Andhra Pradesh chief minister YS Jagan Mohan Reddy has won the first round of the battle with the income-tax (I-T) authorities following a recent tribunal ruling that could have political implications as well as have a bearing on other legal feuds.
The I-T Appellate Tribunal (ITAT), a quasi-judicial authority, in its order on January 5, has struck down the contention of the I-T department that had questioned the genuineness of transactions and creditworthiness of investors who had subscribed to shares of Jagati Publications, the Reddy-promoted company owning the Telugu daily ‘Shakshi’, at a premium. The case pertains to assessment year 2008-09.
The Hyderabad office of the tax department had alleged that underlying these investments were quid pro quo deals and the new shareholders directly or indirectly benefited from their association with the firm controlled by the YSR Congress Party president. The taxman, which had questioned the two valuation reports by Jagdisan & Co and Deloitte that justified the shares premium, had presented the findings of the Central Bureau of Investigation (CBI) which had conducted a search on Reddy’s group companies in August 2011.
Ruling that the ‘shares premium’ amount of Rs. 277 crore – which arose as shares of Rs. 10 each were sold at a premium of Rs. 350 apiece – was not taxable, the tribunal observed that the CBI charge sheet was irrelevant as ‘additional evidence’. “This ruling considers important factors in determining the production of additional evidence before the ITAT and it has been ultimately held that parties cannot claim a right to adduce additional evidence. Additional evidence will be admitted only if the tribunal is of the view that such evidence will be required by it in deciding the issues before it….The issues before the tribunal were restricted to whether the share premium received were taxable under Section 56 or 68 of the Income-tax Act, 1961),” said Ashish Mehta, partner at law firm Khaitan & Co.