Assessee company needs to prove investor credentials: Income tax dept

NEW DELHI: The income

tax department

on Friday said that the burden of proof to establish the creditworthiness of an investor is on the company whose returns are being assessed. The statement came after BharatPe co-founder and former MD Ashneer


posted a questionnaire sent by the tax department to some


seeking details.
“In the last one month, a number of startups (a few in my portfolio as well) have received I-T notices asking to furnish information about shareholders. Bahut interesting hai – they are asking startup companies to furnish 3-year


of all shareholders. 1) How and why will companies have ITR of shareholders! 2) Why would a shareholder/individual share their ITR with a private company?” Grover posted on X on Friday.
Responding on the same platform, the tax department said that Section 68 of the I-T Act, under which the details have been sought, places the initial onus on the “assessee-company” to prove the identity and creditworthiness of its investors as well as genuineness of the transaction.
Grover told TOI that three of his portfolio companies have received the notice, which mandates firms to provide the ITR of the last three years of their investors besides other details like name, address and PAN.

The tax department said that this has been the practice, something that was confirmed by others.
Siddarth Pai

, founding partner at 3one4 Capital, said startups have been receiving such notices for the past several years. “As startups struggle with managing operations under capital constraints, such notices will further spook investors who may be looking at them. Forcing startups to obtain such confidential information as tax returns of the investors – which is available to the tax department – places them in an impossible position,” Pai told TOI.

“The department should use its powers under section 133(6) to directly ask investors for information as opposed to making startups the middlemen,” Pai said.

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