After the disappearance of Coffee Day founder VG Siddhartha Hegde, a letter was allegedly found on his computer, which he purportedly wrote. The letter said that Siddhartha was under pressure from a private equity partner who was forcing him to buy back Mindtree and Coffee Day shares and that he faced harassment from a former Director General of Income Tax. With these explosive allegations doing the rounds, many have been terming this 'tax terror' and the Income Tax Department has now come out with a note justifying the search and seizure operations conducted on properties owned by VG Siddhartha in September 2017.
For starters, the clarification from the I-T department questions the authenticity of the note and alleged that the signature does not tally with VG Siddhartha's signature as available in his annual reports.
The Income Tax Department stated that the sleuths began investigating Siddhartha’s business dealing after a raid was conducted on properties belonging to a 'prominent Karnataka political leader'.
“The investigation in the case of Shri VG Siddhartha and Cafe Coffee day (CCD) arose from the search in the case of a prominent political leader of Karnataka. It is based on the unearthing of a credible evidence of financial transactions done by the CCD in a concealed manner,” the Income Tax Department’s statement said.
The search operation on the politician also lead them to unaccounted cash of Rs 1.2 crore with a person holding Singaporean citizenship. This person, the Income Tax Department says, admitted that the cash belonged to VG Siddhartha.
During the search operation, VG Siddhartha allegedly admitted to sleuths possessing unaccounted income of Rs 362.11 crore and Rs 118.02 crores via M/s Coffee Day Enterprises Ltd. The department states that VG Siddhartha had also signed a sworn statement to this regard.
“Siddhartha, subsequently filed the Return of Income but did not offer the above undisclosed income as admitted in the sworn statement in both the cases except sum of around Rs.35 Crores in his individual case. Further one of the group company M/s Coffee Day Global Ltd has not paid the Self-Assessment Tax of Rs 14.5 Crores on the returned income. M/s Coffee Day Enterprises Ltd did not offer the admitted income in its part,” the statement says.
With regard to the Mindtree shares that Siddhartha talked about in his letter, the I-T department said that it came to know about Siddhartha’s plans to sell the equity shares of Mindtree through reports on January 21, 2019 after which an immediate verification of the facts was carried out.
The department found that the tax ramification of this deal along with interest and penalty based on the outcome of the search action runs in to hundreds of crores. Moreover, the department says that Siddhartha did not file any application before the assessing offer as required under the statutory provision before transferring any assets when the income tax proceedings are pending.
“In order to protect the interests of revenue, the provisional attachment of 7490000 shares of Mindtree Limited owned by Shri VG Siddhartha and M/s Coffee Day Enterprises Ltd u/s 281B of the Income Tax Act was made though they together held 22931518 shares). This action is a normal requirement to protect the interests of revenue,” the statement said.
Post this, when the shares were released after Siddhartha filed a request letter to release Mindtree shares and in turn offered other security of shares of M/s Coffee Day Enterprises Ltd against the expected demand. But this was done with a specific condition that the sale proceeds will be utilized only for repayment of loans availed against the Mindtree Ltd shares by opening escrow account and the remaining balance will be provided for attachment u/s 281B against the tax liability to arise.
“The assessees had transferred the Mindtree Ltd shares to M/s L&T Infotech Ltd 28.04.2019 and received around Rs 3200 crores. Out of this consideration, the assessee had repaid loan of around Rs 3000 crores and paid expenses related to transfer of 154 crores and the balance of Rs 46 crores was paid towards first instalment of Advance Tax of estimated MAT liability of around Rs 300 crores in the case of shares of M/s Coffee Day Enterprises Ltd. As against the balance MAT liability of Rs 250 crores and tax liability arising based on search findings to the tune of approx. 400 crores, the provisional attachment made by the department is less than 40% of the likely tax liability,” the department said in a statement, adding that the Income Tax department acted as per the provisions of Income Tax Act.