Huge transactions in bank statements of investors is no basis to treat those transactions as bogus u/s 68

While observing that when Assessee’s method for determining fair market value per share is rejected by the Revenue then “it is bounden duty on their part to either rework the fair market value based on their conclusions or adopt the other method available which is NAV”, the Delhi ITAT deleted the addition of bogus share capital made under Section 68 of Income Tax Act, since the Assessee duly discharged its onus from all fronts to get out of the rigours of section 68.

The Division Bench comprising Shri C.M. Garg, Judicial Member and Shri M. Balaganesh, Accountant Member observed that “merely because in the bank statements of the investors there were certain credits and the monies had been immediately given to so many parties including the assessee, it cannot be directly concluded that those transactions in the books of investor companies are bogus”.

The Bench also found that the Assessee proved source of source by the balance available in the bank account of the investors.

Further, the Bench observed that “the nature of receipt as share capital is also established from the fact that the investor companies had duly reflected the fact of making investments in the assessee company in their respective balance sheets and had also given a separate confirmation to this effect before the lower authorities directly in response to the notice u/s 133(6)”.

Advocate Rajiv Saxena appeared for the Assessee while the Revenue was represented by Advocate Raja Rajeshwari R.

Briefly, the Assessee-Company received sum of Rs.43.25 lacs towards share capital from three investors and furnished copy of certificate of incorporation along with memorandum of association and articles of association, audited financial statements, ITR acknowledgements with computation of total income, share application forms, confirmation of accounts, bank statements to prove both the receipt and refund of funds. During assessment, the AO held it to be bogus share capital taxable under Section 68. On appeal, the CIT(A) observed that the Assessee additionally received Rs.17 Lacs from the said parties and thus, enhanced the addition under Section 68.

After considering the submission, the Bench found that the Assessee had furnished the preliminary documents pertaining to the investors before the AO and veracity of the same were examined by issuing notices under Section 133(6) which were duly responded by the investors

The Bench highlighted that these facts go to prove that the Assessee duly discharged its onus to prove the three ingredients of section 68 namely, the identity and credit worthiness of the investors and the genuineness of the transaction.

The Bench also noted that “investors are having sufficient net worth in their kitty which proves the credit worthiness for making investment in the assessee company”, and found that all the transactions are routed through regular banking channels and the fact of the investors making investments in assessee company is reflected in their balance sheet and also confirmed by them separately directly before the Revenue.

Hence, the Bench held that the genuineness of the transactions cannot be doubted in the instant case.

The Coram therefore deleted the addition made under Section 68.

On the issue of addition under Section 56(2)(viib) on account of excess share premium, the Coram noted that DCF valuation suffers from infirmities as Assessee has not commenced its business, neither invested in any fixed assets nor  gave any advance for purchase of fixed assets or goods showing its intent to start the business in the near future.

Accordingly, the ITAT deleted the addition under Section 56(2)(viib) as share premium could not be construed as excessive.

Cause Title: Movefast Automobiles Pvt. Ltd vs. ITO [ITA No.6183/Del/2019 / 2023-Enterslice-15-ITAT-Del]

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