CBDT Issues Clarification Regarding Assessment of Startup Companies Subsequent to FA 2023 Amendments

F.NO. 173/149/2019-ITA-1, dated 10-10-2023

Section 56(2)(viib) provides the taxability of consideration received for the issue of shares if the aggregate consideration received for such shares exceeds the fair market value of the shares. Earlier, this section was applicable only if the consideration for the issue of shares was received from a resident person.

The Finance Act, 2023 amended Section 56(2)(viib) and omitted the words ‘being a resident’, thereby extending the provision to the consideration received from any person, including non-residents.

By way of Notification No. 13/2019, the Startup companies (recognised by the DPIIT and fulfilling conditions as prescribed) were exempted from this provision if the consideration was received from a resident person. Subsequent to such amendment, various Startup companies were selected for scrutiny under CASS on the basis of the applicability of this section.

Now, the CBDT has issued a clarification shedding light on the disposal of such assessments.

a) Where the case was selected for a single issue on the applicability of section 56(2)(viib)

Where the case of a startup company has been selected for scrutiny on the issue of the applicability of this section, it has been clarified that no verification of such issue shall be done by the AO during the proceedings under Section 143(2) or Section 147 of the Act. The contention of te Startup company will be summarily accepted.

b) Where the case was selected for multiple issues, including the issue under Section 56(2)(viib)

Where the case of a startup company has been selected for scrutiny with multiple issues, including the applicability of this section, the issue of applicability of this section shall not be pursued during the assessment proceedings. However, due procedure is to be followed for other issues for which the case was selected.

Click Here To Read The Full Updates