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Even though the Central Board of Direct Taxes (CBDT) wants to relax its regime for start-ups to accept ₹25-crore investment from “angel investors”, the Supreme Court has advised “careful scrutiny” in the practice of conversion of un-accounted money particularly so in the case of private placement of shares.
The CBDT just days ago allowed start-ups to avail full angel tax concession on investments worth up to ₹25 crore from an earlier set threshold of ₹10 crore.
But the apex court directions may only end up exciting tax assessment officers, who now have a clear way in going behind start-ups accepting angel investments of any amount, legal experts said. SC judges U U Lalit and Indu Malhotra said in one of their orders this week that the practice of conversion of un-accounted money through the cloak of share capital, premium must be subjected to careful scrutiny. Further, the SC said that onus to prove the genuineness of the transaction “to the satisfaction of assessing officer (AO)” was on the assessee. Such a direction may make it stress-full for start-ups to accept huge amounts from little known investors, as it puts the onus to stand guarantee on the creditworthiness of the investors on the start-up receiving the funds, experts told BusinessLine .
On the point of both “onus” and “careful scrutiny” of share capital and premium, the SC has further stressed that it would be particularly so in the case of private placement of shares, “where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee.”
The SC was hearing a case involving a Delhi based company NRA Iron and Steel that received ₹17.6 crore as share capital and premium from companies situated in Mumbai, Kolkatta and Guwahati. On investigating the companies that invested the money, tax officials found many had small operations, some were non-existent. The assessment officer in this case added the entire share capital or premium amount to the assessee’s books for tax. NRA argued it received entire share capital through normal banking channels and produced documents to establish the identity and genuineness of the transaction. And hence its stood fully discharged. SC refuted these arguments proof of identity of the creditors; capacity of creditors to advance money and genuineness of transaction will remain to be proved by the assessee.
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