The Supreme Court on Friday stayed the income tax department's decision to initiate reassessment proceedings against Dalmia Bharat and its two subsidiaries - Dalmia Cement (Bharat) and Dalmia Power - for assessment year 2011-12.
The issue relates to an investment of Rs 500 crore made by KKR Mauritius Cement Investments (KKR) in Dalmia Cement (Bharat) in financial year 2010-2011 (Assessment Year 2011-2012). KKR was allotted 37.92 million equity shares, accounting for 14.99% of the stake in the company. The shares were bought back by Dalmia Bharat (DBL) in 2016 for Rs 1218 crore.
A Bench led by Chief Justice BR Gavai sought response from the income tax department on three separate appeals by Dalmia group firms challenging the Madras High Court's order upholding the income tax department's reassessment proceedings.
DBL and its two subsidiaries argued that the transaction of the alleged purchase of shares by DBL from KKR is not even applicable in the relevant AY - 2011-2012 as there wasn't even a buyback. It was a simple sale transaction from KKR to DBL, senior counsel D Seshadri Naidu, appearing for the companies, argued.
They submitted that even the jurisdictional requirement of Section 147 of the Income Tax Act, as to ‘where income chargeable to tax has escaped assessment' is not satisfied in the Reasons for Reopening (Explanation 2 to section 147 of the IT Act).
The Reasons for Reopening do not even justify reopening of the assessment after a period beyond four years, the appeals filed through counsel Mahesh Agarwal stated.
Apart from the fact that all investments were through banking channels and RBI approvals, the investment itself was disclosed in the audited accounts with the Ministry of Corporate Affairs (compliances under Companies Act, 1956) and Reserve Bank of India for compliances under Foreign Exchange Management Act, 1999, the companies said.
“Details of KKR’s investments in petitioner, therefore, have been disclosed to various regulatory authorities, including the tax authorities in the relevant AY 2011-2012,” the appeals stated, adding that the Reasons for Reassessment are “wholly vague and ambiguous.”
Dalmia told the SC that no income is alleged to have escaped assessment on account of the investment KKR. On the contrary, the department had alleged that the shareholding of KKR in DCBL has been bought back by DBL from KKR at a value more than Rs 1200 crore and the whole transaction needs to be investigated properly to find out if any black money has been used and whether transaction had escaped any income tax liability.
The Assessing Officer (AO) had proposed to reopen the tax assessments of the three companies as this amounted to round-tripping, the counsel said.
Challenging the tax reassessment proposal, the companies had moved a single-judge bench of the HC, which had ruled against reopening on the grounds that Dalmia Cement (Bharat) had disclosed the investment made by KKR in their tax returns. However, the division bench ruled to the contrary relying on the AO’s materials that prima facie indicated that KKR was a shell company and there was also round tripping.
The issue relates to an investment of Rs 500 crore made by KKR Mauritius Cement Investments (KKR) in Dalmia Cement (Bharat) in financial year 2010-2011 (Assessment Year 2011-2012). KKR was allotted 37.92 million equity shares, accounting for 14.99% of the stake in the company. The shares were bought back by Dalmia Bharat (DBL) in 2016 for Rs 1218 crore.
A Bench led by Chief Justice BR Gavai sought response from the income tax department on three separate appeals by Dalmia group firms challenging the Madras High Court's order upholding the income tax department's reassessment proceedings.
DBL and its two subsidiaries argued that the transaction of the alleged purchase of shares by DBL from KKR is not even applicable in the relevant AY - 2011-2012 as there wasn't even a buyback. It was a simple sale transaction from KKR to DBL, senior counsel D Seshadri Naidu, appearing for the companies, argued.
They submitted that even the jurisdictional requirement of Section 147 of the Income Tax Act, as to ‘where income chargeable to tax has escaped assessment' is not satisfied in the Reasons for Reopening (Explanation 2 to section 147 of the IT Act).
The Reasons for Reopening do not even justify reopening of the assessment after a period beyond four years, the appeals filed through counsel Mahesh Agarwal stated.
Apart from the fact that all investments were through banking channels and RBI approvals, the investment itself was disclosed in the audited accounts with the Ministry of Corporate Affairs (compliances under Companies Act, 1956) and Reserve Bank of India for compliances under Foreign Exchange Management Act, 1999, the companies said.
“Details of KKR’s investments in petitioner, therefore, have been disclosed to various regulatory authorities, including the tax authorities in the relevant AY 2011-2012,” the appeals stated, adding that the Reasons for Reassessment are “wholly vague and ambiguous.”
Dalmia told the SC that no income is alleged to have escaped assessment on account of the investment KKR. On the contrary, the department had alleged that the shareholding of KKR in DCBL has been bought back by DBL from KKR at a value more than Rs 1200 crore and the whole transaction needs to be investigated properly to find out if any black money has been used and whether transaction had escaped any income tax liability.
The Assessing Officer (AO) had proposed to reopen the tax assessments of the three companies as this amounted to round-tripping, the counsel said.
Challenging the tax reassessment proposal, the companies had moved a single-judge bench of the HC, which had ruled against reopening on the grounds that Dalmia Cement (Bharat) had disclosed the investment made by KKR in their tax returns. However, the division bench ruled to the contrary relying on the AO’s materials that prima facie indicated that KKR was a shell company and there was also round tripping.
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