The reality behind ‘na khaoonga, na khane dunga’

Advocate Prashant Bhushan wrote to the chairperson of the Central Board of Direct Taxes (CBDT) on 25 October 2016 annexing portions of documents with ‘important evidence of corruption’ recovered by the IT department (under the CBDT) from the premises of the Aditya Birla Group and the Sahara India Pariwar, which had been ‘brushed under the carpet.’ He said neither the SIT on black money nor the CBI had pursued leads thrown up by the Sahara-Birla papers.

The IT Department was obliged to rope in the CBI as the papers indicated evasion of taxes and also bribery and political corruption, a crime punishable under the Prevention of Corruption Act, 1988, Bhushan argued—a precedent for which had been set during the court hearings in the Jain hawala case. But this was not done after the raids on the two groups. Instead, though it was the CBI’s officials who had found close to `25 crore in unaccounted cash during raids on the Aditya Birla Group in 2013, the agency had curiously transferred the investigations to the IT department.

Similarly, attached to Common Cause’s petition were part of what was seized by the IT Department from the offices of Sahara India Pariwar in New Delhi and Noida, Uttar Pradesh, along with ₹137 crore as unaccounted cash in November 2014.

Yet, no anti-corruption investigation was initiated by the CBI in that instance either. Soon, the controversy began charting a new course, when both business houses separately approached the Income Tax Settlement Commission (ITSC) to ‘bury’ the probe.

The ITSC is a quasi-judicial statutory body that serves as a premier alternative dispute resolution body in India. The ITSC resolves income tax and wealth tax disputes between the IT Department and tax assessees. It has the power to grant assessees immunity from prosecution and penalty under the Income Tax Act, 1961, if they make a ‘full and true disclosure’ of their income, explain where it came from, and cooperate with the tax authorities and the tribunal during the proceedings.

The documents, however, had no story to tell on their own—not then, certainly. After getting his hands on the Sahara papers in 2016, one of the authors of this book made inquiries with sources in the government and fellow journalists. At least twenty individuals had access to the papers. Some of them in turn offered related documents that they did not have at that moment.

Yet, why was it that none of them had filed reports based on the documents? A few were not sure of the authenticity of the papers. On asking if they had tried to ascertain the veracity of the documents from the persons named in them, they promised they would. A senior journalist alleged–presciently, it turned out later–that the government had already prepared a ‘cover-up’ plan, according to which it would claim that a disgruntled employee from the Sahara India Pariwar had ‘manufactured’ these documents to blackmail his boss, Subrata Roy.

Roy had been let out of jail earlier in 2016, after having spent two years behind bars. Gradually, things started falling in place, as the colleague had predicted, when the Sahara India Pariwar moved an additional bench of the ITSC in August 2016 (under whose jurisdiction the Lucknow-based group was registered). The ITSC order, which discredited the documents seized, accepted Sahara’s claim that they had been ‘forged’ by an employee seeking ‘revenge’ against his immediate superiors in the company. It reduced the net tax payable on the income seized.

The CBDT has a history of being at loggerheads with the ITSC for ‘going easy’ on applicants, requiring them to fulfil only the last of three criteria for filing appeals against orders of the IT department.

In March 2013, several high-ranking officials in the IT department, including all chief commissioners (central) and Director General (Investigations), received a memorandum from the CBDT, which stated that in many cases the concealed income detected and that admitted by assessees before the ITSC were differing sharply, with the tribunal accepting amounts which were a fraction of the original. ‘It has also been noticed that the assessees admit additional income for one or two assessment years... but include many other years for which no additional income is offered for settlement. This preempts the department from making inquiries even in those years for which no additional income was offered,’ the memo noted.

The ‘easy-going’ on Sahara took less than three months. The ITSC rejected Sahara’s first appeal on 31 August 2016. Since the technical grounds for appearing before the ITSC stipulate that the minimum tax due for an appeal must cross `50 lakh, the ITSC sent back Sahara’s appeal as the tax due on the income surrendered by it had fallen short of the amount.

The company got a second hearing on 5 September 2016—less than a week after the first appeal. This time, it was to be heard by the ITSC’s principal bench in New Delhi, whose three members included the commission’s chairperson. Sahara returned after revising the income voluntarily disclosed, with the tax burden amounting to `51 lakh, just above the stipulated minimum.

The ITSC accepted this, citing precedents in its order. ‘The filing of a revised return (is) within the ambit of Section 139(5) [of the Income Tax Act]. A further requirement is that this omission or wrong statement in the original must be due to a bona fide mistake on part of the assessee.’

