The Income Tax Department has issued a response to former BharatPe CEO Ashneer Grover’s inquiries regarding notices sent to startups, seeking three-year Income Tax Return (ITR) details of their investors and shareholders. In a Twitter post, the department provided clarification on the matter, emphasizing the legal provisions governing such requests.
The department’s response stated, “Dear @Ashneer_Grover, Section 68 of the Income-tax Act, 1961 (the Act) under which the Assessing Officer (AO) has made the inquiry about the 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.”
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.
Bahut interesting hai – they are asking start-up companies to furnish 3 year ITR of all shareholders. 1) How and why will… pic.twitter.com/f48593uE4T
— Ashneer Grover (@Ashneer_Grover) September 8, 2023
Furthermore, the department referenced the Finance Act of 2012, which 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 Venture Capital Funds or Venture Capital Companies registered with SEBI) must be explained under Section 68. This explanation is contingent upon the source of funds from a resident shareholder being explained by the investor.
“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 Income Tax Department clarified.
The department also mentioned the alternative approach of sharing the Permanent Account Numbers (PANs) of investors with the AO, allowing verification of the ITRs of the investors. This practice was stated to be reflected in various tweets in the thread.
This response from the Income Tax Department followed Ashneer Grover’s earlier questions and concerns regarding the notices received by startups. Grover had raised the issue of startups receiving Income Tax notices requesting information about their shareholders. He shared a copy of the IT department notice, which sought specific documents to substantiate the identity, ITR history, creditworthiness, and genuineness of transactions related to the share capital and premium accounts.
Expressing his concerns, Grover pointed out the contradictions in the situation and questioned why companies needed to furnish their shareholders’ ITR details and why shareholders would share such information with startups. He also called upon Finance Minister Nirmala Sitharaman to investigate the matter.