Govt rejects charges of recovering angel tax from start-up firm

The government on Friday rejected allegations by a start-up firm that Rs 36 lakh was recovered from it as part of a recovery action on account of angel tax, a move that is now being discouraged in view of concerns raised by budding entrepreneurs.

The Central Board of Direct Taxes (CBDT), that frames policy for the Income Tax Department, issued a statement late night, saying the additions in the case of the company Travel Khana were made "under section 68 of the Income Tax Act on account of unexplained cash credits and not under section 56(2)(viib) on account of premium on shares, as has been alleged".

Section 56(2)(viib) of the I-T law deals with angel tax. Certain start-ups have raised concerns against notices being sent to them on this account and the government has assured that it will come out with solutions.

"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," the statement issued by CBDT spokesperson Surabhi Ahluwalia said.

Thus, she added, the addition was made only when the assessee failed to substantiate the source of the deposit resulting in demand of Rs 2.22 crore approximately.

She added that as 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 assessee.

"Thereafter, all the bank accounts of the company were released," it said.

"Thus, it is clear that the case of Travel Khana is not covered by the instruction issued by CBDT of December 24, 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 spokesperson said.

She added the firm also did not furnish the mandatory certificate of being a start-up firm from the Department of Industrial Policy and Promotion (DIPP) under the Commerce Ministry.

Notwithstanding the above, the spokesperson said, the benefit of doubt "should and must" be given to entrepreneurs.

"However, when after repeated reminders, records of funds received are not provided, the department is unfortunately left with no other choice. It is also our duty to prevent and expose suspected evasion," she said.