K Raheja under I-T scanner over group firm transaction

The investigation wing of the income-tax (I-T) department has raised doubt on the inter se transaction between the real estate arm of K Raheja group and its erstwhile retail arm Hypercity Retail India. Tax officials are investigating whether the transaction was structured to evade tax.

However, the company has denied the allegation. “The group always maintains arm’s length, with proper corporate governance for all transactions. Following the provisions of law, the Hypercity transaction has also followed similar process,” the company spokesperson said.

According to sources, the I-T department is examining the books of accounts of Hypercity and other group companies of the conglomerate to see if there is any discrepancy in the transaction.

I-T sources said that the department was probing an income of ~150 crore in Hypercity’s accounts, likely to be transferred from a group company. The tax department is examining whether the K Raheja group had offset the said income with losses made by Hypercity.

Hypercity is a loss-making company with accumulated losses of ~711 crore as of March 2017.

According to an I-T officer, the group had transferred income on sale of about 12-15 flats, each in the ~22-25 crore range between 2010 and 2015. These flats we reina luxury project in Worli, an up scale Mumbai neighbourhood.

The revelation came during the examination of documents seized during the search operation conducted on K Raheja group companies, including Shoppers Stop last month. The searches were carried out at the group’s 26 premises in Mumbai, Pune, Hyderabad and Bengaluru.

However, a source who is aware of the transaction said, “The retail arm (Hypercity) had taken a decision back then to venture into real estate business and as part of that venture, it decided to book apartments with the intention of resale at an appropriate time.”

Explaining the modus operandi, an I-T officer said that typically a real estate developer sells flats to a group entity say at 40 per cent of the market price. When an actual buyer comes in, the developer asks the buyer to buy the flat from this entity. The profit is then shared between the developer and the entity.

While the matter is yet to be concluded, the tax official said that a company like Hypercity could set off profits on sale of property against its losses in the retail business.

I-T sources said the department was probing an income of ~150 crore in Hypercity’s accounts