SC Stays Tax Reassessment Against Dalmia Bharat, Subsidiaries In 2011-12 Case

The Supreme Court on Friday stayed the income tax department’s reassessment proceedings against Dalmia Bharat Ltd. and its subsidiaries, Dalmia Cement (Bharat) Ltd. and Dalmia Power Ltd., for the assessment year 2011–12. It also issued a notice to the tax department on petitions filed by the three companies.

The case stems from a ₹5 billion investment by KKR Mauritius Cement Investment Ltd. in Dalmia Cement (Bharat), through an allotment of 37.92 million shares, giving it a 14.99% stake. The shares were bought back by Dalmia Bharat in 2016 for ₹12.18 billion.

The tax department believed the transaction amounted to round-tripping and sought to reopen the companies’ tax assessments. Dalmia Bharat and its subsidiaries challenged the move in the Madras High Court, where a single-judge bench ruled in their favour. It held that the investment had been disclosed in tax returns and could not be grounds for reassessment.

The department then approached the division bench, which allowed the reassessment. It said there was prima facie evidence that KKR Mauritius Cement Investment was a shell entity, and the structure of the transaction suggested round-tripping.

Challenging that ruling, the three Dalmia entities moved the Supreme Court. “We are of the view that the findings of the Honourable Division Bench of the High Court are unsustainable,” Dalmia Bharat said in a filing to the exchanges.