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Business News/ Companies / Start-ups/  ‘Identity of the investor’, IT dept after Ashneer Grover raises questions over notices to startups

The Income Tax department on Friday responded to former BharatPe CEO Ashneer Grover's questions over notices being issued to startups for documents related to three-year ITR details of their investors and shareholders.

In a post on X (formerly Twitter), the IT department wrote, “Dear @Ashneer_Grover, Section 68 of the Income-tax Act, 1961 (the Act) under which the Assessing Officer (AO) has made the inquiry about creditworthiness of the shareholder/investor, places the initial onus on the assessee-company to prove the following: Identity of the investor, Creditworthiness of the investor and Genuineness of the transaction."

The Finance Act, 2012 mandated that the nature and source of any sum credited as share capital, share premium, etc., in the books of a closely held company (excluding a Venture Capital Fund or a Venture Capital Company registered with SEBI) shall be treated as explained under section 68 only if the source of funds from a resident shareholder is also explained by the investor, the post read.

“In the present case, it appears that the AO has sought to examine the genuineness of the transaction and source of investment by the shareholder-investor, to verify if the amount invested is commensurate with the income shown in the ITRs of the investors," the IT department said.

It added, “Alternatively if the PANs of the investors are shared with the AO by the Company, he can verify the ITRs of the investors. This has been the practice as reflected in various tweets in the thread."

This came after Ashneer Grover again questioned the Income Tax Department's other notice. The notice asked startups to share the three-year ITR details of investors with the IT department.

Sharing the ordeal of a few startups, Ashneer Grover, said that they had received Income Tax notices that are asking to furnish information about shareholders. He specifically pointed towards that part of the ITR notice that asked start-up companies to furnish three-year ITR for all shareholders.

Former Shark Tank India judge also shared a copy of the IT department notice. In the notice, the IT department sought certain documents under section 142 (1) of the Income-tax Act.

“Provide documentary evidence to substantiate the identity and ITR of last three years of shareholders to substantiate the creditworthiness of the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital /premium account," as stated in the IT department's notice.

“In the last 1 month, a number of startups (a few in my portfolio as well) have received Income Tax notices asking to furnish information about shareholders," he said in his tweet.

He later went on to regard the need to fulfill details of investors' ITR as contradictory to the situation and asked about the need for companies to have shareholders' ITR and why shareholders will share their ITR with startups. In the end, he also requested Finance Minister Nirmala Sitharaman to look into the matter.

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Updated: 09 Sep 2023, 07:35 AM IST
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