought to the notice of the AO that this idea was supported by marquee PE investors such as Sequoia Capital, Saama Capital, DCGP Consumer Partners, who had invested with the assessee. It was also explained that the entire closing am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OTAL 52,24,66,399 4. Before the AO, the assessee had furnished the brief background of the PE investors, M/s Sequoia Capital India Investments IV and Saama Capital III Ltd along with their financial statements. Copies of the relevant Foreign Inward Remittance Certificates ( FIRCs ) were furnished before the NFAC. The PAN Card, GBL License, Certificate of Conversion and financial statements of M/s Sequoia Capital India Investments IV was also placed on record. In relation to Saama Capital III Ltd, the assessee had furnished copy of its PAN card, financial statements, Tax Residency Certificate, GBL License and Certificate of Incorporation. It was pointed out that the share premium to the tune of Rs.48,21,36,180/- were received from reputed foreign investors, after complying with the foreign investment procedure laid down by Reserve Bank of India and therefore, according to the assessee, the initial onus laid down u/s 68 of the Act stood discharged. The assessee further stated that, these investors are reputed foreign entities over whom it does not exercise influence so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A), NFAC. Before the Ld. CIT(A), the assessee filed written submissions along with paper-book. The Ld. CIT(A) confirmed the addition made by the AO, giving the following reasons: (a) The documentary evidences filed by the assessee in support of foreign investors are mere papers, which could be fake as well and therefore the applicability of the Black Money Act is justified (b) The assessee has not provided income-tax returns of investors, except Mr. Anju Rakyan. (c) The assessee has only submitted acceptance letters issued by foreign subscribers but did not answer why subscriber companies agreed to such high premium when company was making losses. (d) The assessee has not substantiated the reasons for high premium in wake of losses incurred by company. (e) The assessee has not provided minutes of meeting where the decision to allot shares was taken. (f) The assessee has shifted its onus of not providing documents of shareholders by saying that it did not have the confidential documents such as IT returns, bank statements etc. of the shareholders. (g) The media reports provided by assessee evidencing the huge fund size of the foreign PE investors was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had infused additional equity funding into the assessee during the relevant year. The Ld. Senior Counsel submitted that the prices at which the shares were issued were in conformity with the valuation report obtained from Chartered Accountant under the Discounted Cash Flow Method ( DCF Method ) as set out in Rule 11UA, as it stood then, in AY 2018--19. Even otherwise, inviting our attention to the provisions of Section 56(2)(viib) of the Act, he contended that the valuation guidelines did not apply to shares issued by private companies to non--residents. The Ld. counsel also pointed out that, the AO/NFAC was unable to pin point any defect or infirmity in the valuation exercise, calculation, methodology followed by the Chartered Accountant to determine the value of the shares. He submitted that the AO/NFAC had simply rejected the valuation on whimsical reasoning. The Ld. counsel pointed out that the assessee had furnished the following documents in support of the share premium received from the existing foreign shareholders: - Name and address of shareholders; - Copies of their PAN Cards; - Copies of the Financial Statements; - Brief profile of the foreign investors and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return etc. were furnished both before the NFAC and Ld. CIT(A). Taking us through the orders of lower authorities, the Ld. Sr. counsel showed that no allegation was made against the shareholder Mr. Anuj Rakyan, but still the premium received from him was added u/s 68 of the Act. In respect of the share premium of Rs.4,02,44,630/- relatable to the shares allotted to Ms. Fernandez, he pointed out that the Ld. CIT(A) was in agreement that, no sum whatsoever was received from her in as much as the shares had been allotted in lieu of the services rendered by her to the company as a celebrity endorser, but the Ld. CIT(A) had still confirmed the premium of Rs.4,02,44,630/- relatable to her as unexplained cash credit u/s 68 of the Act, which according to the Ld. Sr. counsel was impermissible in law and against Rule of Law. 12. It was brought to our notice that, the assessee company had taken the services of Ms. Fernandez who was an actress to be the brand ambassador and promote/advertise the company s product Raw Press . The Ld. Sr. counsel submitted that, she is still the brand ambassador of the company and she regularly features in the print as well as electronics advertisements and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. We have heard both the parties and perused the material on record and it is noted that the issue for our consideration is whether the addition made u/s 68 of the Act was right or erroneous. Before adverting to the facts of the case, it would be relevant to reproduce the provisions of Section 68 of the Act, which is in question in this appeal. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submits evidence in support of the credit and makes out a prima facie case, then the 'onus of proof' shifts to the Revenue. Such shifting of 'onus' is a continuous process in the evaluation of evidence. If the evidence on record weighs in favour of the assessee [based on preponderance of probability which is the standard of proof required in income tax assessments] or that the explanation put forth cannot be said to be completely unsatisfactory, then the onus cast upon the assessee u/s 68 of the Act can be said to have been discharged. In view of the foregoing, we are of the considered view that the initial burden on the assessee was only to substantiate the source of its share premium in as much as the identity and creditworthiness of the investors along with the genuineness of the transaction. 19. The proviso to Section 68 of the Act, which was inserted by the Finance Act, 2012 is noted to be applicable to persons who are residents, who are further required to substantiate the source of source of funds. This additional burden cast upon by the proviso is noted to be not applicable to non-resident investors. 