An income tax demand on the late Harshad Mehta and family,
accused in the 1992 securities scam, has come to an end after 27 years
as the income tax tribunal has scrapped almost the entire tax
demand,
according to a
report by The Economic Times.
The scam had shook the country and changed the rules of the game on Dalal Street.
The
Income Tax Appellate Tribunal (ITAT) has scrapped over Rs 2,000 crore
of tax additions made by the Income Tax Department on members of the
Mehta family -- late Harshad Mehta, his wife Jyoti, and brother Ashwin
-- for assessment year 1992-93.
ITAT's decision was based on an
analysis of various transactions relating to trades in money and stock
markets for the said period. The tribunal also looked into the facts in
questioning the assessment order of February 1995 when the I-T
Department pegged the untaxed income of the Mehtas at over Rs 2,014
crore.
"The tribunal has reiterated the cardinal principle of
taxation that in spite of the probes and observations by a Joint
Parliamentary Committee (JPC), the Reserve Bank of India (RBI), and the
Central Bureau of Investigation (CBI), and seizure of volumes of
documents, the I-T department has to compute the 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," a senior chartered accountant Dilip Lakhani
told the paper.
What is the Harshad Mehta scam?
Harshad
Mehta, a registered broker, and his partners were accused of
manipulating the Bombay Stock Exchange in 1992 by taking advantage of
loopholes in the banking system. Mehta used the ready forward (RF) deal
to insert money into the market. RF deals were short-term loans from one
bank to another. The deals were generally made with the help of
brokers, who were paid commissions.
Mehta allegedly colluded with
bank employees to get fake bank receipts (BRs) issued. He used these BRs
to get other banks to lend him money under the false impression that
they were lending against government securities (G-Secs). This amount
was then put into the stock market to enhance share prices up to a
staggering 4400 percent. Harshad Mehta then sold these shares at a
significant profit and the principal amount was then returned to the
banks.
In this manner, Mehta defrauded banks of nearly Rs 4,000
crore. Once his mode of operation in the stock market was discovered and
exposed, banks realised that they were in possession of fake BRs
holding no value.
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The
case caused a furore in the Parliament, leading to his arrest and
sweeping changes in the stock market and tighter norms. He was convicted
by both the Bombay High Court and the Supreme Court and charged with 74
criminal offences, which dragged on until 2001 when he passed away at
the age of 47.
What happened next?
After
the scam came into the light, the tax department conducted 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 the Mehtas, and subsequently, the tax return filed by
Harshad Mehta for the assessment year 1992-93 was rejected by the
department.
According to the report, 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).
What’s in store next?
The
I-T Department may have little ground to move the Bombay High Court to
challenge the order as ITAT’s verdict is based on facts and on the
principle of tax law, as per the report.
Refund amounts from the
tax department would go to the custodian that was created under a
special law for impounding assets of the scam accused. This would
eventually pave the way for the custodian to release the assets of the
Mehtas.
While the tortuous battle between the tax office and
Mehtas could continue on smaller issues, ITAT’s 297-page order, released
a fortnight ago, puts an end to a large chunk of tax disputes relating
to the Harshad Mehta scam.