AO can’t ask Start-up to submit bank statements/ITRs of reputed NR investors: ITAT

Case Details: Raw Pressery (P.) Ltd. v. ACIT - [2022] 143 taxmann.com 158 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Aby T. Varkey, Judicial Member & S. Rifaur Rahman, Accountant Member
  • J.D. Mistry, Madhur Agarawal and Dhanesh Bafna for the Appellant.
  • Prakash Mane, (DR) for the Respondent.

Facts of the Case

Assessee was a start-up company that had the expertise to produce healthy fruit juices without adding any preservatives. Its case was selected for scrutiny under the CASS in which one of the parameters was the fresh issue of share capital during the year. The assessee had received share premium from reputed foreign investors.

The assessee had furnished the brief background of the foreign investors along with their financial statements, PAN, Tax Residency Certificate, GBL License, and Certificate of Incorporation.

The Assessing Officer (AO) asked for their IT returns, bank statements, etc. which the assessee refused to provide citing reasons that investors are reputed foreign entities over whom it does not exercise influence so as to compel them to furnish their confidential documents.

AO rejected the assessee’s contentions and made additions under section 68 which was further confirmed by the CIT(A). Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that for the purposes of Section 68, the ‘burden to proof’ begins with the assessee. Once 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.

If the evidence on record weighs in favor of the assessee or if the explanation put forth cannot be said to be completely unsatisfactory, then the onus cast upon the assessee under section 68 can be said to have been discharged.

Thus, 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.

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 the 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.

If AO had even a remote suspicion regarding the foreign investors, he ought to have made an appropriate independent inquiry through proper channels, rather than simply rejecting the documents furnished by the assessee.

Therefore, the addition made by the AO under section 68 was unjustified.