<p>The Income Tax Department has sent letters to several businesses in an effort to learn more about the creditworthiness of their investors as it checks to determine whether the amount invested is reasonable given the investors’ claimed income.<img decoding=”async” class=”alignnone wp-image-169808″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/09/theindiaprint.com-startups-are-sent-letters-by-the-income-tax-department-to-assess-their-investor-tr.jpg” alt=”theindiaprint.com startups are sent letters by the income tax department to assess their investor tr” width=”1232″ height=”690″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/09/theindiaprint.com-startups-are-sent-letters-by-the-income-tax-department-to-assess-their-investor-tr.jpg 300w, https://www.theindiaprint.com/wp-content/uploads/2023/09/theindiaprint.com-startups-are-sent-letters-by-the-income-tax-department-to-assess-their-investor-tr-150×84.jpg 150w” sizes=”(max-width: 1232px) 100vw, 1232px” title=”Startups are sent letters by the income tax department to assess their investor trustworthiness 3″></p>
<p>In response to a social media post by BharatPe co-founder and former MD Ashneer Grover, the tax department said that under the law, it was the assessee-company’s responsibility to produce proof of the investors’ identities and creditworthiness as well as the transaction’s veracity.</p>
<p>Grover had said in a post on X, previously Twitter, on September 8 that “a number of startups (a few in my portfolio as well) have received Income Tax notices asking to furnish information about shareholders in the last one month.”</p>
<p>“Bahut interesting hai (it is very interesting) – they are asking start-up companies to furnish a three-year ITR [income tax return] of all shareholders.”</p>
<p>He continued by enquiring as to how and why a startup would have ITR of shareholders. Why would a shareholder or person give a private corporation access to their ITR?</p>
<p>He continued by saying that the goal is to “establish the creditworthiness of shareholders.” Why? he questioned. He stated that stockholders of the company don’t get loans; rather, they invest their own money in the business, requesting further investigation from the Union Ministry of Finance.</p>
<p>The Income Tax Department responded to him by posting on X that “Section 68 of Income-tax Act, 1961 (the Act), under which the Assessing Officer (AO) has made the enquiry about the creditworthiness of the shareholder/investor, places initial onus on the assessee-company to prove the following: a) Identity of the investor, b) Creditworthiness of the investor, and c) Genuineness of the transaction.”</p>
<p>The article continued by saying 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 Venture Capital Fund or a Venture Capital Company registered with SEBI) shall be treated as explained u/s 68 only if the source of funds from a resident shareholder is also explained by investor.”</p>
<p>In response to Grover’s instances, it was said that “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 investors’ ITRs.”</p>
<p>As an alternative, it requested that the investors’ permanent account numbers, or PANs, be supplied in order to verify their income tax reports.</p>
<p>“This has always been the practice,” it continued.</p>
<p>Mohandas Pai, a co-founder of Infosys and an investor, chimed in to call this “misleading”.</p>
<p>He initially commented on Grover’s first post, “sir tax terrorism is increasing!,” and then tagged Prime Minister Narendra Modi and the Prime Minister’s Office (PMO). This goes against all you have fought for. Please step in.</p>
<p>In that capacity, he included the national head of the BJP Yuva Morcha and MP Tejasvi Surya, as well as PC Mohan, the BJP’s representative for Bengaluru Central.</p>
<p>He re-posted when the Income Tax Department explained the situation, indicating that providing the PAN of the investors is an alternative to providing three years’ worth of income tax returns.</p>
<p>He called out the Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, and the Union Ministry of Finance, saying, “Again this is misleading.” The law requires you to request a PAN. But how can you also demand the investor’s three years’ worth of tax returns from the start-up? Does the law allow this? According to @IncomeTaxIndia, Pan is adequate. Why the overreach, he questioned.</p>
<p>Pai’s X post was republished by Grover.</p>
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Startups are sent letters by the income tax department to assess their investor trustworthiness
