I-T dept disputes claim of Travel Khana over angel tax recovery, says only unexplained cash receipts penalised

The company did not provide records of funds received, despite repeated reminders, hence the department was unfortunately left with no choice

Yesterday, a shocking news had emerged that the bank account of a start-up was emptied by the Income Tax department due to the recovery of angel tax. It was reported that four bank accounts of Travel Khana was frozen, and around ₹33 lakh was withdrawn from the accounts towards due of angel tax. Travel Khana is a start-up company that delivers food for passengers of Indian Railways. The Angel Tax has raised lots of concern for start-up businesses, and the action on Travel Khana was seen as an example of Tax Terrorism.

But now the Central Board of Direct Taxes (CBDT) has issued a clarification saying that no Angel Tax was recovered from the bank accounts of the company. In a statement issued last night issued by CBDT spokesperson Surabhi Ahluwalia, CBDT says that tax was recovered from Travel Khana on account of unexplained cash credits and not on the premium of shares, as has been alleged.

The statement says that during the assessment of the company, the assessing officer had requested for confirmation of the persons from whom deposits had been received. Wherever confirmations were submitted, the same were accepted by the assessing officer. But for some cash deposits no confirmation about the depositors was received from the company, therefore proper show-cause notice was issued in such cases. CBDT says that due to the failure of Travel Khana in furnishing detail of depositors, a demand of around ₹2.22 crore was raised by the department.

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The statement clarifies that action against the company was taken under section 68 of the Income Tax department, not under section 56(2)(viib). The section 68 deals with unexplained cash credits, while the section 56(2)(viib) deals with premiums received on shares issued.

The CBDT also says that the company did not obtain a stay against the demand raised by the I-T department. Had they obtained a stay, recovery proceedings would not have been undertaken by the department, it says.

Due to the concerns about the Angel Tax among the start-ups, the government had issued an instruction prohibiting coercive measures for enforcing recovery of outstanding demand in Angel Tax cases. But CBDT says that Travel Khan is not eligible for this relaxation as the tax demand was for unexplained cash credit, not Angel Tax. Moreover, the company did not submit any certificate from DIPP indicating its status as start-up, which mandatory to obtain the relaxations. Had the company or its directors had furnished such a certificate, the situation would not have arisen.

The statement says that “the benefit of doubt should and must be given to our entrepreneurs. However when after repeated reminders, records of funds received are not provided, the department is unfortunately left with no choice.”

The full statement of CBDT can be seen below:

CBDT

Press Release – 08.02.2019

CBDT clarification

New Delhi: It has come to the notice of CBDT, through some media reports that Rs 36 lakh have been recovered from a start-up, namely, Travel Khana as part of recovery of outstanding demand on account of Angel Tax. It has been alleged that this was in violation of the CBDT instructions dt 24th December, 2018 pertaining to recovery of dues in Angel Tax cases.

On ascertaining the facts it is seen that the additions in the case were made u/s 68 of the Income-tax Act, 1961 on account of unexplained cash credits and not u/s 56(2)(viib) on account of premium on shares, as has been alleged.

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 taxpayer failed to substantiate the source of the deposit resulting in demand of Rs. 2.22 crore approximately.

The assessee did not obtain any stay in respect of the demand raised. Had the stay been obtained, recovery proceedings would not have been instituted by the department. 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 assesse. Thereafter, all the bank accounts were released.

It may also be noted that neither the assessee nor its Director submitted any certificate from DIPP to indicate its status of being a startup, either during the assessment proceedings or thereafter, which is a mandatory requirement as per extant instructions in the matter. Had such a certificate been furnished, this situation would not have arisen.

Thus, it is clear that the case of Travel Khana is not covered by the instruction issued by CBDT dated 24th December, 2018  prohibiting coercive measures for enforcing recovery of outstanding demand in Angel Tax cases as the addition was made under section 68 of the IT Act and not under section 56(2)(viib). Therefore, the action of the assessing officer of enforcing recovery of demand is not in violation of CBDT’s instructions.

The benefit of doubt should and must be given to our entrepreneurs. However when after repeated reminders, records of funds received are not provided, the department is unfortunately left with no choice. Our agencies also have a duty to prevent and expose suspected evasion.

 


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