Rs 24,000 crore tax notice puts Aamby Valley in further trouble
Aamby Valley in Lonavala consists of luxury resorts, man-made lakes and an airport
It was on January 24, 2017, that the I-T Department had served a demand notice for the assessment year 2012-13, which is the tax liability facing the company.
The Income-Tax department has put the Sahara Group's flagship project, Aamby Valley Limited (AVL), reportedly worth Rs 39,000 crore, in a spot of bother after serving a Rs 24,646-crore tax demand notice.
It was on January 24, 2017, that the I-T Department had served a demand notice for the assessment year 2012-13, which is the tax liability facing the company. The department said that AVL "concealed the particulars of income or furnished inaccurate particulars of such income".
On April 17, the Supreme Court had ordered the auction of Aamby Valley after Sahara failed to deposit Rs 5,092.64 crore with SEBI to secure bail for Subrata Roy, the company's boss. The tax assessment order will create more challenges for Sahara as well as for potential bidders because no one will want to touch a property facing action from the I-T department. Amby Valley, spread over 4,000 hectares in Lonavala near Mumbai, consists of luxury resorts, man-made lakes and an airport.
In response to the tax lability, Sahara's spokesperson told DNA, "Yes, the Income-Tax Department has raised Rs 48,085.79 crore to the income of Aamby Valley Limited with a total demand of income tax of Rs 24,646.96 crore on Aamby Valley Limited."
The I-T department has added nearly half of a trillion rupees as taxable income in the assessment order of AY 2012-13 to the taxable income that Sahara had declared earlier. The department found that AVL had breached the tax rules in 29 different financial matters and a total amount of Rs 48,070.92 crore has now been added as taxable income. However, sources said that AVL has made an appeal in the tax tribunal against the assessment order.
What Went Wrong
Originally, AVL had filed an income tax return on November 30, 2012, for AY 2012-13 and declared loss of Rs 14.86 Cr. Later, AVL filed the revised return on February 9, 2013, for rectification of punching error in the original return. However, no change was made in the amount; it remained the same as in originally filed return.
This case was selected for scrutiny by Assistant Commissioner of Income Tax, Central Circle -1, New Delhi. AVL started de-merging the different business verticals of the company into a Special Purpose Vehicle (SPV) after approval of a composite scheme of demerger and amalgamation by the Mumbai High Court.
Considering the complexity of books of accounts, Income Tax had appointed T R Chadha & Co for special audit of AVL accounts. The company had also entered into international transactions; so the case was referred to a Transfer Pricing Officer (TPO) too.
The TPO issued a draft order on January 20, 2016 suggesting an adjustment of Rs 322.84 Cr in addition to the income of the company on account of international transactions. On the basis of TPO and special audit report,the ACIT issued final draft assessment order on March 30 2016, adding an amount of Rs 27,549 Cr in the income of the AVL.
The Tax department asked AVL to accept the draft report or file objection before Dispute Resolution Panel-I(DRP-1, a mechanism for resolving the disputes) in New Delhi. AVL filed the objection appeal against the draft order. After hearing AVL, the DRP passed a final order appending Rs 48,085.79 Cr to the returned income of the company. On the basis of the order, the I-T department has sent a demand notice on January 2017 to AVL to deposit Rs 24,646. 96 Cr tax bill in exchequer account.
Out of the total addition to taxable income, Rs 46,999.38 Cr was found in the amalgamation of Aamby Valley V Venture Limited into AVL. The DRP said that the addition should be there as “the increase in General Revenue amounted to Rs 46,999.38 Cr under section 28(iv)”. The panel also said that “the assessee has furnished inaccurate particulars of its income and therefore, penalty proceeding u/s (under section) 271 (1)© are initiated on this account”.
Another addition was made in the case of loan interest. AVL had given a loan of Rs 3524 Cr to Aamby Valley (Mauritius) Limited (AVML) on the basis of LIBOR plus 300 bps (London Interbank Offered Rate), a benchmark rate that world’s leading banks charge. This interest rate was applicable from April 14, 2011, to December 12, 2017. Tax Department rejected this benchmark criteria and calculated the loan interest on the basis of the SBI base rate. The Department said that LIBOR couldn't be used where the currency of origin country of loan is not a currency in which the loan is extended. The Department has calculated the difference between LIBOR and SBI base rate and added Rs 43.18 Cr in AVL income.
Department also disallowed the finance cost case. AVL had claimed interest expenditure on the loans and debenture which was related to Sahara India Commercial Corporation (SICCL) and UCO Bank. The tax official said that the paid interest to the loan and debentures were obtained when all the business undertaking was part of the company, so it can’t be allowed Rs 114.78 Cr as interest expenditure.
Tax department found that AVL had violated the tax rule in forex earning too. The Tax department referred the CBDT order which said that “foreign exchange gain in respect of monetary items has to be recognised as Income”. An account of foreign exchange gain lying in the foreign currency monetary items Translate difference accounts under the head Reserves and surplus. Tax department made Rs 507.76 Cr addition in this forex violation.
Department has also disallowed the expenditure incurred for making an investment which claims as earning of exempt income. AVL invested Rs 267 Cr to Aamby Valley (Mauritius) Limited. This income as a foreign dividend, from this investment, is not exempted and the same will be taxable in the hands of the assesse. Department has made Rs 240.14 Cr addition too as these expenses are relating to the income not forming part of income.
Apart from above high-value disallowances, the department has disallowed other advances like advance from customers and consultancy charges paid to Siva Venture Limited, which cost one-fourth trillion tax bill to AVL.
Top Five Tax Bill jitter
Scheme of Amalgamation & Arran
Forex Difference
Disallowance u/s 14A
Finance Cost
Provision of Written off
Aamby Valley’ Tax Bill
Additional Tax Liability Rs
Interest Lability
Total Tax Demand Rs 24,646.96 Cr
Penalty ‘may’ Impose R