Mantarav Private Limited Vs DCIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal considered an appeal by Mantarav Private Limited against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre dated 14.01.2026 for AY 2022-23. The assessee, engaged in operating a business-to-business service platform under the brand name “Exmyb”, had returned a loss of Rs.5,03,16,759/- and claimed TDS refund of Rs.12,67,250/-. During the relevant year, it issued preference shares to various investors and received share capital/share premium. The Assessing Officer made an addition under section 68 of the Income-tax Act, 1961, alleging failure to establish genuineness and creditworthiness. The grounds also challenged invocation of section 56(2)(viib), the valuation report, validity of notices and penalty proceedings.
The assessee submitted that it had furnished primary documentary evidence including shareholder names, PAN and addresses, allotment details, bank statements, audited financial statements, SEBI registration certificate of the venture capital/AIF investor, KYC and incorporation documents, FIRC, RBI Form FC-GPR acknowledgement and a valuation report issued by a SEBI registered Category I Merchant Banker. It contended that the initial burden under section 68 stood discharged and that the Assessing Officer, if still dissatisfied, ought to have conducted independent enquiries under sections 131/133(6).
The assessee also contended that part of the preference shares had originally been issued in an earlier year and were merely converted from OCPS into CCPS during the year. Since the funds had already been received in the earlier year, it argued that no fresh credit arose during the relevant previous year for purposes of section 68.
In respect of the venture capital investment, the assessee stated that Rs.6,43,29,748/- had been received from Chiratae Ventures Master Fund-IV, a SEBI registered venture capital/AIF investor. It relied on the second proviso to section 68 and submitted that the special source-of-source requirement did not apply to a venture capital fund/company. In respect of the non-resident investor, Tanglin Ventures Master Fund II Pte. Ltd., the assessee stated that 1,783 preference shares were issued and Rs.4,05,15,697/- was received through normal banking channels, supported by incorporation documents, KYC, FIRC, RBI Form FC-GPR acknowledgement, bank statements and allotment details. The assessee argued that the first proviso to section 68 specifically refers to a shareholder “being a resident” and therefore the additional source-of-source burden could not be mechanically extended to a non-resident shareholder.
The assessee relied upon several judicial authorities, including CIT v. Orissa Corporation (P.) Ltd., CIT v. Lovely Exports (P.) Ltd., CIT v. Dwarkadhish Investment (P.) Ltd., CIT v. Divine Leasing & Finance Ltd., CIT v. Oasis Hospitalities (P.) Ltd., Five Vision Promoters Pvt. Ltd., M/s Russian Technology Centre (P.) Ltd. v. DCIT, DCIT v. Finlay Corporation Ltd. and Ravnet Solutions (P.) Ltd. It also relied upon CBDT Circular No. 5 of 1969 dated 20.02.1969 concerning foreign remittances and submitted that no adverse material had been brought by the Revenue to establish that the foreign investment represented the assessee’s own unaccounted money.
The Revenue, on the other hand, relied upon the findings of the lower authorities, particularly paragraphs 7.3 to 7.5 of the CIT(A)’s order.
The Tribunal considered the rival submissions and the material on record. It recorded that the assessee had issued preference shares comprising CCPS and OCPS, including share premium. The Tribunal’s paragraph 6 records Rs.50,00,000/- as shares issued in the earlier year, Rs.6,43,29,748/- issued to the Venture Capital Fund, Rs.4,05,15,697/- issued to the NRI Fund and Rs.56,35,385/- as the balance issued to resident shareholders, with the recorded total being Rs.11,54,80,830/-. The grounds and earlier submissions, however, refer to the addition as Rs.11,24,80,830/-. This source discrepancy is retained without correction.
The Tribunal adjudicated the issue category-wise. For shares issued in the previous year and subsequently converted from OCPS to CCPS, it held that the funds had already been received in the previous year and therefore section 68 had no application. For shares allotted to Chiratae Venture Master Fund-IV, the Tribunal found that it was a registered Venture Capital Fund and held that the second proviso to section 68 gave the relevant exemption; accordingly, the addition under section 68 was deleted to that extent.
For shares issued to Tanglin Venture Master Fund, the Tribunal noted that the investor was a non-resident, KYC formalities had been complied with, funds had been transferred from a foreign bank and the assessee had filed the FIRC. It held that the issue was covered by M/s Russian Technology Centre (P.) Ltd. v. DCIT and decided this issue in favour of the assessee.
