Consolidated Circular For Income Tax Assessment Of Startups
In order to encourage the start-up and to provide ease Tax Compliance, Central Board of Direct Tax has issued Consolidated circular dated August 30, 2019 for Assessment of Start-ups to give effect of Honourable Finance Minister Speech in the Budget.
This Circular provides clarification regarding the following:
- Assessment for start-ups.
- Time Limit for Completion of pending assessments of start-ups.
- Procedure of addition made u/s 56(2) (viib) in the past assessment.
- Income Tax demand relating to additions made u/s 56(2) (viib).
- Constitution of Start-up cells.
Detailed clarification in the circular for the above-mentioned particulars:
1. Assessment for start-ups:
The circular No. 16/2019 dated 7th of August 2019 provided for the following procedure for pending assessment of the Start-ups: -
- In case of Start-up companies recognized by Department for Promotion of Industry and Internal Trade (DPIIT) which have filed Form No. 2 and whose cases are under “limited scrutiny” on the single issue of applicability of section 56(2)(viib) of the Income-tax Act, 1961 (the Act), the contention of the assessee will be summarily accepted.
- In case of Start-up companies recognized by DPIIT which have filed Form No. 2 and whose cases have been selected under scrutiny to examine multiple issues including the issue of section 56(2)(viib)of the Act, this issue will not be pursued during the assessment proceedings and inquiry on other issues will be carried out by the Assessing Officer only after obtaining approval of the supervisory authority.
- In case of Start-up Companies recognized by the DPIIT, which have not filed Form No. 2, but have been selected for scrutiny, the inquiry in such cases also will be carried out by the Assessing Officer only after obtaining approval of the supervisory authorities.
2. Time Limit for Completion of pending assessments of start-ups
All Assesses who have filed Form-2 and Cases are under “limited Scrutiny” should preferably be completed by the AOs by 30th September 2019. The assesses who have filed Form-2 and having multiple issues for scrutiny and not having filed Form-2 respectively should be taken up on priority and should be preferably completed by 31st October 2019.
3. Procedure for addition made U/s. 56(2) (viib) in the past assessment
The clarification issued on 9th August,2019 provided that the provisions of the section 56(2) (viib) of the Act shall also not be applicable in respect of assessment made before 19th February 2019 if a recognised Start-ups has filed declaration in Form No. 2. The following procedure is laid down with regard to addition made under section 56(2) (viib) of the Act in assessment order passed before 19th February 2019: -
- In case the appeal against the assessment is pending before the Commissioner of Income-tax (Appeal)ICIT(A)1, the appellate order should be passed by CIT(A) on or before 31st December, 2019 after taking into account the fact that the Start-up has filed declaration in Form No. 2 and hence the provisions of section 56(2)(viib) of the Act are not applicable for the addition made under section 56(2)(viib) of the Act before 19th February, 2019. The Department shall not file further appeal on the issue of addition made under section 56(2) (viib) of the Act;
- In case the case is pending before the ITAT, the Department shall not press the ground relating to addition under section 56(2) (viib) of the Act in these cases.
4. Income Tax demand relating to additions made u/s 56(2) (viib):
It is reiterated that the outstanding income-tax demand relating to additions made under section 56(2) (viib) shall not be pursued and no communication with the assessee in respect of outstanding demand shall be made for this purpose. In respect of other income-tax demand, it is decided that the income-tax demand shall not be pursued unless the demand is confirmed by the ITAT.
5. Constitution of Start-up cells:
In order to redress grievances and to address various tax related issues in the cases of Start-ups, a Start-up Cell is constituted on 30th August 2019 with the following ex-officio members: -
|4.||Director (ITA-I)||Member Secretary||011-23092107|
|5.||Under Secretary (ITA-I)||Member||011-23095479|
Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."