ITAT says no to addition of Rs 115 crore to RAW Pressery Income by I-T

In a significant relief for cold press juice startup RAW Pressery, the Mumbai bench of the Income Tax Appellate Tribunal has set aside an addition of ₹115 crore to its income by the income tax department for the assessment year 2018-19.

The income tax department had questioned fund infusion in the company by private equity investors, Sequoia Capital India Investments and Saama Capital India Ltd, terming the valuation report submitted by RAW Pressery as unreliable. Tax authorities observed that the company’s financials did not justify the high valuation at which the infusion was made.

The assessing officer in the case noted that the large share premium received from foreign investors was ‘hawala’ and sought to apply provisions of the Black Money Act.

“In view of our… findings and having regard to the entire conspectus of the facts of the case, we set aside the impugned order of the CIT(A)(Commissioner Income Tax Appeal) confirming the addition of Rs 115 crore made u/s 68 of the Act and restore the issue back to the file of AO,” the ITAT said.

Screenshot 2022-10-08 003632ET Bureau

The assessee, RAW Pressery Pvt Ltd, had filed its return of income on October 30, 2020, declaring a total loss of Rs 41.85 crore. Subsequently, the case was selected for scrutiny.

The company provided a brief background of the PE investors-Sequoia Capital India Investments and Saama Capital Ltd-along with their financial statements. It also provided copies of the relevant Foreign Inward Remittance Certificates (FIRCs) to the National Faceless Assessment Centre (NFAC).

The NFAC, however, disagreed with the company’s submissions and observed that the valuation reports provided were not reliable as its financials did not justify the high valuation arrived at by the chartered accountant.

The tax department also pointed out that the assessee had only submitted acceptance letters issued by foreign subscribers but did not explain as to why they had agreed to a high premium when the company was making losses.

The bench observed that during the year, the company had received a share premium of Rs 52.24 crore from five shareholders, out of which four were existing shareholders who had infused capital in earlier years as well.

The fifth was a new shareholder, actress Jacqueline Fernandez, who was issued shares in lieu of her services.

“With this decision, the Mumbai tribunal has laid down principles for applicability of provisions of Section 68 in an elaborate manner and has held that once the taxpayer has provided all the relevant documents it has in its possession, it is for the tax authorities to clear their doubts, if they still exist by doing its own independent investigation about the credit worthiness of the investment companies,” said Saurrav Sood, practice leader(international tax) at SW India.

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