CBDT Press Release On ‘Angel Tax Terrorism’ Of Start-Ups

The CBDT has been criticized over alleged ‘tax terrorism’ of two award-winning start-ups named ‘Travel Khana’ and ‘Baby Go Go’. It is alleged that the AOs attached the bank account and withdrew funds, leaving the start-ups high and dry. It is claimed that nearly 2500 start-ups are in similar dire state over tax demands. The CBDT has issued a press release to clear the air and has claimed that all procedures were diligently followed by the AO and the start-ups are to blame for non-compliance

CBDT Press Release:

CBDT Press Release 08.02.2019

CBDT clarification

New Delhi: It has come to the notice of CBDT, through some media reports that Rs 36 lakh have been recovered from a start-up, namely, Travel Khana as part of recovery of outstanding demand on account of Angel Tax.

It has been alleged that this was in violation of the CBDT instructions dt 24th December, 2018 pertaining to recovery of dues in Angel Tax cases. On ascertaining the facts it is seen that the additions in the case were made u/s 68 of the Income-tax Act, 1961 on account of unexplained cash credits and not u/s 56(2) (viib) on account of premium on shares, as has been alleged.

During the assessment proceedings, the assessing officer requested for confirmation of the persons from whom deposits had been received. Wherever confirmations were submitted, the same were accepted by the assessing officer and no addition was made.

However, where no confirmations were furnished by the assessee, the assessing officer made the addition after issuing proper show-cause notice and obtaining reply in the matter. Thus, the addition was made only when the taxpayer failed to substantiate the source of the deposit resulting in demand of Rs. 2.22 crore approximately.

The assessee did not obtain any stay in respect of the demand raised. Had the stay been obtained, recovery proceedings would not have been instituted by the department. Since there was no stay against recovery and the demand had become due, the department recovered Rs. 36 lakh after attaching the bank accounts of the assesse.

Thereafter, all the bank accounts were released. It may also be noted that neither the assessee nor its Director submitted any certificate from DIPP to indicate its status of being a startup, either during the assessment proceedings or thereafter, which is a mandatory requirement as per extant instructions in the matter.

Had such a certificate been furnished, this situation would not have arisen.

Thus, it is clear that the case of Travel Khana is not covered by the instruction issued by CBDT dated 24th December, 2018 prohibiting coercive measures for enforcing recovery of outstanding demand in Angel Tax cases as the addition was made under section 68 of the IT Act and not under section 56(2)(viib). Therefore, the action of the assessing officer of enforcing recovery of demand is not in violation of CBDT’s instructions.

The benefit of doubt should and must be given to our entrepreneurs. However when after repeated reminders, records of funds received are not provided, the department is unfortunately left with no choice.

Our agencies also have a duty to prevent and expose suspected evasion.

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  1. […] Click here to download CBDT’s office order dated 30th August 2019 See also: CBDT Bails Out Start-Ups &Angel Funds From Tax Terrorism Of AOs See also: CBDT Press Release On ‘Angel Tax Terrorism’ Of Start-Ups […]

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