After three hearings in quick succession, the ITSC ruled in favour of the Sahara group on 10 November. Sahara was granted immunity from prosecution under the Act after imposition of penalties. The ITSC also reduced the tax payable on the income surrendered by the company.

It agreed with Sahara’s submission that the documents under consideration were ‘loose sheets’ of paper, whose ‘evidentiary value’ could not be proven by the IT department.

The ITSC is allowed under various provisions of the Income Tax Act, up to 18 months, to conclusively settle an appeal and rarely has it taken less than ten months to rule on disputed appeals in the past. The urgency with which Sahara’s appeal was dealt with has been underscored ever since the ITSC produced a 50-page verdict on the Sahara papers, barely two months after admitting its second appeal.

In response to a Right to Information (RTI) request filed by the Indian Express, the ITSC confirmed that this had been ‘one of the quickest disposals’ of any case dealt by the appellate body. ‘During the last five years, no case has been disposed [of] within the similar timeframe,’ the ITSC stated on 11 January 2017.

It had sped through several procedures mandated by law. For instance, the company’s application was admitted the very same day, validated within two days (though a 15-day-window is available) and the report from the principal commissioner of IT was received in 11 days (though 30 days are granted).

The ITSC revealed that the 90-day-window available to call for records of the case from the principal commissioner of IT and to direct her to make more enquiries under Section 243D (3) of the Income Tax Act had been done away with while evaluating the credibility and authenticity of the Sahara papers.

What this admission amounted to was that despite an adverse appraisal report and several volumes of documentation on the investigation having been produced by the IT department, those were not examined before pronouncing the verdict.

The ITSC’s verdict on the Sahara papers, a copy of which was appended to Common Cause’s petition, provided a glimpse of what had transpired during these hearings. It was contended by Sahara that one Sachin Pawar, an employee in the company’s marketing and communications division (or marcomm) had fabricated the entire set of documents, including a record of alleged payments to politicians cutting across party lines in the run-up to the general elections held in April–May 2014.

The alleged payments aggregated ₹113 crore (out of ₹115 crore received in that period). The Sahara Group claimed that Pawar had done so with the help of a friend, Uday Savant, to settle scores with his supervisor for making him work long hours. His supervisor in this instance was assistant director Vijay Singh Dogra, who Pawar wanted ‘punished’ by the management. A statement from Pawar to this effect was produced.

The ITSC unquestioningly believed Sahara’s claims that the papers were ‘dumb documents’ forged by a ‘disgruntled employee’—with ‘a few genuine transactions (of very small value)’ of ₹1.7 crore mixed to give a ‘colour of genuineness’— despite opposition from the IT department.

But the IT department picked Sahara’s ‘theory’ apart. The ‘disgruntled’ Sahara employee had after all submitted two contradictory statements to the tax officials. In Pawar’s initial submission, he claimed to have conjured the logs in a single day–on 24 April 2014—seven months before the first raid, to implicate his colleague Dogra. In his second statement, Pawar said he had intended to pass on the information contained in the documents to several government agencies, including the IT department and the SIT on black money.

When asked to explain the contradiction, Pawar claimed his second statement had been ‘in continuation’ to the first. The IT department rejected this explanation as misleading on two counts: (i) if the information had been meant for various agencies of the government, the incriminating details of pay-offs would ‘hurt’ the interests of the management of the Sahara group, more than any particular employee, and (ii) the Supreme Court had in any case constituted the SIT on black money, a good month after the documents were supposedly created.

The tax officials also contended before the ITSC that the documents which Sahara had described as ‘meaningless’ had been maintained on a ‘regular basis over a period of 4–5 years. The detailed entries included specific amounts, dates and places of the transactions and contained the names of the hawala agents involved as well, as of those Sahara employees who allegedly delivered the cash to the political personalities listed—specifically naming Prime Minister Narendra Modi (during his tenure as chief minister of Gujarat); Shivraj Singh Chouhan, chief minister of Madhya Pradesh; Raman Singh, chief minister of Chhattisgarh; Shaina NC, treasurer for the party in Maharashtra among others. So, the IT department insisted that Sahara’s explanation ‘seems to be unbelievable.’

What was most damning for the conglomerate was that the dates recorded in marcomm ’s ledger of cash disbursals under Pawar’s account, each of which exceeded ₹1 crore, tallied exactly with the entries in the seized documents listing the alleged pay-offs, ‘strongly suggesting thereby that entries made were not fictitious and cannot be called meaningless.’

