Yesterday, the news portal etrackr published an article on how the Income Tax department had frozen four bank accounts of TravelKhana (Duronto Technologies Pvt Ltd) and withdrew about Rs 33 lakhs on a pretext of tax liability on investments raised by the company from Angel investors. The website claimed that this was done despite the government’s assurance “not to torture startups over section 56 and 68 of the Income Tax Act – notably taxes to authorise assessing officers of taxing valid legal Angel money invested into startups.”
The website further quoted Founder and CEO of TravelKhana on the issue, “We had raised investment from several angel investors in the FY 2015-16. Since past several months, Income Tax department has been asking certain set of questions over raised amount including the validity of the investors under Section 68. We were duly answering their questions and complying with the legal process including sharing that we were a startup being pioneers of our field and having some very reputed and respected investors.”
This news was readily picked up by several prominent twitter users to target the government over angel tax and how it was detrimental to startup ecosystem.
This is how PM Modi's #StartUpIndia is being killed, startup by startup, by tax collectors. There is no end to #AngelTax extortion despite promises to the contrary by the PM and his Ministers. Wonder who is in charge. @PiyushGoyal @sureshpprabhu https://t.co/tVZ5WJNLbI
— Kanchan Gupta (@KanchanGupta) February 8, 2019
— Chandra R. Srikanth (@chandrarsrikant) February 8, 2019
This suggests @ceo_uidai @PiyushGoyal @arunjaitley @narendramodi that govt unable to enforce its writ. If you've said angel tax solution will be found,then why is this happening? It makes a complete mockery of all your talk of ease of doing business @Product_Nation @TVMohandasPai https://t.co/a4XaUkNyjN
— Sunil Jain (@thesuniljain) February 8, 2019
@PMOIndia @narendramodi @sureshpprabhu @arunjaitley @PiyushGoyal Sir Tax Terrorism atwork!While DIPP works on solution,IT seizes bank Accts!very disappointing,all start ups angry at this naked display of tax terrorism?CBDT promised no coercive action,broken promise @thesuniljain https://t.co/ISG2mafKrU
— Mohandas Pai (@TVMohandasPai) February 8, 2019
However, CBDT soon issued a press release on the issue. According to the CBDT press release, “In the assessment of Duronto Technologies Pvt. Ltd. (TravelKhana), addition was made under section 68 of the IT Act (ie. Additions relating to laundering of unaccounted income in the books of accounts in the form of cash credits) and demand of 2.5 cr was raised.”
The CBDT further clarifies that TravelKhana also did not obtain any stay on the demand raised. It further notes, “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 assessee. Thereafter, all the bank accounts were released.”
The CBDT concluded that TravelKhana’s case was not covered under the CBDT notification from Dec. 24 last year that said no coercive action would be taken against any of the startups that had received demand orders from the income tax office.
It should be noted that the Modi government had recently simplified the process for startups seeking exemption from ‘angel tax’. The government eliminated the need for certification from an inter-ministerial body for the process of tax exemption. Now, such applications are set to be routed through the department of industrial policy and promotion (DIPP) and processed by Central Board of Direct Taxes (CBDT) within 45 days. “No committee, no certificate of valuation needed. All previous and future investments are covered. Startups incorporated before April 2016 are also covered,” said DIPP official.