TMI Blog2020 (12) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... orily convertible redeemable shares resulting into allotment of shares worth ₹ 1, 67,50,000 from K start LLC of Mauritius. Various judicial precedents relied upon by the learned CIT A and the learned assessing officer supporting the above addition made by the learned assessing office are not applicable to the facts of this case as in this case assessee has proved identity, creditworthiness of the investor as well as the genuineness of the whole transaction - We delete the addition made u/s 68 with respect to the about transaction - Decided in favour of assessee. - ITA No. 8339/Del/2019 - - - Dated:- 7-12-2020 - Shri H.S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Hiren Mehta, CA For the Revenue : Ms. Aman Preet, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee USEKIWI INFOLABS PVT LTD [ The Assessee/ Appellant] against the order of the Commissioner of Income Tax (Appeals) 9, , New Delhi [ld CIT(A)] dated 30.09.2019 for the AY 2016-17 wherein the appeal of the assessee filed against the order passed u/s 143 (3) of The Income Tax Act (The Act) on 31/5/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet filed by the assessee it was noted that the funds raised in the form of share capital and share premium has been shown at ₹ 1, 68,50,000 comprising of ₹ 1 lakh for issue of 10,000 equity shares of ₹ 10 each, ₹ 2 lakhs for issue of 20,000 compulsorily convertible cumulative preference shares of ₹ 10 each and a security premium of ₹ 1 65,50,000/-. As per the information given in the balance-sheet share capital and share premium of ₹ 167,50,000 has been shown received from K Start LLC. The assessee was asked to furnish the necessary detail and also to explain the applicability of provisions of Section 56 (2) (viib) of the act. 5. The assessee explained that it has received above sum on issue of 20,000 compulsorily convertible cumulative preference shares at the face value of ₹ 10 each and a premium of ₹ 827.50 from K start LLC of Mauritius. It was further stated that K start LLC is a seed fund created by Kallari capital, a leading Indian venture capital firm, unique seed program for the next generation of Indian and entities with disruptive ideas. K start LLC aims to provide to empower start-ups and accelerate disr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, copy of company have audited financial statement from 30 November 2015 to 31st of December 2016 and the copy of the bank statement of the company stating the investment made in the Indian entity during the period 30th member 2015 to March 31, 2016. It was further informed by the Mauritius revenue authorities that the only beneficial shareholder of the company for the period 30 November 2015 that is the date of incorporation to 31 March 2016 was Kallari capital Partners III LLC having its registered office at IFS court, bank street, 28 cyber city, Ebene 72201, Mauritius. Based on this information , learned assessing officer further wrote a letter to the assessee on 9/05/2019 u/s 142 (1) stating that that the matter was referred to FTD Section of the CBDT in connection with the receipt of money from Mauritius. The copy of the bank account of Mauritius party as also the balance-sheet as also the copy of the return has been received. Based on this information the learned assessing officer noted that the balance sheet of K start LLC total is only $ 1007. The only source of income of that company is gain on disposal/revaluation of fixed assets including securities amounting to $ 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mauritius authorities, FIRC with respect to inward remittance of foreign currency, FC GPR report submitted to the reserve bank of India. In view of this, it was stated that assessee has discharged its onus of the identity, creditworthiness and the genuineness of the transaction. It was also noted that the learned assessing officer has also got due enquiry done through the government of India under the Exchange of Information provisions. It was stated that there is no adverse inference or information available with the assessing officer. Therefore the addition u/s 68 of the income tax act cannot be made. 9. As it seems the AO was not satisfied with the above explanation of the assessee, the assessee company filed an application u/s 144A of the act on 16/05/2019 to The Additional Commissioner of Income Tax, Range 27, New Delhi. He passed a direction on 29/05/2019 stating that on the facts and circumstances of the case does not warrant to issue any direction u/s 144 of the act as it is not necessary or expedient so to do on respect of the amount of ₹ 1.67 crores received by the assessee company in the form of share capital and share premium for which the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re capital and share premium from Kstart LLC of Mauritius as unexplained credit in the books of account of the assessee company u/s 68 of The Income Tax Act. Accordingly the assessment order was passed u/s 143 (3) of the act on 31/05/2019 determining the total taxable income of the assessee at ₹ 1 58,63,092 against the returned loss of ₹ 886,908. 12. