IT Department Responds to Ashneer Grover on Notices Sent to Startups for Checking Investor Credentials

IT Department Responds to Ashneer Grover on Notices Sent to Startups for Checking Investor Credentials

Ashneer Grover, BharatPe co-founder and former Shark Tank India Judge, raised the issue of income tax department sending notices to startups to provide Income Tax Returns for the last three years. After Grover raised the issue on social media platform X (earlier known as TwitterX), IT department responded by saying that it is a practice for Assessing Officer (AO) to ask for ITR details to check the credentials of investors. The response from IT department quoted Section 142(1) of the I-T Act that enables the I-T department AO to issue a notice to seek more clarification or further details about the returns.

Grover has raised valid points here. Firstly, investors would not want to share their ITR and income details with investee companies. And, why should they share all their financial details, private investments and assets with investee companies. Grover has invested in many companies across various verticals and he isn’t comfortable sharing his financial details with startup founders. And, why he should even share these details with them.

Second issue I have in our mind. Is the Indian IT department so backward that they don’t have access to investor’s ITRs if the investor just shares his PAN Card or Aadhar Card. I am sure, any startup that has raised funding, received the funds via a bank transaction. The bank that opened the account, should have also collected Aadhar, PAN and other details of that individual before opening the account. So, ITR department has many ways to access this information, instead of asking the startups to furnish the ITRs. And, startups have to get these ITRs from each investor.

In his tweet, Grover mentioned, “In the last 1 month, a number of start-ups (a few in my portfolio as well) have received Income Tax notices asking to furnish information about shareholders.” Grover shared the notice on social media. It clearly asks for three year ITR filing of investors.

The question it raises is serious. Why would IT department ask for so much of information from startups when all this information should be easily accessible to any AO already. Even majority of banks have access to 26AS form of account holders. And, 26AS form offers a lot of information about investments and income of an individual. Even credit score agencies have a lot of information about every individual that has bank loan, automobile loan, home loan, personal loan, credit card or debit card.

It sounds strange that IT department would be so backward in India that they would ask startups to share all this information. They would have even seen all this information in IT return of the startup. And, even if the investment was done in the current financial year and no ITR has been filed yet by the startup, IT department should have only asked for PAN number or Aadhar Details of investors instead of three year ITRs.

Gover was not satisfied with the response from IT department and he asked Finance Minister to look into the matter.

IT department responded in detail (shared below). And, in fourth point, IT department agreed that just PAN number will be enough and AO can himself access IT returns of investors.

IT department’s response to Grover has been shared below.

1.Section 68 of Income-tax Act, 1961 (the Act) under which the Assessing Officer (AO) has made the enquiry about 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

2. 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.

3. 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.

4. Alternatively, if the PANs of the investors are shared with the AO by the Company, he can verify the ITRs of the investors.

5. This has been the practice as reflected in various tweets in the thread.

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