Ebro India Pvt. Ltd. vs ACIT, Circle 7(1), Delhi

PER S. RIFAUR RAHMAN, AM :

In this case, Revenue has filed misc. application which was disposed off vide MA No.86/Del/2025 dated 09.07.2025 wherein it was recalled to adjudicate on the Merits Hence, we proceeded to hear the case on merits in the grounds no.4 and 5. Accordingly, Grounds No.4 to 4.5 & 5 to 5.3 are adjudicated as under.

Brief facts of the case are, assessee filed its return of income for the AY 2018-19 on 30.11.2018 declaring total income of Rs.11,01,94,540/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’) at an income of Rs.11,02,48,570/-. Subsequently, the case was selected for scrutiny through CASS and the reason for selectionsare substantial increase in share capital, large value of international transaction in the nature of guarantee. Accordingly, notices u/s 143(2) and 142(1) of the Act were issued through ITBA portal. In response, ld. AR of the assessee attended and submitted relevant information through e-portal. 3. Assessee is a wholly owned subsidiary of Herba Foods S.L.U. Spain and is engaged in rice milling activities in India. The primary issue raised by the assessee on their grounds of appeal is addition made by the AO u/s 68 of the Act of share capital from non-resident holding company. The relevant facts relating to the above issue are, during assessment proceedings, the AO observed that assessee has received an amount of Rs.1,34,99,99,904/-(Rs.71,61,32,020/- share capital and Rs.63,38,67,884/- share premium) on issue of 7,16,13,202 shares during the year. On perusal of the submissions made by the assessee, the AO observed that the shares were issued to following persons:-

The assessee was asked to furnish confirmation, bank statement, ITR and Balance Sheet of above-mentionedpersons. Further assessee was asked to furnish any other documentary evidence to substantiate its claim of issue of share capital like share issuance certificates. The assessee was asked to submit the relevant information as per the format issued u/s 142(1) of the Act dated 03.12.2020. In response assessee vide reply dated 16.12.2020 furnished the name of the shareholders and it was observed that assessee failed to furnish other details as called for. It was further observed that assessee failed to submit bank statement with regard to receipt of payments and share issuance certificate. Since assessee failed to furnish the required details as per notice issued u/s 142(1) dated 03.09.2021 and similar notices were issued to the assessee in subsequent notices. After considering the submissions of the assessee, the AO observed that assessee failed to submit the required details and further observed that assessee failed to submit ITR, confirmation, bank account statement and Balance Sheet of the shareholders. The assessee even failed to submit share issuance certificates to establish its claim that it has issued share capital duringthe year under consideration. Assessee in its submissions, it stated that shares have been issued to non-resident but to prove its contention it failed to submit a single documentary evidence. Based on the above observation, AO proceeded to treat the share capital issued by the assessee during the year as not satisfactory and accordingly, he proceeded to invoke the provisions of section 68 to make the addition of Rs.1,34,99,99,904/-. 5. Aggrieved with the above order, assessee preferred an appeal before the ld. DRP-1, New Delhi. Before ld. DRP, assessee has submitted that the share capital was received from its existing shareholders. It was submitted that assessee is a closely held company and the relevant shareholding patterns as on 01.04.2017 are as under :-

Further he submitted that assessee has issued equity shares to its existing shareholders :-

After the issue of new equity shares, the percentage of holding of the existing shareholders remains i.e. 99.99% : 0.01%. Further it was submitted that assessee has issued shares to its related party i.e. Herba Foods SLU Spain andHerba Rice Mills SLU Spain. It was further submitted that assessee has furnished the details relating to equity shares issued to its existing shareholders and it was pleaded that the identity of the foreign entity was duly examined by the TPO while analyzing the related party transactions and TPO has not drawn any adverse inference in relation to the share capital. It was also argued that there was no requirement to prove creditworthiness of shareholders u/s 68 where shareholder is non-resident. It was further submitted that under the provisions to section 68, where the sum credited relates to share application money, share capital, share premium, the assessee shall be required to furnish source of source as well. However, it is clear that the provisions are applicable only to the person who is resident with the provisions of the Act. Therefore, in this case, assessee has received share capital from non-resident shareholder and provisions to section 68 of the Act will not apply. In this regard, decisions of Vodafone India Limited, Syntensia Network Security India Pvt. Ltd. were resorted to. After considering the above facts on record, ld. DRP observed that AO has not considered the evidence stated above. Accordingly, ld. DRP directed the AO to pass a speaking order in this regard.

