IT Dept notice to Gandhis, Fernandes does not reflect bona fides, Chidambaram to Delhi HC

After Congress President Rahul Gandhi recently challenged the Income Tax Department’s move to re-assess his tax liability for the assessment year (AY) 2011-2012, Congress leaders Sonia Gandhi and Oscar Fernandes also moved the Delhi High Court today against a similar action against them..The matter was listed for hearing before a Division Bench of Justice S Ravindra Bhat and Justice AK Chawla..The IT department issued notice to Sonia Gandhi and Fernandes on March 31, 2018 for allegedly not disclosing income arising out of their status as shareholders in Young Indian Pvt Ltd for the AY 2011-2012..Challenging these notices issued to re-open the assessment of their income, Senior Advocate P Chidambaram, appearing for Sonia Gandhi, told the Court that the notice was issued through an e-mail sent at 11:28 pm on March 31 this year, after the report of Assessing Officer came out in 2015. He also claimed that the said notices were not digitally signed, as mandated by law..“Does it show application of power or bona fides? Is it a bona fide exercise of power?”, Chidambaram remarked..Young Indian is at the center-stage of what is called the National Herald misappropriation case. The matter is related to the assignment of a Rs. 90 crore loan advanced by the Congress party to Associated Journal Ltd – owner of National Herald – to Young Indian for a consideration of Rs. 50 lakh..Young Indian, controlled by the Gandhi family, holds almost the entire shareholding of Associated Journal. The debt of Rs. 90 crore was converted into equity..In this background, Chidambaram argued that assignment of a debt becomes an asset of the company and does not result in income for its shareholders..“My return of income is correct. Every time a company converts a debt into equity, it does not result in an income of a shareholder”, he said..He further argued,.“Assuming that income is generated from the conversion of debt into equity, it is the income of Young Indian, and not its shareholders.”.Taking the argument forward, Chidambaram said that the Gandhis and Fernandes became shareholders in Young Indian in the same assessment year as the conversion of debt into equity took place. Hence, the same income cannot be attributed to both shareholders as well as the company..“How can it be income of Young Indian and shareholder in the same year? Same income cannot be income of A and B in the same year. I received nothing from Young Indian except for the shares that I bought.”, he stated..The former Finance Minister also objected to the “formula” applied by the IT department to calculate the assessable income of the Gandhis and Fernandes..Chidambaram further argued that Young Indian cannot give anything to its shareholders by virtue of being a company under Section 25 of the old Companies Act..“Charity cannot begin with at home for a Section 25 company.”, Chidambaram said..The hearing in this case will continue on August 16..Litigation with respect to a demand notice for Rs 249.15 crore to Young Indian for the assessment year 2011-12 is already pending before the High Court.