20. Having regard to the above legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 68 of the Income-tax Act, 1961 (IT Act), is very clear in providing that where any sum is found to be credited in the books of the assessee for the previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to the income tax as the income of the assessee of that previous year. Relying upon several decisions, Dr Daniel submits that since, it is the case of Revenue that some amounts were found credited in the book of account for the financial year 2006-07, there was no question of taking cognizance of such amounts for the assessment year 2009-10 and the corresponding previous year 2008-09. He submits that on this short ground, the first substantial question of law, is liable to be answered in favour of the appellant-assessee and against the respondent-Revenue. .. 9. From the plain reading of the provisions of section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the share premium received during the relevant year, it is noted that the assessee had furnished the relevant foreign inward remittance certificates, FC-GPRs etc. in support of the foreign investment received in accordance with the regulations of Reserve Bank of India. These investors are noted to be of repute holding Category-I Global License issued under the laws of Mauritius. Their financial statements also show that they had sufficient funds to make investment in the capital of the assessee. The assessee had also provided the PAN details of these foreign investors. It is noted that although the AO had also called for the income-tax returns and bank statements of these investors but the assessee expressed its inability to furnish the same. It was pointed out to AO/NFAC that the assessee was a start-up company which had raised funds from these global PE investors and therefore it did not exercise such influence over them to insist them to furnish their internal confidential documents such as income-tax returns, bank statements etc. Having provided their PAN details, addresses, tax residence status, the assessee had requested both before the AO/NFAC and the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , management or any other technical matter, which may be required in a particular case. Pursuant therefore the CBDT vide their Circular F. No. Pr. Ccit/Neac/Sop/2020-21, dated 19-11-2020 has set out the Standard Operating Procedure (Sop) For Functioning Of Technical Unit (Tu) Under The Faceless Assessment Scheme, 2019 which inter alia specifically lays down in Part (E) the manner in which cases involving verification/examination of information from foreign jurisdiction during the course of assessment proceedings has to be handled. The relevant extracts are set out below: E: Handling of case received for assistance in respect of information to be called from Foreign Jurisdictions. Section 90(1) (c) of the Act and applicable DTAA/TIEA with foreign jurisdictions provide for exchange of information for investigation or detecting evasion or avoidance of tax. The AU and VU may seek information from foreign jurisdiction during the course of assessment proceedings in suitable cases, through the competent Authority, i.e. Joint Secretary, F TR, CBDT in the format prescribed by the Board. As per FAS, the TU shall assist the AU in requisition and collection of information from FT T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce placed by the lower authorities on the judgment of the Hon'ble Apex Court in the case of Pr.CIT vs. NRA Iron Steel (P) Ltd (supra) is found to be misplaced in as much as in that case [NRA] the shareholders were found to be untraceable even after making field enquiries. In the case at hand, it is evident from the material on record, that neither the AO/NFAC nor the CIT(A) took any effort whatsoever to enquire into the creditworthiness of these foreign shareholders and the genuineness of the transactions. Rather, we find that the assessment was framed in the most arbitrary manner by blatantly ignoring glaring material facts and evidences placed by the assessee. As far as the news article regarding M/s Sequoia Capital referred to by the Ld. CIT-DR is concerned, we find it to be based on irrelevant considerations/hear-say, in as much as it has no bearing on the facts of the present case. 27. Now, coming to the allegation of the AO that share premium being significantly higher than the intrinsic worth/fair value of the equity shares, it is noted that the assessee has supported the valuation with a certificate issued by a chartered accountant using DCF method which is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the material placed before them. 29. In respect of the share premium of Rs.4,02,44,630/- pertaining to Ms. Fernandez, it is an admitted factual position that she did not actually pay any amount to the company. Rather, it was the assessee which had engaged her as a celebrity endorser, for which her consideration was fixed at Rs.4.02 crores. Instead of paying the same, the assessee had allotted equity shares to her at a premium, which is evidenced by the agreement dated 10-03-2018. Prima facie therefore, we find substance in the assessee s contention that Section 68 of the Act did not have any application on these given facts. The AO/NFAC however seemed to be in an oblivion while adding the aforesaid amount u/s 68 of the Act, although these facts which were brought to their notice by the assessee in the replies dated 12-04-2021 22-04-2021. In our humble view, in order to verify the genuineness of this arrangement, the AO/NFAC ought to have examined as to whether such consideration had indeed been subjected to Good Services Tax as agreed upon in Section 5.1 of the Agreement dated 10-03-2018. The NFAC also ought to have enquired as to whether the assessee had withheld taxes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as FT TR etc, particularly when such manner and line of enquiry had already been laid down by the CBDT in their SOP dated 19.11.2020 or from the AO s of the respective foreign investors. In the facts of the case discussed (supra) the revenue ought not to have simply pushed the entire burden on to the assessee to provide the details and documents of foreign share holders, particularly when the CBDT empowered them to make independent enquiries from them. With these observations, we set aside the addition to the extent of Rs.48,21,36,180/- being the share premium received from foreign investors back to the file of the AO/NFAC for de-novo assessment in respect of the credit in assessee s book, in a fair and reasonable manner and in accordance to law. Needless to say, the assessee shall be provided with reasonable opportunity of being heard. (iv) As far as the share premium of Rs.4,02,44,630/- relating to Ms. Jaqualine Fernandez is concerned, in the light of the facts discussed (supra) in respect of Ms. Jaqualine Fernandez, AO/NFAC is directed to confine their inquiries only to the genuineness of the arrangement by enquiring as to whether the agreed consideration had indeed be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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