The income tax department, in an affidavit before the Bombay High Court, claimed that it has in its possession records to show that the promoters of Lok Housing & Construction had sold company shares when the price was up and made profits.
The department submitted the affidavit to support its contention that the realty major has enough resources to pay taxes and countered the companys claim that its inability to pay taxes is because of lower profits due to fall in realty prices.
Lok Housing moved the high court in December 2008, after the Income tax department attached 20 of its properties on the ground that the company did not pay taxes in proportion to the profits projected in its returns for assessment years 2007-08 and 2008-09.
According to the company, the meltdown in the industry had eaten into its profits and therefore, it was not in a position to pay the projected amount of taxes.
The department, represented by Beni Chatterjee, said the high share price was a result of high profits shown by the petitioner. It further stated, "The revised claim of the petitioner, reducing the profit of Rs 250 crore to almost nil, would be highly prejudicial to those shareholders who brought the shares of the petitioner from the promoter companies on the basis of audited accounts published by the petitioner."
The department said the companys conduct of filing revised returns and scaling down tax liability was driven by intention of delaying the collection of taxes. But the company contended that it had a viable proposal to pay the tax in instalments.
The profit, it added, projected in its original return could not be realised because of the meltdown in the industry that led to the cancellation of several of its agreements and deals. The company argued that under the Income Tax Act, only the "real income" can be taxed and it cannot tax income that is still to be realised.