In the final assessment order, the AO has reproduced the detailed findings similar to the draft assessment order and passed the final assessment order.

Aggrieved with the above order, assessee is in appeal before us and the relevant grounds on merits are grounds no.4 to 4.5 which are reproduced below :-

At the time of hearing, ld. AR of the assessee submitted that the shares were issued to the holding company who holds 100% of shares and the holding company is a non-resident. Further he brought to our notice page 2 of the synopsis wherein assessee has submitted detailed submissions before the AO and ld. DRP, he brought to our notice relevant pages of the paper book which was submitted before the AO and various communications between the AO and assessee, also brought to our notice the relevant payments were received thru banking channel and the relevant copies of FIRC was placed in the paper book which he brought to our notice.Further he brought to our notice page 58 of the paper book which is a valuation report. He specifically brought to our notice page 71 of the paper book that the value per share determined by the valuer at Rs.18.15 per share. He submitted that based on the above valuation, the shares were issued to the existing shareholders. He also brought to our notice page 151 of the paper book which is the shares certificate issue by the assessee to shareholders. He submitted that it is a pure share transaction whichwere issued to its holding company and prayed that the addition made by the AO without making proper verification of various documents submitted before him and further submitted that even AO has not followed the directions of DRP.

On the other hand, ld. DR of the Revenue brought to our notice page 2 of the ld. DRP order wherein ld. DRP has given clear direction to the AO to verify and pass a speaking order. Based on the above direction, the AO has passed final assessment order. He heavily relied on the detailed findings of the assessment order.

Considered the rival submissions and material placed on record. We observed that assessee has issued shares to its own holding company( to the existing shareholders) who were technically holding 100% of shares of the assessee. Before us, ld. AR of the assessee brought to our notice detailed documents which were submitted before the AO during draft as well as during final assessment proceedings. For the sake of brevity, it is reproducedbelow :-

From the above, we observed that the assessee has submitted details of shareholders along with complete address, PAN, number of shares including face value and share premium which is also placed at pages 56 and 57 of the paper book. Before us, assessee also brought to our notice valuation report which justifies the issue of shares at premium which is placed at pages 58 to 72 of the paper book. The assessee also issued share certificates for allotment of shares whichare also placed on record. Further assessee has submitted bank statements highlighting the transactions of receipts of share application money before the authorities below and further submitted copy of Foreign Inward Remittance Certificate (FIRC) certificate along with confirmation from the shareholders. It is also noticed that assessee has received money from the non-resident shareholders after due compliance of FDI Scheme governed by RBI. The relevant pages are also placed at pages 187 to 201 of the paper book. From the record, we also observed that the matter was referred to the TPO for international transactions and even TPO has verified the international transactions, has not given any adverse comments. Further we observed that ld. DRP has considered various documents submitted before it and based on the above documents, the ld. DRP has given clear direction to the AO to pass a speaking order. However, we noticed that AOin spite ofmaking due verification, he preferred to follow the findings in the draft assessment order and completed the proceedings. From the facts on record, we observed that the assessee has issued share capital to its own holding company who holds 100% of shareholding in the assessee company, therefore, there is no requirements as far as identity and credit worthiness is concerned. With regard togenuineness, we observed that the funds are routed through banking channel and all the funds were brought to India through proper approval and relevant FIRC Certificate were issued by the bank. Therefore, the assessee has already proved the identity, creditworthiness and genuineness of the transaction. With regard to issue of shares on premium, the assessee has also obtained valuation report before issue of shares to justify the premium charged. The issue of share premium matches with the valuation of shares done by the assessee. Therefore, there is no reason for AO to sustain the additions in final assessment order. Therefore, we are inclined to allow grounds no.4 to 4.5 raised by the assessee.

With regard to grounds no.5 to 5.3 which relates to ESI/PF employee contribution, in this regard, ld. AR of the assessee submitted that the AO has determined the total income based on the income u/s 143(1) of the Act. The above disallowance was made u/s 143(1) itself. The disallowance made by the AO of Rs.54,031/- is double addition and the same may be deleted. Since the amount involved is very small and no submissions were made at the time of hearing, we are inclined to dismiss the same as not pressed at the time of hearing.

In the result, the appeal filed by the assessee is partly allowed.