In order to provide hassle-free tax environment to the start-ups, a series of announcements had been made by the Finance Minister in her Budget Speech of 2019 and also on August 23, 2019. To give effect to these announcements, the Central Board of Direct Taxes ('CBDT') issued various circulars/clarifications in the matter from time to time, which have been consolidated into a single circular dated August 30, 2019, highlighting the following:
i. Simplification of process of assessment of start-ups: Circular No. 16 of 2019 dated August 7, 2019 provided for the simplified procedure pending assessment of start-ups. The circular covered (a) cases under "limited scrutiny", (b) cases where multiple issues including issue of Section 56(2)(viib) of the Income-tax Act, 1961 ('IT Act') were involved or (c) cases where Form No. 2 was not filed by the start-up entity. Detailed process of obtaining mandatory approval of the supervisory authorities for conducting enquiry was also specified in by this circular. The circular also provided that all cases involving "limited scrutiny" should be completed preferably by September 30, 2019 and the other cases of start-ups should be prioritized and completed preferably by October 31, 2019.
ii. Procedure for addition made u/s 56(2)(viib) in the past assessment: By way of clarification issued on August 9, 2019, it was provided that the provisions of Section 56(2)(viib) of the IT Act would also not be applicable in respect of assessment made before February 19, 2019 if a recognized start-up had filed declaration in Form No. 2. On this basis, the pending appeals before Commissioner of Income Tax (Appeals) are required to be disposed by December 31, 2019. Further, the addition made under Section 56(2)(viib) would also not be pressed in further appeal.
iii. Income-Tax demand: It has been reiterated that outstanding income-tax demand relating to additions made under Section 56(2)(viib) would not be pursued and no communication in respect of outstanding demand would be made with the start-up entity. Other income-tax demand of the start-ups would not be pursued unless the demand is confirmed by Income-tax Appellate Tribunal.
iv. Constitution of Start-up Cell: By way of order dated August 30, 2019, CBDT has constituted a Start-up Cell to redress grievances and to address various tax related issues in the cases of start-ups.
Previously published on September 30, 2019.