Multi Commodity Exchange (MCX) may face re-assessment of its tax filings for the past years. This is after the Supreme Court (SC) last week dismissed its application against a Bombay High Court (HC) order, which said that Mumbai income-tax (I-T) can probe MCX books beyond four years on the back of ‘fresh evidence.’

I-T did a review of MCX tax liabilities and income after a special audit report by PwC in 2014 found “dubious and illegal transaction” worth hundreds of crore. Among other transactions, PwC highlighted payments to entities of Sunil Daga Khernar, an alleged power broker who fell into CBI net for cash-for-job scam in Railways in 2013.

HC had rejected MCX stand that since the special audit report was prepared for Forward Market Commission, the erstwhile commodity market regulator, it could not be relied upon by I-T as its purpose was not to detect tax evasion.

Income escapement

The HC, in 2017, said: “Special audit report constituted ‘fresh tangible material’ with AO (assessment officer) to reach reasonable belief of income escapement.” HC further opined “the power of AO to re-open an assessment is not fettered or circumscribed, to be formed only on material found during a tax audit or with material found during examining a case of tax evasion.”

In 2014, when I-T received PwC report it sought to re-examine MCX financials and issued a notice in 2017 declaring income of between ₹100 to ₹300 crore that could have escaped tax.

Among other things, the PwC report had highlighted that more than ₹55 crore was spent by MCX on parties where actual delivery of service by these parties appeared questionable. MCX paid ₹19.55 crore to two entities — MPPL Enterprises and Ovira Logistics — as fees for placement of shares of MCX-SX with IL&FS. MCX-SX was originally promoted by MCX.

According to the special audit, out of 22 transactions (amounting to ₹18.92 crore) of donations paid by MCX till September 2013, there was no computation of allowable amount under Companies Act, 1956, in 15 cases (amounting to ₹11.28 crore).

Therefore, I-T has assumed that the donations possibly went to entities that were not eligible or were given in a manner that the Act concerned does not approve of, a source told BusinessLine .

Internal approval notes

In three instances involving ₹2.77cr there were no internal approval notes. Also, MCX paid ₹17.76 crore either as donations or as professional charges to entities to Khairnar, who was also the former director of NBHC and NSEL.

MCX paid ₹11.85 crore as donations to Indian Society of Agribusiness Professionals and Indian Society of Healthcare Professionals belonging to Khernar. One of his companies was also a consultant to FT, the original promoter of MCX.

MCX incurred expenses up to ₹8 crore on Shades Promotions and Events for holding seminars and conferences. Shades, according PwC, did not exist on records of ministry of corporate affairs and there was no proof of delivery of services in eight out of 13 invoices PwC examined.

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