The Company contests Rs 34.367 crore tax demand over AIF costs

The Company is contesting a Rs 34.367 crore income-tax demand for assessment year 2023-2024 after the Assessment Unit disallowed Rs 154.237 crore of Alternative Investment Fund, or AIF, fund-raising and distribution expenses. The final order of May 7, 2026 also included a Rs 9.264 crore transfer-pricing adjustment, and the appeal remains pending.

Why did The Company receive an AIF income-tax demand?

The Company received the demand because the Income-tax Department treated Rs 154.237 crore of AIF fund-raising and distribution expenditure as capital-field expenditure that created an enduring advantage, rather than as a deductible business expense. The Assessing Officer proposed the disallowance in a March 6, 2026 show-cause notice for assessment year 2023-2024, where The Company had claimed the amount under Section 37(1) of the Income-tax Act, 1961.

The process moved from a show-cause notice to a draft assessment order on March 23, 2026 and then to the final assessment order on May 7, 2026. The Company informed the Assessing Officer by letter dated April 21, 2026 that it would not file objections before the Dispute Resolution Panel, after which the Assessment Unit confirmed the proposed variations under Sections 143(3), 144C(3) and 144B of the Income-tax Act.

What expenses did the Income-tax Department disallow?

The disallowance concerned costs incurred to raise and distribute various AIFs managed by The Company, totalling Rs 154.237 crore. An AIF is an Alternative Investment Fund, and the order addresses expenses associated with fund-raising and distribution for managed products rather than an identified single fund.

The Assessing Officer's stated basis was that the expense resulted in an enduring advantage and belonged to the capital field of the business. That is the department's characterisation in the assessment order, not a final judicial determination: The Company appealed on June 3, 2026, stating that the findings were erroneous and unlawful.

The AIF expense accounts for about 94.3% of the Rs 163.501 crore of identified additions in the assessment order, while the remaining Rs 9.264 crore is the transfer-pricing adjustment. The distinction matters because the Rs 34.367 crore tax demand follows the combined assessment order, while the principal dispute is concentrated in the AIF expense disallowance.

What other adjustment is included in The Company's tax order?

The May 7, 2026 assessment order also made a Rs 9.264 crore transfer-pricing adjustment for The Company's provision of non-binding sub-advisory services to its associated enterprise. Transfer pricing refers in this case to the tax adjustment recorded for a transaction between The Company and that associated enterprise.

The final order therefore confirmed two stated categories of variation: the Rs 154.237 crore disallowance of fund-raising and distribution expenses and the Rs 9.264 crore sub-advisory-services adjustment. The Rs 34.367 crore demand notice was issued under Section 156 of the Income-tax Act, which is the provision cited in the prospectus for a tax demand notice.

The Assessing Officer also initiated penalty proceedings under Section 270A on the stated ground of under-reporting of income. The source does not state a penalty amount or a penalty order, so the disclosed financial amount remains the Rs 34.367 crore tax demand under the assessment order, not a quantified penalty liability.

How is The Company challenging the tax demand?

The Company is pursuing both an appeal and a rectification application against the May 7, 2026 assessment order. It filed its appeal before the National Faceless Appeal Centre on June 3, 2026, challenging the assessment findings as erroneous and unlawful, and the proceeding was pending when disclosed.

The Company filed a separate application under Section 154 on June 5, 2026 to seek correction of errors apparent from the record in the computation sheet annexed to the assessment order. The stated issues include an alleged double addition of capital-gains income and income from sources, non-grant of set-off for brought-forward business losses and capital losses, and an incorrect calculation of interest under Section 234B.

These two steps address different parts of the dispute disclosed by The Company. The appeal contests the assessment order itself, while the Section 154 filing seeks correction of identified computational matters in the annexed sheet; neither filing had been decided as of the prospectus disclosure.

Why is this income-tax case material in the prospectus?

The Company disclosed the case because its January 19, 2026 materiality policy sets Rs 11.169 crore as the threshold for litigation involving The Company, its promoters other than EFSI, subsidiaries and directors. The threshold equals 5.00% of the average absolute profit or loss after tax in the restated consolidated financial information for the preceding three fiscals.

The Rs 34.367 crore demand is about 3.08 times the Rs 11.169 crore materiality amount. The prospectus separately says direct and indirect tax matters involving relevant parties are presented in consolidated form, with details of matters above Rs 11.169 crore, except that EFSI has a separate Rs 29.072 crore threshold.

The disclosed policy also measures material creditors at 5.00% of total trade payables, which was Rs 5.886 crore based on trade payables of Rs 117.711 crore for the three months ended June 30, 2026. That creditor benchmark is separate from the tax-litigation threshold and does not alter the Rs 34.367 crore tax demand or the pending status of The Company's appeal.

Conclusion

The Company's tax dispute centres on the department's classification of Rs 154.237 crore of AIF fund-raising and distribution costs as producing an enduring capital advantage, with the Rs 9.264 crore transfer-pricing adjustment forming the smaller second component of the Rs 163.501 crore identified additions. The result was a Rs 34.367 crore Section 156 demand for assessment year 2023-2024, alongside initiated proceedings for under-reporting of income.

The next disclosed developments to watch are the National Faceless Appeal Centre's handling of the June 3, 2026 appeal and the outcome of the June 5, 2026 Section 154 rectification application. Those processes may address, respectively, the assessment findings and the claimed computation errors, including loss set-offs and Section 234B interest; both remained pending in the prospectus disclosure.