 | « Back to article | Print this article |
The income tax department is not only trying to bring down the potential inflow to exchequer from Rs 39,000 crore to Rs 10,049 crore, but it also seems under prepared to even defend that Rs 10,049 crore.
The income tax (IT) department seems to have quietly thrown a spanner in the works on the Securities and Exchange board of India (Sebi)'s two-year-long efforts to implement the Supreme Court order against the two Sahara group firms Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Invest Corporation (SHICL).
Rapped by the apex court for not doing enough, the IT department recently woke up and impleaded itself before the bench hearing the contempt proceedings, saying it has passed assessment orders treating the entire collections by the two firms as 'undisclosed income' and has raised a tax demand totalling Rs 10,049 crore (Rs 100.49 billion).
The move comes more than three full years after the last penny was raised by the two firms in April 2011. Sahara has promptly contested this order saying that the original documents pertaining to these are in the custody of Sebi.
According to Sebi, Sahara's dues have swelled to about Rs 39,000 crore (Rs 390 billion) and it has so far deposited Rs 8,237 crore (Rs 82.37 billion) in cash. Assuming the group secures the release of its chief Subrata Roy on interim bail, it would have deposited Rs 10,120 crore (Rs 101.20 billion) in cash and another Rs 5,000 crore (Rs 50 billion) in bank guarantee.
At this juncture, the IT department's intervention has opened a scope for the argument that if the tax department's finding was that the investors are not there, then who is Sebi going to refund?
Sahara lawyers have already pointed out this inconsistency. Has the tax department in its eleventh-hour zeal to protect its honour and dues inadvertently thrown a lifeline for the beleaguered group to cling on?
What if the group turns the argument to say 'Sebi is unable to find investors and tax department says there are none and therefore let me pay Rs 10,049 crore and settle this'? If this is going to be treated as a tax case, the government's claim may be limited to this amount.
The court has not given any indication that it would consider altering the original order in any manner, but this could be one of the matters for consideration of the amicus curiae, Shekar Naphade, whose guidance the court would rely on.
The department is well within its rights to make its claims. But has it done enough groundwork to support these huge orders? Its track record is not very flattering.
In January, the Income Tax Appellate Tribunal ruled in favour of the Sahara group saying Section 68 of the IT Act contemplates that the satisfaction of assessment officer has to be exercised on each deposit or cash credit and that the section does not prescribe any "adhoc or estimated addition".
Now, how did the IT department arrive at the conclusion that the investors of SIRECL and SHICL are bogus? It did a survey of 800 investors and found that a majority of them were non-existent.
Seriously? A survey of 800 people to authenticate 29.6 million! That is 0.0027 per cent. What kind of sample is that? It looks lethargic in front of the monumental efforts put up by Sebi in making sense of the truckloads of documents and even refunding over Rs 1 crore to investors and is doomed to fail the Section 68 test.
Thus, the income tax department is not only trying to bring down the potential inflow to exchequer from Rs 39,000 crore to Rs 10,049 crore, but it also seems underprepared to even defend that Rs 10,049 crore.