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT A. The learned CIT A further noted that the pattern of unavailability in the transfer thereof, absence of any substantial base of own fund with K start LLC, does not prove the genuineness and creditworthiness of the above transaction. He relied upon the decision of the coordinate bench in ITA number 1716/AHD/2012 dated 18/8/2016 in case of Nakoda fashions Ltd, the decision of the honourable Delhi High Court in case of CIT versus Novadaya castles private limited, and N R portfolio private limited, CIT versus Nipun builders and developers private limited (350 ITR 407) and confirmed the addition holding that assessee has failed to discharge of onus with respect to creditworthiness and genuineness of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the transaction as the above entity was created by Kallari capital for investment only. Therefore the revenue that would generate in the above form would only be capital gain on sale of all time best of investment made. He further submitted that as soon as the decision for investment is taken by caloric capital, the money would be transferred from that entity to the case start LLC as it is merely a of vehicle (SPV) for investment. He further submitted that whatever information assessee could not have furnished has already been obtained by the learned assessing officer under the exchange of information provisions from Mauritius tax authorities. None of the information received is against the assessee or the investor. Therefore there is no reason to doubt the creditworthiness and genuineness of the investor. 15. On the legal arguments, he referred to the decision of coordinate bench in 37 taxmann.com 400 (2013) of Russian technology Centre private limited versus Deputy Commissioner Of Income Tax wherein it has been held that where the money is remitted by a non-resident, whose identity is not in question, through their bank accounts outside India held to be a capital receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral) 1 versus NRA Iron and steel private limited 412 ITR 161 (SC) stating that this was the decision relied upon by the learned CIT A which has been confirmed by honourable Supreme Court. In view of this it was submitted that appeal of the assessee does not have any merit. 17. During the course of the hearing bench asked the learned authorised representative to prove the rationale of the investment made in the assessee company by the investor in the form of financial due diligence report, legal due diligence report, investment committee meeting of the investor or its holding company and the details of other investment made by investor in other companies. In response to this learned today are submitted the brief snapshot of the assessee in the form of business model of the assessee as a digital payment platform for affordable healthcare. He also stated that the assessee has the right solution for a country like India where 96% population is not insured. Therefore the investment in the assessee company is an attractive opportunity. He also submitted a copy of proposal given by the assessee to the investor showing in the executive summary that assessee is an alternative finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a premium of ₹ 827.50 per share under the right issue. The above investment was also documented in the meeting of the board of directors of the assessee company on 23rd of January 2016 wherein the above investment was authorised. After such authorization the investment has been made. No doubt the existing shareholders of the assessee company renounced the rights available to them for application towards these instruments in favour of the investor. However that does not make the investment by the investor or in the assessee company as non genuine. The assessee also submitted a brief write-up before the assessing officer about the introduction of K start LLC, Which is found to be seed fund created by kaallari capital, a leading Indian venture capital firm which has the asset base of US$ 650 million. Assessee also supported the investment with extract of livemint which shows that K start LLC is a start-up accelerator run by venture capital firm Kaalari capital and has invested $ 5 lakh each in three start-ups in healthcare, financial services and online video content management. It also shows that Kalari capital has taken Unicorns such as Flipkart Ltd, a snapdeal and also laun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above investment cannot have any doubt. The learned assessing officer also could not point out for what reasons he is having any doubt about the creditworthiness and genuineness of the above investment when such an extensive details are made available by the assessee and he himself obtained information under Exchange of Information provisions of DTAA. 19. However, we would also like to deal with the argument of the learned authorised representative that in case of a non-resident investor the assessee is not required to prove anything other than the identity of the shareholders. We have carefully perused the provisions of Section 68 of the income tax act which speaks about taxing any sum credited in the books of account of the assessee for which assessee could not satisfy the learned assessing officer about the nature and source of such credit. It does not make any distinction whether the sum is found credited from a resident shareholder or a non-resident shareholder. Further the compliance with the reserve bank of India guidelines as applicable under The Foreign Exchange Management Act neither proves nor disproves the nature and source of credit from a non-resident as per Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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