Tax tribunal scraps more than Rs 2,000 crore of additions made by I-T dept on the Mehta family.

1MUMBAI: After 27 years of tortuous battle, involving claims, counter-claims, and cross-appeals, the income tax tribunal has scrapped almost the entire tax demand on late Harshad Mehta, his wife Jyoti, and brother Ashwin — reviving memories of the 1992 securities scam that shook the country and changed the rules of the game in Dalal Street.

The I-T Appellate Tribunal (ITAT) has deleted more than Rs 2,000 crore of additions made by the tax department on the members of the Mehta family for the assessment year 1992-93. Analysing the various transactions relating to trades in money and stock markets, the tribunal looked into the facts in questioning the assessment order of February 1995 when the I-T department had pegged the untaxed income of the Mehtas at more than Rs 2,014 crore.

“The tribunal has reiterated the cardinal principle of taxation that in spite of the probes and observations by JPC, RBI, and CBI, and seizure of volumes of documents, the I-T department has to compute correct taxable income embedded in the transactions. Every receipt by an assessee cannot be termed as taxable income. The tribunal has done a commendable job of analysing each transaction and commuting taxable income. The volume and value were no deterrent in deciding this pending litigation by the last fact-finding authority,” said senior chartered accountant Dilip Lakhani.

The tax department’s action began with a raid on the Mehtas on February 28, 1992 when several documents and share certificates were seized. On June 4, 1992, CBI carried out a search operation on Mehtas, and subsequently, the tax return filed by Harshad Mehta for assessment year 1992-93 was rejected by the department. “The question that arises is how significant were these additions? Did it really call for protracted litigations over two decades? Finally, one is virtually down to nil revenue for  the exchequer.

Despite the books of accounts being rejected, the assessee could receive favourable order leading to a deletion of almost all the demands… the matters were remanded back to the AO time and again and finally the order was passed on merits,” said Mitil Chokshi, senior partner, Chokshi & Chokshi. The assessment order by the department issued in February 1995 was built on fresh additions and disallowances such as ‘money market oversold position’ (Rs 1,080.58 crore), ‘money market unexplained stock’ (Rs 291.05 crore), ‘profit on sale of shares in shortage’ (Rs 253.16 crore), ‘unexplained money’ (Rs 251.8 crore), ‘interest on securities in money market’ (Rs 58.27 crore), ‘money market difference received’ (Rs 35.55 crore), ‘share market trading profit’ (Rs 16 crore) etc.

Since ITAT’s verdict is based on facts and on the principle of tax law, the I-T department has little ground to move the high court in challenging the order. Refund amounts from the tax department would go to the custodian which was created under a special law for impounding the assets of scam accused. While the tussle between the tax office and Mehtas could continue on other smaller issues, the 297-page tribunal order, released a fortnight ago, brings to an end the bulk of the tax disputes relating to the securities scam.