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The Bangalore Income Tax Appellate Tribunal (ITAT) on Thursday dismissed an income tax appeal of adding 152 crore of undisclosed on Flipkart founders’ when they exited ‘UrbanTouch.com’ in 2012.

The income tax department in the assessment year 2013-14 had alleged that the founders of Flipkart had received an amount of USD 30 million as proceeds for sale of urbantouch.com and had accordingly made addition of 152 crore.

The AO (assessing officer) contended that the income from sale of shares has not been disclosed in the return of income filed by the assesse (UrbanTouch), ITAT said in the order.

In August 2012, the shares of UrbanTouch were transferred by its shareholders to Goldsquare for 12.33 crore. These shares were transferred by Tiger Global, Accel India, Sachin & Binny Bansal and Mukesh Bansal - collectively known as ‘angel investors’.

The business of UrbanTouch was later consolidated under Goldsquare and owing to huge losses, assessee sold off all its assets, domain name of www.urbantouch.com operated by it along with all other intellectual IP/brand assets to Goldsquare vide Brand Assets Assignment Agreement dated March, 2013 for 3 lakh.

However, the income tax department in its income addition order cited an ‘Economic Times’ report that the consideration has been received in both cash as well as in stock.

“The assessment is considered based on the material available on records by bringing to tax of Rs.152,31,66,000 as undisclosed income of the assessee under capital gains," the ITAT said quoting the AO order.

UrbanTouch argued that the investors had invested an amount close to 20 crores.

Therefore, it is impractical for the assessing officer to presume that the investors would receive an amount of 167 crores.

However, ITAT ruled that “the assessment in the instant case has been concluded based on a news article which does not in any case constitute adequate material on record".

Startup exits have more often than not attracted the scrutiny of tax officials that there is some undisclosed income or untaxed capital gains.

For instance, the Authority for Advance Rulings (AAR) in June this year had rejected a petition by US private equity firm Tiger Global claiming an exemption from tax on capital gains resulting from the 2018 sale of its Flipkart stake to Walmart.

Tiger Global had claimed nil withholding tax on the capital gains, since its investment firms that made the Flipkart investment were based in Mauritius. At least four rulings by AAR, have labelled investments through Mauritius as a tax avoidance route and thus not eligible for treaty benefits.

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