Income tax department seeks information from start-ups on creditworthiness of investors

The income tax department has sent notices on some start-ups, seeking information on the creditworthiness of their investors. The IT department wants to verify if the amount invested was commensurate with the income declared by the investors. Replying to a social media post of BharatPe co-founder and former MD Ashneer Grover, the tax department said under the law, the onus was on the assessee-company to provide the identity and creditworthiness of the investors as well as the genuineness of the transaction.  

“In the last month, several start-ups (a few in my portfolio as well) have received income tax notices asking to furnish information about shareholders,” Grover had said in a post on X, formerly Twitter, on September 8. 

“Bahut interesting hai (it is very interesting) — they are asking start-up companies to furnish a three-year ITR [income tax return] of all shareholders.” 

He further asked how and why the start-up would have ITR of shareholders.  

“Why would a shareholder/individual share their ITR with a private company?” Company shareholders aren’t given loans and instead are putting equity in the firm, he added. 

The income tax department in a post on X, replied to him, “Section 68 of Income-tax Act, 1961 (the Act) under which the assessing officer (AO) has enquired about the creditworthiness of the shareholder/investor, places the initial onus on the assessee-company to prove the following: Identity of the investor; Creditworthiness of the investor; and Genuineness of the transaction.”