Sahara’s lawyers countered that most of the cash disbursed to its offices in New Delhi (approximately ₹318 crore between 2009–10 and 2015–16) from which the pay-offs were allegedly made had been handed to Pawar to meet ‘contingencies.’ The group said he had been returning these sums at the end of each financial year to the Sahara group’s headquarters in Lucknow, without incurring any expenditure, and that this had been noted in the ledgers.

Roy, when questioned in Tihar Jail by the tax authorities in 2015, claimed: ‘As I have already stated that neither M/s Sahara India nor any other entity of the Sahara Group indulges in unaccounted cash transactions; why Sri Sachin Pawar made this record is better known to him.’

In addition to this, a separate letter filed as a part of Common Cause’s petition, indicated that the Union finance ministry’s financial intelligence unit (FIU) had found ‘suspicious’ cash transactions in 4,574 accounts linked to the Sahara India Pariwar.

Even though the authors of notings on loose papers have claimed fabricating documents since the beginning of the investigation, this self-serving claim has limited evidentiary value,’ the ITSC concluded. However, ‘the [IT department] has failed to corroborate or prove the correctness of notings on loose papers and electronic documents. No evidence with regards to source of receipts and nature and purpose of payments were produced before us,’ the order went on to conclude.

While the ITSC expressed doubts over Sahara’s version of the facts and events, it also refused to entertain the IT department’s version, asking for more ‘corroborative evidence’ to the documents seized from Sahara’s premises along with the unaccounted money.

Yet, it had been on the basis of these transactions that the group itself had surrendered an additional ₹1,217 crore to the IT department to ‘buy peace of mind,’ as the ITSC order noted.

The IT department had originally computed a much higher amount of ₹2,700 crore as additional undisclosed income taxable but the reduced figure was arrived at through reconciliation, in consultation with the officers. Even the amount that the Sahara group had voluntarily given up, was unsuccessfully challenged during the hearings before the tribunal.

At the same time, the company’s expenses between 2008–09 and 2014–15 declared before the ITSC (₹1,771 crore) differed sharply from what it had filed with the Registrar of Companies (RoC) in the corresponding period (₹9.7 crore)—an upward revision of around 100 times.

The reason for this inconsistency is a subject of speculation. The greater a company’s expenses vis-à-vis the income it surrenders to the IT department for the corresponding period, the lower its tax dues. Since the CBDT uses its own discretion in accepting an applicant’s ‘deemed’ expenses against its concealed income, it is not known whether an expense audit was undertaken by the tax officials along with an income audit. Interestingly, the ITSC’s order also noted that ‘third parties’ implicated in the documents had denied any knowledge of these transactions when summoned by the IT department but it did not name those who were supposedly questioned.

The evidence collected in the form of ‘jottings on loose papers, computer printouts and entries in pen drives and hard disks’ had been rejected by Sahara’s representatives on technical grounds. The investigators had filed the ‘evidence’ under Section 292 C of the Indian Evidence Act, 1872, whereas this section only governed the loose papers submitted by the investigators. The printouts and data on the hard disks and pen drives seized from Sahara’s offices were governed by a different section of the Act—Sections 65 A and 65 B read with relevant provisions of the Information Technology Act, 2000—which mandated that a certificate from a senior officer operating the computers be taken while seizing disks and other storage devices—the investigators had failed to obtain such a document. The reason for this omission had not been recorded.

‘Having considered carefully the rival arguments on this issue,’ the ITSC concluded, ‘we are of the view that ownership of documents etcetera cannot be totally denied, however, evidentiary value of loose papers and electronic documents could not be proved and the arguments of [Sahara India Pariwar] are supported by the decisions of the Hon’ble Apex Court on this issue.’

In another twist to the ITSC’s role in the case, reports in The Hindu revealed that one of the members originally posted to the three-member principal bench of the appellate tribunal in New Delhi hearing Sahara’s appeal had been shuffled out in an arbitrary manner. The order passed was authored instead by a two-member bench consisting of the director of IT (investigation) BB Singh and additional director (investigation) BP Singh. Baldip Singh Sandhu, an Indian Revenue Service (IRS) officer who had been appointed to the bench in March 2016 was shuffled out five months after taking over, just weeks before the Sahara papers came up for appeal.

(This article first appeared in the National Herald on Sunday)