ITAT: Share Premium from Non-Residents Can’t Be Taxed Under Section 68 of Income Tax

The assessee company, engaged in developing vehicle tracking systems, received foreign direct investment (FDI) from existing non-resident investors through multiple funding rounds over the previous years. For AY 2018-19, the Assessing Officer accepted the share capital but treated the share premium of Rs. 6.87 crore as unexplained cash credit under Section 68, alleging a lack of justification for the high premium charged. The company furnished comprehensive documentation, including valuation reports, bank statements, investor financials, RBI filings, and prior investment history.

CIT(A) Held: The CIT(A) deleted the addition after finding the identity, creditworthiness, and genuineness fully established. The Revenue appealed before the ITAT.

Issue Raised: Even if comparable prior investments were approved, can non-resident investors’ share premiums, which are backed by valuation and received through standard banking channels, still be taxed as unexplained cash credits under Section 68?

ITAT Held: The Tribunal noted that similar investments in past years were already accepted by the Revenue and that the assessee had filed all possible evidence to substantiate the receipt of funds. The ITAT held that Section 68‘s onus stood discharged, especially as the investors were non-residents and Section 56(2)(viib) did not apply. The ITAT upheld the deletion of the Rs.6.87 crore addition, confirming that the assessee had established identity, creditworthiness, and genuineness of the non-resident investments beyond reasonable doubt.

Therefore, the Hon’ble Tribunal dismissed the Revenue’s appeal.

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