Key Points:
- IIFL Finance shares drop after tax audit order, called procedural by the company.
- No extra tax liability expected; operations and RBI compliance intact.
- Housing finance arm may go public via demerger; private equity interest under review.
IIFL Finance shares drop sharply, falling more than 15% Thursday after tax authorities ordered a special audit of its accounts for fiscal 2019–2025, a move founder Nirmal Jain said is procedural and based on a misunderstanding.
IIFL Finance shares closed 15.2% lower at ₹528.50 despite reporting strong quarterly results, rattled by an Income Tax Department order directing a special audit under Section 142(A) of the Income Tax Act. The provision allows authorities to seek audits in cases involving complex accounts.
Jain, founder and group head of IIFL, sought to reassure investors in an interview, calling the concerns “a complete misunderstanding” and saying the company does not expect any additional tax liability.
Tax Order Triggers Sharp Market Reaction
The Income Tax Department’s order covers a specified period from the financial year 2019 through the financial year 2025, prompting heavy selling in the stock during Thursday’s session, which contributed to the IIFL Finance shares drop. The decline came even as the company reported results that beat market expectations.
Jain said the special audit provision is often invoked for businesses with complex inventory and valuation structures. “There’s nothing unusual about it,” he said, adding that the company has already completed reassessment for the block period and paid about ₹1.2 crore to ₹1.3 crore in taxes.
He said speculation around the audit was misplaced and emphasised that the order does not imply wrongdoing. Section 142(A), he noted, is procedural and meant to help tax authorities better understand intricate accounting practices.
Despite Thursday’s fall, IIFL Finance shares drop remained up about 37% over the past year, reflecting broader investor confidence prior to the tax order.
Company Cites RBI Compliance, No Extra Liability Expected
Jain also pointed to the Reserve Bank of India’s supervisory review, saying the company’s compliance now fully satisfies the regulator. He said the tax investigation stems from an RBI finding related to cash transactions, which was already disclosed in regulatory reports.
“There was a finding which RBI has, and that is the finding on which income tax is also investigating,” Jain said. He added that during a search operation, the company provided complete data backups to authorities, a process that took several days due to the volume of information involved.
“As far as we are concerned, we are 100% confident that there’s no extra, no further liability we expect on this account,” he said.
The company maintains that it has cooperated fully with both regulators and tax officials and that the audit process should not disrupt its operations or financial position.
Housing Finance Arm May Go Public via Demerger
Beyond the tax issue, Jain also addressed the future of IIFL’s housing finance business, saying the group is evaluating options to take the unit public. He said this could be done through a demerger rather than a traditional initial public offering, though no final decision has been made, a factor analysts say could influence IIFL Finance shares drop.
“A decision has not yet been reached,” Jain said, stressing that any move would be evaluated from a long-term value and synergy perspective.
He also acknowledged expressions of interest from private equity investors but said there is currently nothing concrete under consideration. Any such proposal, he said, would be placed before the board and shareholders if it meets strategic and valuation criteria.
Market participants will continue to watch regulatory developments closely, with analysts expecting near-term volatility in the stock and a potential IIFL Finance shares drop until greater clarity emerges on the tax audit. For now, IIFL’s management is betting that transparency and regulatory compliance will help restore investor confidence.
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