Hero MotoCorp tax issue hyped? No official statement from I-T dept about evasion, say tax experts

The Income Tax (I-T) department conducted search operations at Hero MotoCorp’s premises for four days -- from March 23 to March 26. It covered more than 40 locations including Chairman and CEO Pawan Munjal's residence.

The I-T department has alleged that the multinational motorcycle company Hero MotoCorp Ltd made bogus expenses of more than Rs 1,000 crore, sources told CNBC-TV18. However, there has been no official statement from the I-T department on the same as yet.

To better understand what the implications of the search operations could be, CNBC-TV18 spoke to Shailesh Haribhakti, Chairman, Shailesh Haribhakti Associates, TP Ostwal, Managing Partner, TP Ostwal & Associates, and DS Saxena, Former Principal Chief Commissioner, Income Tax.

Oswal believes the tax issue with respect to Hero MotoCorp is being hyped. He pointed out that it takes the I-T department a minimum of 2 months to make an appraisal with respect to tax evasion.

"When it comes to search and seizure provisions, the I-T department is creating a big hype by publishing the so-called information; in two days’ time, nothing happens. They take two months to do an appraisal, minimum two months. At least my experience says six months they take to make an appraisal and then decide what is evaded and what is not; that too is tentative. Ultimately assessment proceedings takes place after the appraisal is prepared," he said.

Meanwhile, Saxena mentioned that the I-T department resorts to searches only in extreme situations. Saxena is still unsure about the situation as there is no official statement from the department till now about the company’s tax evasion.

He said, "Firstly, there is no official statement from the Income Tax department about the evasion. What's come out are leaks and there are two leaks- one leak is about the bogus purchases made by Hero MotoCorp and the other is about payment of Rs 1,000 crore that is unaccounted cash for the purchase of farmhouse in Chattarpur by its managing director."

“Secondly, we are dealing with a very big company and search is a very extreme step. There are hardly say 100 searches all over India and if you contrast it with the number of taxpayers, which are around eight crore or so, the number of searches is very small; searches are resorted to only in the most extreme cases,” he added.

Haribhakti, on the other hand, stressed on the need to maintain high level governance by companies.

He said, "I have held Hero MotoCorp in very high esteem from their governance standpoint. Mr. Munjal is known for not tolerating poor governance at all and therefore, to answer your question directly, I will be very surprised if with all their quality board members and committees, there is something found. But it is important to note that companies need to keep their governance levels very high and under continuous monitoring."

Watch the video for the full interview.