It was in June 1992 that a massive income tax raid was conducted at the numerous premises of Harshad Mehta and family. Tonnes of shares, securities, books of account and documents were seized indiscriminately. This income tax raid on Harshad Mehta was in tandem with the JPC enquiry, CBI investigation and that by other agencies too, that had probed the Harshad Mehta scam. Harshad Mehta was primarily guilty of violating capital markets and securities laws, with the active collusion of senior bankers. It was banks that provided him with the thousands of crores that he used to become the Big Bull of the Indian stock markets, as was evident from the several investigations conducted. There was thus no unaccounted or black money that was involved in his share market transactions, since it was bank money that he misused. Moreover, the tons of documents seized from him, meant that his transactions were well documented and evidenced and so was the genuineness of the sources of funds that he deployed, for funding his share purchases.
The Income Tax Department thereafter, in its usual manner passed high pitched assessment orders, making a huge addition of Rs.2014 crores to the total income of Harshad Mehta and family. Almost every receipt from banks towards purchase of securities, where Harshad Mehta was a mere broker, was taxed in his hands as his undisclosed and unexplained income, which it was not. Huge additions were made on account of sources like money market oversold position, money market unexplained stock, profit on sale of shares in shortage, money market difference received, share market trading profit, interest on securities in money market etc. These very heads under which such huge undisclosed income was taxed in the hands of Harshad Mehta, meant and indicated not just the ignorance and prejudice of the tax department, but also the hyper technical approach to tax incomes, where there were none. Such additions to total income are wholly contrary to the underlying facts and are not tenable.
What followed after such huge additions were made to the total income of Harshad Mehta and family and the resulting demands, was the usual litigation manifested in tax appeals, cross appeals, claims, counter claims, additional evidence, remand reports, stay petitions etc. and after 27 years of tortuous and tenacious litigation, the ITAT, which is the ultimate final fact finding body in the matter of income tax disputes, rejected the assessment order, upheld the Harshad Mehta family contentions and deleted almost all of the total additions of Rs.2014 crores, made to the total income, alleging undisclosed income. Upon an analysis of the transactions, as evidenced by a complete trail of documents, the Tribunal reiterated the most common principle that every receipt is not a taxable income and that the additions of overs Rs.2000 crores were erroneous and not lawful. It was apparent that moneys were received by Harshad Mehta from banks, in his capacity as broker to money market transactions and that did not construe them to be in the nature of his income.
This is the typical unfortunate story of tax assessments and tax litigation. The tax payer is harassed and burdened by frivolous additions to his total income and is cursed with expensive litigation, as we are for example presently witnessing in the case of share premium/capital received by start ups, which is being illegally subjected to tax. The tax payers may ultimately win the appeals, but in the meanwhile, such litigation often results in the closures of entities, which are unable to withstand the litigation, which is not in the interest of the tax department and tax collection itself. The unfortunate reality, as was pointed out in the Annual Economic Survey of 2018, is that the Tax Department loses most of the cases in courts, but yet its petition rate is high and it also does not stop the assessing officers from passing such high pitched orders. Harshad Mehta family may have won the tax cases, but it comes after expensive/debilitating litigation for 27 years, the closure of their businesses and the demise of the Big Bull himself.