Welcome to yet another edition, chief!

In today’s edition — In December, courts handed the tax department a red card when it played outside the lines in two instances — first, by wrongly recovering tax from a company which was in no way involved in the dispute, and second by asking a business to respond to fraud allegations without sharing any details.

When Tax Authority Went Too Far

Vishwas Ved

Tax disputes involving businesses or individuals follow a predictable playbook. The authorities send out a demand and raise some questions. When the taxpayer’s reply is not to the department’s satisfaction, an order comes down, and the recovery process starts only after that.

In other words, there’s a process involved, and both sides know a solution could be found as long as the playbook rules are respected.

Two court rulings from December 2025 look at what happens when that process is crushed underfoot without hesitation. 

In one case, tax authorities recovered money from a company that had no connection with the dispute. In another, a business was accused of fraud, and was asked to respond without being shown where the discrepancies were. 

2 Companies, 2 Entities

The first case involved two companies with a common director. One of them had outstanding tax dues. 

Instead of recovering the amount from that company, the department issued instructions to a bank and withdrew funds from the other company’s account.

There were no proceedings against this second company, and no notice was issued to it. The only connection between the two was a common director.

The matter eventually reached the Karnataka High Court, which ruled that each company exists as a distinct legal entity, and that separation is valid even when one individual is involved in both businesses. 

The law permits recovery from third parties only when there is a clear financial relationship with the defaulter. Without that, a recovery action has no legal basis.

The court also declined to accept the use of “corporate veil” arguments in this context. Unless one can prove there is fraud, a sham structure, or a deliberate misuse of corporate structure, this principle cannot be applied. A common director alone does not prove anything.

Therefore, the court has ordered the tax department to return the money.

Show the Evidence

The second ruling came in a case where the business was accused of generating fake invoices and pocketing wrongful tax credit. 

The department issued a notice, relying on its investigative reports. 

The taxpayer approached the Allahabad High Court, asking for the notice to be quashed. The court declined to do so.

It held that factual disputes are generally examined during adjudication, not at the notice stage. However, it placed clear conditions on how the proceedings must continue.

Before requiring the taxpayer to respond, the department must disclose all material it took into consideration. This includes documents, statements, and evidence gathered without the taxpayer’s participation. 

A reply, the court said, cannot be expected if the basis of the allegation is not shared. The court also noted that once the material is relied upon, it cannot be withheld from the taxpayer.

Final Words

The two rulings make it clear that liability cannot be imposed by association, and a company cannot be expected to respond to allegations without knowing fully what they are. 

Separate companies remain separate legal entities unless they are linked by a shared criminal intent.

Our tax department has wide powers, and these rulings do not dilute them in any way. But they do make it clear how these powers are meant to be exercised.

For businesses, it’s important to be aware that when they face allegations of fraud, access to the evidence is part of the process, not a concession.

$3.2 Million

That’s the amount Kiyomura Corp, a Japanese sushi chain, paid for a single bluefin tuna at Tokyo’s famed New Year fish auction. The bid broke Kiyomura's previous record of $2.1 million in 2019. The prized 536-pound (about 245 kg) tuna was caught off the coast of Oma in northern Japan, a region famed for producing some of the country’s best tuna. The first auction at Tokyo's Toyosu fish market typically sees fish selling for exorbitant prices. Last year, the first tuna at the auction was bought for 207 million yen by Onodera Group, another food company that owns a sushi chain.

—Amazon Pay partners with 7 financial entities for FDs.  Amazon Pay, the fintech arm of the e-commerce major, is scaling up its fixed income asset business with the rollout of fixed deposits for its users through the fintech application. The company said it had partnered with two non-banking financial companies (NBFCs), Shriram Finance and Bajaj Finance, along with five banks. The partnership for fixed deposits includes banks such as Shivalik Small Finance Bank, Suryoday Small Finance Bank, South Indian Bank, Slice, and Utkarsh Small Finance Bank. Users can deposit FDs starting from ₹1,000.

—xAI raises $20 billion from Nvidia, Cisco, Fidelity. Elon Musk’s xAI said it raised $20 billion in a funding round, exceeding its prior target of $15 billion. Investors included Nvidia and Cisco Investments as well as long-time Musk company backers Valor Equity Partners, Stepstone Group, Fidelity, Qatar Investment Authority, Abu Dhabi’s MGX and Baron Capital Group. Both Nvidia and Cisco work with xAI as vendors and strategic partners. AI startups reached sky-high valuations in 2025, raising massive amounts of capital to power seemingly endless demand for their foundational models. 

—Venezuela to give up to 50 million barrels of oil to US. President Donald Trump said this week that the interim authorities in Venezuela will be turning over between 30 million to 50 million barrels of oil to the United States on the heels of the US’s dramatic ouster of the South American country’s authoritarian leader, Nicolas Maduro. Trump said the oil will be sold at its market price, “and that money will be controlled by me, as President of the United States of America, to ensure it is used to benefit the people of Venezuela and the United States!”

—Wegovy obesity pill now available at pharmacies. Americans seeking to lose weight now have a new option – taking Wegovy as a daily pill, rather than a weekly injection. Patients with a prescription could obtain the starter 1.5 mg dose of the tablet, with the higher doses becoming available by the end of the week, according to manufacturer Novo Nordisk. Being able to address obesity with a GLP-1 pill is a significant advance in weight management. Eli Lilly is expected to receive USFDA approval for its oral medication, which is called orforglipron until it receives a brand name, by summer.

ICYMI | Tax Conditions Always Apply

Missed last week's update? A CAG report tabled in the Parliament in December revealed that companies used the 5% GST rate for employee canteens without meeting the conditions attached to the tax rate. They took input-tax credit on shared services, which violated those conditions, making the lower rate invalid.

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