In fresh trouble for Naresh Goyal-controlled Jet Airways, the income tax (I-T) department is examining the airline’s financial deal with Godrej Buildcon (GBPL), a wholly-owned subsidiary of Godrej Properties.
As part of a land development agreement, Jet Airways
is said to have received Rs 17.25 billion as “monetary consideration” from the developers. The I-T department is assessing whether this attracts tax liability on the parties concerned. Sources say the department will soon seek an explanation and ask them to file a response.
The matter pertains to an agreement between Jet and Godrej Properties in 2011, where they had planned to develop the airline’s 2.5-acre property at the Bandra Kurla Complex (BKC) in Mumbai. According to the agreement, Godrej Properties will take on the airline’s Rs 3.6 billion debt obligation on the property.
Sources said Jet Airways
had provided development, construction, marketing, and selling rights to GBPL. These rights were provided as direct payment, through a credit note or by adjusting accounts at different points in time, sources added. The records that the I-T department is in possession of indicate that, in a few cases, GBPL directly paid the amount to the Mumbai Municipal Regional Development Authority (MMRDA) on behalf of Jet Airways.
“Nowhere did Jet’s financial records reflect these transactions, such as payment to the MMRDA for additional built-up area, additional premium for delayed constructions, and development charges,” said an official. Records suggest these payments were made by GBPL against the MMRDA’s demand from Jet and payment receipts were issued in the airline's name. Even the amount of stamp duty (received from GBPL), which was Jet’s liability for executing the supplementary lease deed, was not reflected in their books, official added.
In an email response, a Godrej Properties spokesperson said: “GBPL has a registered development agreement with Jet Airways to build commercial office space in BKC, after appropriate approvals from authorities. The project was completed by GBPL and accounts settled according to the agreement between the parties. All the accounting has been done according to the prescribed accounting standards and due taxes have been discharged accordingly by GBPL.”
A Jet Airways spokesperson said the deal was in compliance with regulations. “Jet entered into a development agreement with Godrej Buildcon to build commercial office space on a plot of land situated at BKC. This agreement was registered and had prior approvals from authorities. The project was completed by GBPL and accounts settled according to the agreement executed by the parties. Accounting of the development agreement was done in compliance with regulations and according to the prescribed accounting standards. All applicable taxes have been duly discharged,” the spokesperson said.
Meanwhile, the I-T department is studying the GST (goods and services tax) department’s probe finding, which had issued an adjudication order and raised a service tax demand of Rs 2.37 billion on Jet in March.
Reportedly, Godrej had agreed to sell 161,460 sq. ft. of carpet area to Jet Airways at a development cost. Further, GBPL and Jet agreed to split the profits equally.
However, Jet was not entitled to create any charge on the plot except collaterals. Under the transaction, Godrej Properties will be treated as a sub-lessee, while all the applications for approvals from the MMRDA will be sought by Jet, the original lessee, according to media reports.
Jet Airways has been in the spotlight since August 9, after it had deferred its quarterly results amid differences with its auditors, leading to enquiries by stock exchanges and the market regulator. The auditors did not modify their opinion and reiterated that the airline’s future was dependent on raising capital and generating sustainable cash flows.
Jet Airways on Monday said it would seek capital infusion and sell the stake in its loyalty programme, after reporting a net loss of Rs 13.26 billion in the April-June quarter of 2018-19.
Jet Airways acquired a 2.5-acre land parcel worth Rs 3.9 bn from MMRTA at Bandra Kurla Complex in 2006
Jet entered into an agreement with Godrej Properties to develop the land in 2011
I-T dept is probing the alleged monetary consideration received by Jet
The agency alleges that Jet provided various rights like selling and marketing to Godrej
No records of the alleged transaction in account books