Former Shark Tank India judge Ashneer Grover has questioned the Income Tax Department’s notice seeking startups to share three-year ITR details of their investors/shareholders to the Income Tax Department.
Ashneer Grover’s criticism
Ashneer Grover has publicly criticized the Income Tax Department’s notice. He argued that this move could potentially deter investors from investing in Indian startups, thereby hampering the growth of the sector. Grover emphasized that the notice is an unnecessary burden on startups, which are already grappling with various challenges.
In a tweet, Ashneer who also shared a copy of the IT department notice, wrote, “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 the 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.
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
“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 fulfil details of investors’ ITR as contradictory to the situation and asked the need for companies to have shareholders’ ITR and why shareholders will share their ITR with startups. At the end, he also requested Finance Minister Nirmala Sitharaman to look into the matter.
“Bahut interesting hai – they are asking start-up companies to furnish 3 year ITR of all shareholders. 1) How and why will companies have ITR of shareholders ! 2) Why would a shareholder/individual share their ITR with a private company ?And reason likha hai ‘to establish creditworthiness of shareholders’ ? Kyun ? Company shareholder ko loan thode nahi de rahi ? Ulta shareholder ne company mein equity daal rakhi hai. Request @FinMinIndia to please look at it,” Ashneer wrote in a tweet on Friday.
The IT Department’s response to Ashneer’s criticism
The Income Tax Department clarified that the request for investors’ ITR details has been a standard practice.
The department emphasized that this procedure is in line with the existing provisions under the Income Tax Act, which mandates the scrutiny of high-value transactions to prevent money laundering and other fraudulent activities. The department reassured that this practice is not new and is aimed at ensuring transparency and compliance with the tax laws.
In a post on ‘X’, the IT department said, “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.”
It said that 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,” it said. It further said that 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,” it explained.
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