For the other shares issued to resident shareholders, the Tribunal noted that the shares were issued on the basis of the same valuation report and at the same issue price adopted for shares issued to the NRI and Venture Capital Funds. Having accepted those transactions, it held that the resident shareholders could not be treated differently on the same valuation and issue-price basis. The shares issued during the year were therefore treated as genuine.
Consequently, the Tribunal held that all shares and share premium issued during the year were genuine and deleted the addition made by the Assessing Officer under section 68. The assessee’s appeal was allowed. The order was pronounced in the open court on 24.08.2026.
Cases Discussed
- CIT v. Orissa Corporation (P.) Ltd., 159 ITR 78 (SC)
- CIT v. Lovely Exports (P.) Ltd., 216 CTR 195 (SC)
- CIT v. Dwarkadhish Investment (P.) Ltd., 194 Taxman 43 (Del.)
- CIT v. Divine Leasing & Finance Ltd., 158 Taxman 440 (Del.)
- CIT v. Oasis Hospitalities (P.) Ltd., 198 Taxman 247 (Del.)
- Five Vision Promoters Pvt. Ltd., 380 ITR 289 (Del.)
- M/s Russian Technology Centre (P.) Ltd. v. DCIT, 145 ITD 88 (Delhi Tribunal)
- DCIT v. Finlay Corporation Ltd., 86 ITD 626 (Delhi Tribunal)
- Ravnet Solutions (P.) Ltd. v. ACIT, 93 taxmann.com 59 (Delhi Tribunal)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
1. This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 14.01.2026 for the Assessment Year 2022-23 raising following grounds of appeal :-
“1. That, on the facts and circumstances of the case, Ld. CIT(A) has erred in upholding the assessment order passed by Ld. AO under section 143(3) r.w.s 144B which was illegal and bad in law.
2. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made by the Ld. AO, who, in turn, failed to take cognizance of CBDT Circular No. 5 of 1969 and wrongly treated the share capital received from non-resident shareholders as taxable under section 68 of the Income Tax Act. That cannot be done directly, cannot be done indirectly.
3. That, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned AO, who wrongly invoked the provisions of section 56(2)(viib) of the Income Tax Act in respect of venture capital funds and non- resident shareholders .
4. That the Ld. CIT(A) failed to note that the provisions of Section 56(2) (viib) and Section 68 are mutually exclusive and that the Ld. Assessing Officer failed to apply incorrect charging section in respect of part additions allegedly being in excess of FMV for which Section 56(2)(viib) is specifically applicable and which furthermore exempts receipts from Venture Capital Funds and Non-Resident Investors.
5. That, on the facts and circumstances of the case and in law, the learned CITA) has erred in upholding the order of the learned AO, who failed to consider the valuation report submitted by the merchant banker and further erred in not observing that the appellant did not receive any share premium in excess of the fair market value.
6. That the learned CIT(A) has erred, both on facts and in law, in sustaining the disallowance of Rs.11,24,80,830/- made by the AO, without properly considering or appreciating the facts, evidence and explanations furnished by the appellant. (This is repetition of Ground 2?)
7. That the Demand Notice dated 26.03.2024 is void-ab-initio and illegal as the same is authenticated / issued prior to the finalisation and authentication of the Impugned Order dated 26.03.2024.
8. That the Notice under Section 143(2) is invalid and void-ab-initio suffering from multiple defects including but not limited to, in not being in accordance with prescribed CBDT guidelines / instructions.
9. That the Ld. CIT(A) erred in ignoring the fact that the Ld. AO failed to carry out any independent investigation or enquiry including but not limited to issuance of notices under Section 133(6), etc and mechanically rejected the submissions of the appellant.
10. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Assessing Officer, whereby the amount of Rs.11,24,80,830/- received as share capital from the shareholders was treated as an unexplained cash credit under section 68 of the Income Tax Act.
11. That the learned CIT(A) has erred, both in law and on facts, in upholding the initiation of penalty proceedings under sections 271AAC and 27OA of the Income Tax Act, 1961, as initiated by the learned AO without specifying the particular limb applicable.
12. That the impugned assessment order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.”
2. At the time of hearing, ld. AR of the assessee brought before us the relevant facts of the case and submitted his submissions as under. He submitted that the assessee is a company engaged in operating a business-to-business service platform under the brand name “Exmyb”, providing services such as web/application development, designing, marketing, advertisement, IT software solutions and human resource services. He submitted that for AY 2022-23, the assessee filed its return of income declaring loss of Rs.5,03,16,759/- and claimed TDS refund of Rs.12,67,250/-. He further submitted that during the year under consideration, the assessee issued preference shares to various investors and received share capital/ share premium. The AO made addition of Rs.11,24,80,830/- under section 68 of the Income-tax Act, 1961 (for short ‘the Act’), alleging that the assessee failed to prove the genuineness and creditworthiness of the investors. He submitted that the said addition is wholly unsustainable since the assessee had furnished all primary documents including shareholder details, PAN, address, bank statements, SEBI registration certificate of venture capital fund, FIRC, RBI Form FC-GPR acknowledgement, incorporation /KYC documents of the non-resident investor and valuation report.
