Polycab: Putting out presser first wrong procedure

Synopsis

Shriram Subramanium says: “Ideally the department should first have sent the demand notice and given the opportunity to the company and then put out the press release, if anything. The company has admitted that during December 22nd to 25th, there were raids on its premises across India, on its dealer networks. But the demand itself is not clear to anybody for that matter.”

Shriram Subramanian-Ingovern-1200ETMarkets.com
“Ideally the department should first have sent the demand notice and given the opportunity to the company and then put out the press release.”

Shriram Subramanium, Founder & MD, InGovern, says “Polycab is very, very clear that they are not the company, they would have even yesterday said that we have nothing to hide. But that is not what they have said. They have said they have not received a notice. So they are not denying that there was a raid. They are just saying that they have not received a notice, which could be true. So, from that perspective, the Income Tax Department may not have sent a notice yet, but has put out a press release which I would think is a travesty of justice from a procedural perspective.”

What is happening with Polycab because clearly the stock markets have been giving the stock quite a punishment and perhaps rightly so. If we are looking at the procedure that has been followed by the IT department of not sending a notice and asking for clarifications from the company first, is the procedure as per the norm?

Shriram Subramanium: I would think not. At the end of the day, the income tax department by putting out a press release on 9th, that too late in the evening, saying that there is a wires and cables company on which unaccounted cash has been discovered etc. etc., is doing a disservice to any company for that matter.


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Ideally the department should first have sent the demand notice and given the opportunity to the company and then put out the press release, if anything. The company has admitted that during December 22nd to 25th, there were raids on its premises across India, on its dealer networks. But the demand itself is not clear to anybody for that matter. And the IT department by putting out this press release is doing a disservice to all taxpayers.

Right, obviously there is a bit of a confusion on that front as well. But the income tax department has also said that they have the power to go and re-conduct assessments for the past year. Right now, we did not have the exact name but inferred it was Polycab which took the brunt of the storm and other wires and cables companies also got impacted. So is there a possibility that we could see this happening to other companies as well then? So is there a possibility of more such cases that could be coming up?

Shriram Subramanium: Yes, I would think so. Obviously, the income tax department keeps sending out notices to all companies. But what is surprising here is the scale of the unaccounted cash that is about Rs 1000 plus crore. So to answer your question, yes, obviously, companies will expect to get demand notices left, right and centre.

Polycab officially reiterated that the company has not received any written communication from the income tax department on the outcome of the search. They are saying that there is no material adverse impact on the financial position of the company. But for now, they are all very uncertain on the shortfall charges. It is pretty grey. What could be the maximum damage that could come in if it is Polycab or any other company within the sector?

Shriram Subramanium: Yes, as you rightly said, obviously, there will be a tax demand on the unaccounted tax which is at the marginal rate 25 plus this one, plus a penalty of up to 200%. It could be 50% of the unaccounted income. If it is Rs 1,000 crore, the total tax demand could be Rs 500 crore which is a huge number for a single company to bear and obviously they will contest it in the Income Tax Appellate Tribunal etc. etc.

As you have said, they have completely denied the claims as per their latest communication. What would be the appropriate course of action apart from what you have flagged off?

Shriram Subramanium: If they are very, very clear that they are not the company, they would have even yesterday said that we have nothing to hide. But that is not what they have said. They have said they have not received a notice. So they are not denying that there was a raid, there was definitely a raid. They are not saying that we have nothing to hide. They are just saying that they have not received a notice, which could be true. So, from that perspective, the Income Tax Department may not have sent a notice yet, but has put out a press release which I would think is a travesty of justice from a procedural perspective.

What would be the time period for Polycab to contest these charges? Any time period limit that they do have to follow?

Shriram Subramanium: No, once the company gets a notice, it then can appeal immediately. But the assessment and everything takes a longish period of time. So there is no specific time horizon. The income tax authorities can go in the past over a multiple number of years and actually figure out what was the total evasion, if any. And so there is no specific time period that the department also works with. Of course, the company would try to resolve it at the earliest for its own benefit.

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