text: 10 Dec'18 9 min read
  The Policy Team at iSPIRT has championed the mitigation of this section (section 56(2)(viib) of the Income Tax Act, 1961) and have made several representations to DIPP, CBDT and the government in this regard. We've even spoken about the dreaded Section 68 – which deals with unexplained cash credits and its implications on your fundraise. We've had some success in the recent mitigations announced for startups (no angel tax up to INR 10 Cr of funding received, the introduction of an "accredited investor", etc) but there are still miles to go before entrepreneurs can rest easy.
  While the law still remains the same, recent rulings from the Income Tax Appellate Tribunal hearings. We at the Policy Team at iSPIRT have taken it upon ourselves to summarise these proceedings for all the Indian entrepreneurs so that if you're faced with this dreaded situation, these rulings should be able to come to your aid. For those who enjoy tax proceedings, a helpful link to the judgments is given below each case.
  The credible evidence being sought is also illustrated in the notice:
  In the given case, the Assessee (Sunshine Metals & Alloys India Pvt Ltd) had received INR 35 lakhs from certain entities in regard to the issue of shares by the Assessee. The Assessee had taken this amount through normal banking channels, obtained the PAN of the investors and allotted the share certificates to them as well. Whereas the Assessing Officer had charged the amount so received as income under section 68, in spite of all these documents being produced.
  Furnishing of the identity, PAN, share application forms and proof that the shares were allotted to the applicants via normal banking channels with no back-transactions to the investor or their affiliates fulfils the onus of establishing the identity on the assessee's behalf, with the department having the onus to prove creditworthiness.
  normal banking channels
  Click here to read the relevant ruling.
  However, as always, the devil is in the details. The Act places further conditions on this valuation by making this mathematical process fit the better judgement of the tax officer by placing the burden of conviction upon the Assessee to satisfy the Assessing Officer as to the valuation. It's hard enough satisfying investors as to a startup's valuation, but adding tax officers to the mix is a very heady combination for any entrepreneur.
  The Summary of the judgement
  As long as they are applied consistently, the choice of valuation method rests solely with the Assessee and not with the Assessing Officer.
  If anyone has received an angel tax notice this year or one that has not been resolved, please do write it to us at [email protected] so that we at iSPIRT can help in whatever way we can. Do refer to the earlier writings on these matters to that you're aware of what's required to navigate these notices.
  All links provided as from websites whose links have been displayed. iSPIRT, 3one4 Capital or the author are not affiliated to any of these sites
  The matters presented here are a summary of various judgements and are not a formal opinion of iSPIRT, 3one4 Capital or the author. Any scrutiny notice should be discussed with your relevant professionals and the purpose of the article is merely educational