Yet another storm seem to be heading towards Kerala Chief Minister Pinarayi Vijayan’s direction after the New Delhi bench of the Income Tax Interim Settlement Board disallowed claims made by Cochin Minerals and Rutile Ltd (CMRL) to exempt payments amounting to Rs 1.72 crore made to his daughter Veena Vijayan and Exalogic Solutions Pvt Ltd, the company owned by her, over three years. The company had shown the amount as genuine business expenditure to avail input tax credit.
CMRL is a public limited company engaged in manufacturing of synthetic Rutile, promoted by SN Sasidharan Kartha and Mathew M Cherian. The I-T Department, which investigated the finances of the company in 2019, found that it has been systematically inflating its expenditure and made payments in cash to several individuals including media houses and politicians. The amount of fictitious expenses by the company was quantified as Rs 134.27 crore. During the settlement proceedings the company claimed an amount of Rs 73.38 crore as eligible expenses
The order by the Interim Board for Settlement (IBS)– II, New Delhi, said verifications done at the corporate office and the CMRL factory had revealed that no such software support or services are being rendered by Exalogic Solutions. "This fact is corroborated by the seized evidence and statements of the key persons of the applicant company," the order said while rejecting input credit for software expenses of Rs 1.72 crore.
As per the Principal Commissioner of Income Tax (Pr.CIT), in a letter issued by CMRL to Veena, dated December 20, 2016, the company had said that they were “pleased to engage” Veena as their IT and Marketing Consultant on a retainership basis with effect from January 1, 2017 and that she will be paid a consolidated sum of Rs 5 lakh per month for her services.
Veena and her company Exalogic Private Limited had also signed an agreement with CMRL dated March 2, 2017. As per the agreement, Exalogic Solutions was to provide services of “development, maintenance and management of softwares for daily business and operation of CMRL’s corporate office and factory located in Aluva”. The agreement also mentioned that the service provider, which is Veena’s company, was entitled to receive a monthly remuneration of Rs 3 lakh.
However, KS Suresh Kumar, Chief Financial Officer (CFO) of the company and P Suresh Kumar, Chief General Manager (CGM) and Company Secretary, gave statements to Investigators in January 2019 that they are yet to see any software development made by the company till date.
CMRL MD Sasidharan Kartha in a sworn statement said "both these vendors [Veena Vijayan and Exalogic] have not provided any work, services or any software maintenance or consultancy or any other form of services to our expectations till date. However monthly payments are being made as per the agreements."
Although the transactions were made through banks and that such payments for business expenses are permissible, the board ruled that the transactions made with Veena and Exalogic are “illegal transactions” as no services were rendered. The discrepancies were found in Assessment Years 2017-18 to 2019-20. "The department has demonstrated with clinching evidence the fact that applicant has made payments through banking channels to persons connected with a prominent person and thereby claim it as a deductible expense and claiming to compensate a service which has not been rendered or received," the ruling said.
Out of the total Rs 1.72 crore, Veena received Rs 55 lakh in her personal capacity while Exalogic received Rs 1.17 crore.
The company’s MD, CFO and other officials tried to withdraw their statements later through an affidavit but the IT department stood firm on their findings that the money paid to Veena was illegal as there is no evidence of services rendered
Multiple Interim Boards for Settlement (IBS) were created in 2021 through the amendment of Finance Act, 2021 for settlement of Income Tax disputes after the abolishment of the Settlement Commission. There are three such boards in Delhi and the decision on disputes raised by CMRL for the Assessment Year 2019-20 was settled by the bench of IBS– II, which has Amrapalli Das, Rameswar Singh and M Jagadish Babu as members.
The Income Tax Department raided the offices of the CMRL and the residences of the board of directors on charges of tax evasion in January 2019. Raids were also conducted at the residence of SN Sasidharan Kartha, the company's managing director.