3. He submitted that aggrieved with the order of AO, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) sustained the addition made by the AO.
4. Further ld. AR of the assessee submitted his submissions which are reproduced below :-
“2.1.1 The Ld. AO has made addition in respect of preference shares which also include shares originally issued in earlier years and merely converted during the subject year.
2.1.2 To the extent there is only conversion of OCPS into CCPS, there is no fresh credit in the books of the Appellant during the relevant previous year. Section 68 applies only where a sum is found credited in the books during the relevant previous year.
2.1.3 Therefore, addition under section 68 in respect of earlier-year allotment/conversion is bad in law and deserves to be deleted at the threshold.
2.2 The Appellant discharged its primary onus under section 68
2.2.1 The Appellant furnished the following documents before the Ld, AO:
a. names, PAN and addresses of shareholders;
b. details of allotment of shares;
c. bank statement evidencing receipt of funds through banking channel;
d. audited financial statements reflecting share capital and premium;
e. SEBI registration certificate of the venture capital/AIF investor;
f. KYC report, certificate of incorporation, FIRC and RBI Form FC-GPR acknowledgement in respect of the non-resident investor;
g. valuation report issued by SEBI registered Category I Merchant Banker.
2.2.2 Once the Appellant furnished the above documents, the initial onus stood discharged. If the Ld. AO was still not satisfied, he ought to have exercised powers under sections 131/133(6) and made independent enquiry from the shareholders.
2.2.3 The addition has been made merely on suspicion, without bringing any adverse material on record.
2.2.4 Reliance is placed on:
CIT V. Orissa Corporation (P.) Ltd., 159 ITR 78 (SC)
CIT v. Lovely Exports (P.) Ltd., 2116 CTR 195 (SC)
CIT v. Dwarkadhish Investment (P.) Ltd., 194 Taxman 43 (Del.)
CIT V. Divine Leasing & Finance Ltd., 158 Taxman 440 (Del.)
CIT V. Oasis Hospitalities (P.) Ltd., 198 Taxman 247 (Del.)
Five Vision Promoters Pvt. Ltd., 380 ITR 289 (Del.)
AMI Industries India Ltd., 107 CCH 294 (Bom.)
DCIT v. Acro Exports Trade Pvt. Ltd., 111 taxmann.com 51 (Mum. Trib.)
2.3 Addition in respect of Venture Capital Fund is not sustainable
2.3.1 Out of the total addition, an amount of Rs.6,43,29,748/- was received from Chiratae Ventures Master Fund-IV, a SEBI registered venture capital/AIF investor.
2.3.2 The proviso to section 68 itself carves out an exception in respect of venture capital fund/venture capital company. Therefore, the rigour of proving “source of source” does not apply in such a case.
2.3.3 The Appellant had furnished the SEBI registration certificate and bank statement evidencing receipt of funds. Therefore, identity, genuineness and creditworthiness stood duly established.
2.3.4 The Ld. AO has not brought any adverse material to show that the amount received from such regulated fund is bogus or non-genuine. Hence, addition of Rs.6,43,29,748/- deserves to be deleted.
2.4 Addition in respect of non-resident investor is legally untenable
2.4.1 The Ld. AO has erred in making addition under section 68 in respect of the amount received from the non-resident investor, namely Tanglin Ventures Master Fund II Pte. Ltd. During the year under consideration, the Appellant issued 1,783 preference shares to the said non-resident investor and received an amount of Rs. 4,05,15,697/- through normal banking channels.
2.4.2 At the outset, it is respectfully submitted that the investment from the non-resident shareholder was not an unexplained cash credit. The Appellant had furnished all relevant primary documents to establish the identity of the investor, genuineness of the transaction and the regulatory trail of the foreign inward remittance.
2.4.3 The following documents were placed before the Ld. AO:
a. certificate confirming incorporation of the non-resident investor;
b. KYC report of the foreign investor;
c. Foreign Inward Remittance Certificate evidencing receipt of funds through banking channel;
d. email acknowledgement/communication regarding filing of Form FC-GPR with RBI;
e. bank statement of the Appellant evidencing receipt of funds;
f. details of allotment of shares;
g. address and other particulars of the investor.
