Grasim challenges Rs 5,872 crore demand from income tax authorities

Grasim Industries has challenged the Rs 5,872.13 crore demand from Income Tax Department with respect to its merger with two Aditya Birla group firms.

"The Bombay High Court, while granting time to the department for filing the reply, has granted a stay against the recovery of demand," the company said in regulatory filings to stock exchanges.

Grasim contended before the court that order was "wholly unsustainable in law."

In September 2017, the National Company Law Tribunal bench at Ahmedabad had approved the merger of Aditya Birla Nuvo with Grasim Industries to be followed by the listing of Aditya Birla Financial Services.

On March 14 this year, the company received a communication issued by the Deputy Commissioner of Income Tax, raising a demand of Rs 5,872.13 crore on account of dividend distribution tax (including interest).

The department held that as the demerger of the demerged undertaking is not in compliance with Section 2(19 AA) of the Act, the value of shares allotted by Aditya Birla Capital Ltd to the shareholders Grasim Industries, in consideration of the transfer and vesting of the demerged undertaking into Aditya Birla Capital, amounted to dividend within the meaning of the Act.

The company said that Deputy Commissioner of Income Tax had issued a show cause notice on February 11, which was subsequently revised on March 1, as to why the provisions of section 115-0 read with section 115-Q of the Income Tax Act, 1961 should not be applied on the allotment of equity shares by Aditya Birla Capital to the shareholders Grasim Industries, pursuant to the mega merger between the three entities.

The company said it had filed its detailed submissions in response to these notices.