The Finance Ministry has simplified the process of assessment in the case of Startup entities.

In cases where scrutiny assessments of Startup entities are pending, the CBDT has decided that:

i) In case of Startup Companies recognized by 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),the contention of the assessee will be summarily accepted.

ii) In case of Startup 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), 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.

iii) In case of Startup 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.

In addition to the above, the Central Government has further decided to relax Para-6 of the DPIIT notification No.127 (E) dated 19.02.2019 and make it clear that this notification will also be applicable to Startup Companies where addition under section 56(2)(viib) has been made and the assessee has been recognized by DPIIT and subsequently filed Form No. 2. The Circular to this effect in F.No 173/149/2019-ITA-1 of CBDT dated 8th August, 2019, has been placed on www.incometaxindia.gov.in.

Startup assessment procedure: section 56(2)(viib) challenges limited for recognized startups, supervisory approval required for further inquiry. Assessment procedure for startups limits pursuit of section 56(2)(viib) challenges: DPIIT-recognized startups that filed Form No. 2 will have single-issue scrutiny under that section summarily accepted; where multi-issue scrutiny includes that section, it will not be pursued without supervisory approval and other issues may be examined only after such approval; recognized startups without Form No. 2 also require supervisory approval before inquiry. The DPIIT notification's scope is relaxed to apply where additions under section 56(2)(viib) were made and recognition plus Form No. 2 filing occurred subsequently.