2.4.4 The above documents conclusively establish that the investor is an identifiable foreign entity, the money was received through authorised banking channels, the transaction was duly reported under FEMA/RBI framework and the shares were allotted pursuant to valid corporate and regulatory compliance.
2.4.5 The Ld. AO has not disputed the existence of the non-resident investor. The Ld. AO has also not brought any material on record to show that the money emanated from the Appellant itself or that the funds represented unaccounted income of the Appellant routed back in the garb of foreign investment.
2.4.6 The entire addition is based on the allegation that the Appellant did not prove the source of funds in the hands of the non-resident investor. This approach is contrary to law. The first proviso to section 68, inserted by the Finance Act, 2012, casts an additional burden in respect of share capital/share premium only where the shareholder is a resident. The language of the proviso specifically uses the expression “the person, being a resident”. Therefore, the statutory obligation to prove source of source is not applicable to a non-resident shareholder.
2.4.7 In other words, in the case of a non-resident shareholder, once the assessee-company proves the identity of the foreign investor and the genuineness of receipt through banking channel, the burden cast upon the assessee stands discharged. The Ld. AO cannot mechanically extend the resident-shareholder requirement to non-resident investors when the legislature has consciously restricted such requirement to resident shareholders only.
2.4.8 The legislative intent is also clear from the Memorandum explaining the Finance Bill, 2012, which states that the additional onus regarding source of funds was introduced in respect of closely held companies receiving share capital/share premium from resident shareholders. Thus, the scope of the proviso cannot be enlarged by administrative interpretation or suspicion.
2.4.9 Reliance is placed on M/s Russian Technology Centre (P.) Ltd. v. DCIT, 145 ITD 88 (Delhi Tribunal), wherein the Hon’ble Tribunal held that where share application money is received from non-residents by way of remittance from their accounts, the rigour of section 68 would not be applicable in the same manner as in the case of resident shareholders.
2.4.10 Further reliance is placed on DCIT v. Finlay Corporation Ltd., 86 ITD 626 (Delhi Tribunal), wherein it was held that section 68 cannot enlarge the scope of section 5(2) in the case of a non-resident. If the amount represents money already held abroad and brought into India through remittance, the same cannot be taxed in India merely because the Revenue alleges that the source was not satisfactorily proved, unless the Revenue demonstrates that the source of such money is located in India.
2.4.11 The above principle squarely applies to the present case. The amount was received from a foreign investor through banking channel. The investment was supported by FIRC and RBI/FC-GPR reporting. Therefore, unless the Department brings positive material to show that the amount had an Indian source or represented unaccounted income of the Appellant, no addition can be made in the hands of the Appellant under section 68.
2.4.12 CBDT Circular No. 5 of 1969 dated 20.02.1969 also supports the Appellant. The Circular clarifies that money brought into India by non-residents for investment or other purposes is not liable to Indian income-tax merely on account of remittance into India. It is only where there is no evidence of remittance through proper channels that enquiry may arise. In the present case, the remittance is duly evidenced through banking channel and FIRC.
2.4.13 The Revenue is bound by CBDT circulars which are beneficial to the assessee. Therefore, when the CBDT itself has clarified that foreign remittances for investment purposes cannot be taxed in India merely because they are brought into India, the Ld. AO could not have made addition without any contrary evidence.
2.4.14 The Appellant also relies on CIT v. Lovely Exports (P.) Ltd., 216 CTR 195 (SC), wherein the Hon’ble Supreme Court held that where share application money is received from identified shareholders whose particulars are furnished, the Department is free to proceed against such shareholders in accordance with law, but the amount cannot be added in the hands of the recipient company merely on suspicion.
2.4.15 The principle laid down in Lovely Exports applies with greater force in the case of a non-resident investor, where the Appellant has furnished regulatory and banking evidence such as FIRC and FC-GPR acknowledgement. The Ld. AO has not carried out any enquiry through appropriate channels and has not brought any adverse material against the investor.
2.4.16 Reliance is also placed on Ravnet Solutions (P.) Ltd. v. ACIT, 93 taxmann.com 59 (Delhi Tribunal), where addition under section 68 was deleted in respect of foreign remittance where the assessee had furnished documents such as PAN/address details, bank statements, FIRC and FC-GPR filed with RBI.
