I-T dept seeks ITAT bench as FinMin wants Harshad Mehta cases settled

In what could bring an end to a long and complex feud spanning three decades and criss-crossing multiple financial markets and institutions, tax authorities have been asked by the finance ministry to complete pending disputes with the late Harshad Mehta, the stockbroker who earned the 'Big Bull' sobriquet in the early 1990s before rattling the market he once ruled. The process, preparations for which have begun, would finally decide the fate of thousands of crores of tax demand in limbo for years. It would also shrink the office of the Custodian, set up under a special Act of Parliament to impound assets of those accused in the 1992 securities scam.

Prodded by the finance ministry, the Income Tax (I-T) Department has written to quasi-judicial body Income Tax Appellate Tribunal (ITAT), requesting them to have a dedicated bench that would expedite hearing on cases against Mehta. "Request for early hearing and disposal have been made in the past, but now with the ministry demanding a quick disposal, a new request has been recently sent to the tribunal," a senior official requesting anonymity told ET.

Major Case

One of the main tax disputes expected to go before the tribunal relates to assessment year 1993-94 (that is, financial year 1992-93), involving a demand of over ₹7,374 crore - a predominant part of which is interest charged under various sections of the I-T Act.

In early 2019, the tribunal scrapped more than ₹2,000 crore of additions made by the tax office on the Mehta family pertaining to AY 1992-93 (that is, FY 1991-92).

Total income for the AY 1993-94 was ₹2,106.04 crore, comprising capital gains, dividend and interest income, share trading profit, money and share market oversold positions, unexplained credit in bank account, et al. This reassessment order issued in 2016 for AY 1993-94 has been challenged before the Commissioner of I-T Appeals, the first appellate authority, by Jyoti Mehta, wife and legal heir of Harshad Mehta. "There have been appeals, cross-appeals. It's been festering for years. Can it go on and on? It's high time to recover, refund and end the matter," said another senior income tax official.

In the summer of 1992 - the financial year for which the huge demand has been raised by the tax department - the Mehtas were hounded by government agencies.

Weeks after the scam broke on April 23, 1992, the CBI froze bank accounts of Mehta in mid-May. Around the same time, their membership from the stock exchange was cancelled. In early June, Mehta was arrested and two days later, the Custodian took charge.

According to market circles, the Mehtas are expecting substantial refunds from the department and are also looking forward to a closure of the tortuous disputes.

Besides the tax feuds, multiple appeals filed by Mehta family members against freezing of assets, are pending before the Supreme Court.

In a letter dated February 12, 2019 to deputy commissioner, I-T (Mumbai), Madhura M Nayak, Mrs. Mehta, referring to the ITAT order of January 2019, pleaded with the tax office to quicken the refunds which can be directly paid to the Custodian. In September 2019, a refund of Rs 476.63 crore was released. “However, large refunds are still pending. Mehtas are probably expecting large refunds for AY ‘93-94 as well,” said a person who has tracked the cases.

In her appeal (dated February 1, 2017) against the reassessment order for AY-93-94, Mrs. Mehta said the “the Assessing Officer has made additions based on fictitious transactions which have factually not taken place by making presumptions regarding them which will be impermissible in law.” According to her, the Assessing Officer “ought to have granted credit for all the taxes paid by the appellant either as advance tax or as the regular taxes pursuant to orders of the Hon'ble Special Court.”

Given huge amounts under dispute and the customary tussle between taxpayers and the tax office chasing stiff targets, a government intervention was necessary to fast-track the process, said a senior tax practitioner. For instance, post the January 2019 ITAT order for AY ’92-93, which went in favour of the Mehtas, the Principal Commissioner of I-T issued a “revision order” on certain additional grounds. However, ITAT, in its order on 26 March 2021, quashed the revision order after finding it “unsustainable in the eyes of the law”.