A Delhi Court dismissed a tax evasion complaint against Newslaundry on the ground of being meritless

Case: Income Tax Department v. Newslaundry Media Pvt Ltd and Ors

The Income Tax Department filed a complaint against Newslaundry, its directors, valuers, and shareholders, which was dismissed by a Metropolitan Magistrate in Delhi on the ground of being meritless.

According to an Income Tax officer, Abhinandan Sekhri, the company's CEO and Managing Director, a partnership Chartered Accountancy firm and others conspired criminally with the company to evade tax by issuing shares based on bogus valuation reports that failed to take into account the company's losses in previous assessment years.

Additional Chief Metropolitan Magistrate Anurag Thakur ruled that Newslaundry's valuation method was valid.

Based on examples such as Amazon India, Flipkart, Zomato, Byju, etc., he concluded that the valuation was not lofty and could not be characterized as bogus.

The complainant claimed the accused had wilfully evaded tax and that the entire amount received from the sale of the shares in Assessment Year 2019-20 should have been treated as revenue instead of capital.

As the Court pointed out, the information relied upon by the Tax Department was intentionally supplied by the accused, and although there may be differing views on what constitutes capital or revenue, the accused could not be said to have evaded tax wilfully.

In addition, if the Department wished to treat capital receipts as revenue receipts, it could pass an assessment order adding to the company's income in the relevant financial year and issue a demand notice.

In addition, noting that the company's cash flow statements were impressive, the Court concluded that the Discounted Cash Flow (DCF) method of valuation, used by the company, was one of the best methods for valuing startups as other methods are likely to assign negative values to startups.

Consequently, the Court ruled that the valuation report was genuine and compliant with guidelines, without any material irregularities. Therefore, it determined that no offence or conspiracy had been committed and dismissed the complaint for lack of merit.