Kirloskar Oil Engines Limited, a leading engineering company, has received a Show Cause Notice (SCN) from the Income Tax Department under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The notice, dated February 27, 2025, pertains to an ongoing scrutiny assessment for the Financial Year 2022-23 under Section 143(2) of the Income Tax Act, 1961.

The National Faceless Assessment Centre (NFAC), Delhi, issued the Show Cause Notice (SCN) proposing certain disallowances to the returned income, with an estimated tax impact of INR 19.17 crore. The company received the notice via email on February 27, 2025, and has been granted an opportunity to respond before March 6, 2025.

Kirloskar Oil Engines has confirmed that it is currently reviewing the SCN and preparing its response. Despite the proposed tax adjustments, the company does not foresee any material impact on its financials, operations, or other business activities.

Background on the Scrutiny Assessment

A scrutiny assessment is conducted by the Income Tax Department under Section 143(2) of the Income Tax Act, 1961, to verify the accuracy of the filed income tax returns. If discrepancies are found, the department may propose adjustments or disallowances, which could lead to additional tax liability for the company.

For Kirloskar Oil Engines Limited, this scrutiny pertains to FY 2022-23, and the proposed disallowances could result in an additional tax liability of INR 19.17 crore if finalized. However, the company has been granted the opportunity to present additional submissions and clarifications.

Company's Official Statement

Kirloskar Oil Engines Limited has formally notified BSE Limited (BSE Scrip Code: 533293) and the National Stock Exchange of India Ltd. (NSE Scrip Code: KIRLOSENG) about the development. In its disclosure, the company stated that it is in the process of addressing the concerns raised in the SCN and that it will submit its response within the stipulated time frame.

The company emphasized that the tax assessment process is ongoing and that no final determination has been made regarding the proposed disallowances. Kirloskar Oil Engines further assured investors and stakeholders that it does not anticipate any major financial, operational, or business disruption as a result of this notice.

Impact on Kirloskar Oil Engines’ Stock Performance

The issuance of a Show Cause Notice (SCN) by the Income Tax Department often raises concerns among investors regarding potential financial liabilities and compliance risks. However, since Kirloskar Oil Engines has stated that the impact is not expected to be material, the market reaction will likely depend on the company's ability to address the tax department's queries effectively.

Investors may closely monitor the company's response to the SCN as well as any subsequent developments regarding the assessment. The company's stock performance on BSE and NSE will likely reflect investor sentiment surrounding this regulatory development.

Understanding Regulation 30 of SEBI LODR

As a publicly listed company, Kirloskar Oil Engines Limited is required to disclose material developments that could impact its business operations. Under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, companies must promptly inform the stock exchanges about significant legal, financial, or operational matters.

By filing this disclosure with BSE and NSE, Kirloskar Oil Engines has ensured compliance with SEBI regulations and has provided transparency to investors and stakeholders.

The National Faceless Assessment Centre (NFAC) and Its Role

The National Faceless Assessment Centre (NFAC) is a digital initiative by the Income Tax Department of India to conduct tax assessments electronically. The faceless assessment system eliminates physical interactions between taxpayers and tax officials, ensuring transparency, efficiency, and reduced scope for discretionary practices.

Under this system, companies receive assessment notices and communications electronically and are required to submit responses through the NFAC portal. Kirloskar Oil Engines’ receipt of the SCN through email is part of this digital tax assessment process.

Next Steps for Kirloskar Oil Engines

1. Review and Analysis – The company is analyzing the proposed disallowances mentioned in the SCN.
2. Response Submission – The company will submit its reply to NFAC by March 6, 2025.
3. Assessment Outcome – The final outcome of the tax scrutiny assessment will depend on the Income Tax Department’s evaluation of the company’s response.

Conclusion

Kirloskar Oil Engines Limited’s receipt of a Show Cause Notice from the Income Tax Department is a routine regulatory matter related to scrutiny assessment for FY 2022-23. While the proposed tax liability stands at INR 19.17 crore, the company has stated that it does not expect any material impact on its financial position.

With the company actively engaging with the authorities and preparing its response, investors will be watching closely for further developments. Kirloskar Oil Engines remains committed to regulatory compliance and transparency in its financial disclosures.

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