Income Tax Dept withdraws money for startups in the name of angel tax.

What came as a major blow for startups, the Income Tax department has taken money from bank accounts of many startups in lieu of angel tax. Just at the moment when the government is trying to resolve the issue.

The income tax department had frozen four bank accounts of TravelKhana and withdrew about Rs 33 lakhs as angel tax on investments raised by the company from angel investors.

The government has frozen three accounts of the company with ICICI Bank and one in State Bank of India.

Primarily all the angel tax-related issues are under section 56 and section 68 and the company TravelKhanna even had a tax liability of Rs 2.5 crore.

It was reported that four people went to the bank and they withdrew all the money from TravelKhanna using a demand draft and froze the account

Child healthcare website Babygogo’s CEO and co-founder Siddharth Ahluwalia has reportedly tweeted that his company has also left with no money after the tax department has deducted Rs 72 lakh as angel tax.

Babygogo had received a notice two months earlier from the income tax department saying that Rs 72 lakh needed to be paid as tax and on February 7, Rs 72 lakh was debited from the bank account of Babygogo and it has been debited through a demand draft in the name of assistant commissioner of income tax.

Ahluwala also said that they had communicated with the income tax department and there was no mention of any deduction. The I-T dept needed information on all the angel investors, their statement of account and what was the source of income. Babygogo provided them all the documents. So, the I-T department mentioned the final amount payable by them.

Rubbishing these allegations, the Central Board of Direct Taxes (CBDT) said, “During the assessment proceedings, the assessing officer requested for confirmation of the persons from whom deposits had been received. Wherever confirmations were submitted, the same were accepted by the assessing officer and no addition was made. However, where no confirmations were furnished by the assessee, the assessing officer made the addition after issuing proper show-cause notice and obtaining reply in the matter. Thus, the addition was made only when the assessee failed to substantiate the source of the deposit resulting in demand of Rs. 2.22 crore approximately.”

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, it said in a statement.

The CBDT also said the director of TravelKhana did not submit any certificate from DIPP to indicate its status of being a startup, either during the assessment proceedings or thereafter. They felt that if such a certificate had been furnished, this situation would not have arise.

CBDT said that even after repeated reminders, records of funds received were not provided, the Department was unfortunately left with no other choice. They said that it was their duty to prevent and expose suspected evasion.

Touted as an anti-abuse measure, angel tax was introduced in 2012.

In January, the government had made it easier for startups to seek income tax exemption on investments from angel funds and prescribed a 45-day deadline for such applications.

The new procedure says that to get exemption, a startup must apply, with all documents, to the Department for Promotion of Industry and Internal Trade (DPIIT). The application of the startup shall then be moved to CBDT. A startup recognised by DPIIT would be eligible to seek exemption, subject to certain conditions.