2.4.17 The Ld. AO’s insistence on bank statements, ITRs and source of source of the foreign investor is legally misplaced. A foreign investor may not be subject to Indian tax filing requirements in the same manner as a resident investor. The Appellant cannot be expected to produce documents beyond its possession and control, particularly when it has already furnished primary documents proving identity, genuineness, banking trail and regulatory compliance.
2.4.18 If the Ld. AO still entertained any doubt, he was empowered to conduct enquiry through available statutory mechanisms, including section 133(6), section 131, reference to FT&TR division, or other permissible channels. Having failed to make any such enquiry, the Ld. AO could not shift the entire burden back on the Appellant.
2.4.19 It is settled law that suspicion, however strong, cannot substitute evidence. In the present case, there is no adverse material to disbelieve the foreign investment. No defect has been pointed out in the FIRC, FC-GPR acknowledgement, bank statement, incorporation documents or KYC report. Therefore, the addition is purely conjectural.
2.4.20 Hence, the addition of Rs. 4,05,15,697/- in respect of investment received from Tanglin Ventures Master Fund II Pte. Ltd. is beyond the scope of section 68 and deserves to be deleted.
3. The Lower Authorities ignored material evidence
3.1 The assessment order proceeds on the incorrect premise that the Appellant did not file any evidence. This finding is contrary to the record.
3.2 The Appellant had filed all primary documents necessary to establish:
a. identity of investors;
b. genuineness of transactions;
c. creditworthiness/source of funds, wherever legally required;
d. receipt through banking channel;
e. statutory compliance with RBI/FEMA in case of non-resident investment;
f. valuation under Rule 11UA.
3.3 No adverse enquiry, independent investigation, statement, material or report has been brought on record by the Revenue to rebut the documents filed by the Appellant.
3.4 Therefore, the addition is based on conjectures, surmises and suspicion, and the same deserves to be deleted.
PRAYER
From the above made submission it is prayed before your kind honour that the addition made by the Ld AO may kindly be deleted in the interest of justice.”
5. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities. In particular, he brought to our notice paras 7.3 to 7.5 of the order of ld. CIT (A).
6. Considered the rival submissions and material placed on record. We observed that assessee has issued preference shares to various investors and received share capital along with share premium. The AO observed that assessee has received huge share premium and not satisfied with the submissions made by the assessee to prove the genuineness and creditworthiness of the investors and proceeded to make the addition u/s 68 of the Act. We observed from the record that assessee has issued preference shares both CCPS & OCPS including share premium as under:
| a. Issued (CCPS & OCPS) in the earlier year | Rs.50,00,000 |
| Issued during the year : | |
| b. Issued to Venture Capital Fund | Rs.6,43,29,748/- |
| c. Issued to NRI Fund Tanghin Ventures Master Fund). | Rs.4,05,15,697/- |
| d. Balance to other resident shareholders | Rs. 56,35,385/- |
| Rs.11,54,80,830/- |
7. As discussed above, the issue of share capital in the year under consideration has to be adjudicated issue-wise, like shares issued in the previous and issued in the year under consideration for the purpose of section 68:
(a) For the shares issued in the previous year and the same was converted OCPS TO CCPS. Since the shares were issued and funds were already received in the previous year, the provisions of section 68 have no application.
(b) With regard to shares allotted to Venture Capital Fund during the year, it is noticed that Chiratae Venture Master Fund-IV is a registered Venture Capital Fund. Therefore, the 2nd Proviso to section 68 gives exemption to Venture Capital Fund. Therefore, to the extent of shares issued to Chiratae Venture Master Fund-IV, the addition made u/s 68 is deleted.
(c) Shares issue to Tanglin Venture Master Fund during the year, we observed that the investor fund is Non-Resident of India and the assessee had already complied with the KYC formalities and funds were transferred from Foreign Bank, the assessee also filed the FIRC for receipt of above funds. The issue is covered in the case of Russian Technologies Centre (P) Ltd. (supra). Therefore, this issue also decided in favour of the assessee.
(d) The other shares issued to resident shareholder during the year under consideration. Since the issue of shares based on the same valuation report and also the issue price adopted for issue of shares to NRI and Venture Capital Funds are same. Once we accept the issue of shares to them, at the same time, we cannot treat the shares issued to resident shareholders differently. Therefore, the shares issued during the year are treated as genuine.
In the result, all the shares and share premium issued during the year are treated as genuine and addition made by the AO u/s 68 of the Act is deleted.
8. In the result, appeal filed by the assessee is allowed as indicated above.
Order pronounced in the open court on this 24th day of August, 2026.
