ED may summon Naresh Goyal in Jet Airways privilege case
The Enforcement Directorate is studying allegations of tax evasion of more than Rs 650 cr against Jet and its units.
The agency is also studying allegations of tax evasion of more than Rs 650 crore made by the income tax department against Jet Airways and its units to see if these violated provisions of the Foreign Exchange Management Act (FEMA).
Jet Airways incorporated Jet Privilege Pvt Ltd (JPPL) as a wholly owned unit in 2012. After Etihad bought a 50.1% stake, it was hived off as an independent entity. Jet Airways holds the remaining 49.9%. Etihad had bought a 24% stake in Jet Airways in 2013. The ED had in the past sent queries to Jet regarding the $150 million stake sale in JPPL but it was only in May that senior executives of the airline were called in for detailed questioning.
The Jet Airways stock plunged to an all-time low on Tuesday, a day after lenders decided to refer the airline to bankruptcy court after failing to come up with a viable rescue plan for the carrier that stopped flying on April 18.
The central agency is trying to ascertain whether Etihad received the necessary approvals required from the now-defunct Foreign Investment Promotion Board for making investments in the country.
“The preliminary probe indicates that the deal is in violation of the FDI (foreign direct investment) provisions and Jet Airways classifying it as an ‘air transport service firm’ — a sector that allows more than 49% FDI through automatic route — was only to circumvent the norms in order to get more FDI,” said one of the persons cited above. “Since Goyal was founder and a major stakeholder then, he will be summoned in due course to explain this.”
The probe will seek to ascertain if this was an arrangement struck between the two in order to get more overseas investment into the airline and if that was in contravention of FDI norms, the person said.
In the tax matter, the IT investigation wing discovered alleged irregularities in transactions between Jet Airways and its Dubai-based group firms, ET reported on June 15. The airline was found to be paying commissions every year to its general sales agent in Dubai, which was also part of a group unit. These may have been aimed at evading taxes to the tune of Rs 650 crore, ET had reported, citing people aware of the matter. Details pertaining to those alleged irregularities have also cropped up in the JPPL deal probe while studying the books of accounts.
“A preliminary inquiry has indicated that this also amounts to violation under FEMA as fake invoices were floated and the monies that should have come to India were routed abroad,” said another official aware of the matter. “This transaction will also be studied in detail and a decision will be taken if a case has to be made out under FEMA.”
Earlier this month, Goyal was summoned by the IT department’s Mumbai wing under Section 131 of the Income Tax Act that empowers the income tax authorities to conduct inquiries and summon persons, examine them under oath, compel the production of books of account and documents, and issue commissions.
Multiple revenue and enforcement agencies are probing Jet Airways for alleged irregularities. Other than the ED and the IT department, the ministry of corporate affairs (MCA) is also investigating the airline for alleged violations of the Companies Act. The ministry’s regional office concluded several transactions to be of a “suspicious nature” in a May report.
It recommended a detailed investigation into Jet Airways after an inspection of its accounts.
Sources added that the government is likely to hand over the probe to the Serious Fraud Investigation Office (SFIO), the investigation arm of the MCA. Based on a request by the MCA, a lookout circular had been issued against Naresh Goyal and his wife Anita to ensure that they didn’t leave the country while investigations were pending. Following this, they were taken off a Dubai-bound plane in Mumbai on May 26.
Emails sent to Jet Airways didn’t elicit a response.
The carrier had previously told ET that it was in compliance with the law.
This was in response to a February 26 report by ET that said income tax authorities had discovered irregularities in the airline’s transactions with Dubai-based group companies and that the authorities might ask Jet Airways to explain these related-party deals.
“Jet Airways reiterates that it has always complied with all regulatory and corporate governance requirements, as required by law, with respect to the transactions entered into with related parties,” it had said at the time. “Such disclosures have been made by the company in its duly audited and published financials as part of ‘related-party transactions’.”
It was cooperating with the authorities, including the Registrar of Companies (RoC) through the course of a tax survey conducted last year, the carrier had said.