Can you tell me about the Income Tax department raid on Hero Motocorp and what are the implications?

In what could add to the load of worries that Hero Motocorp already has, the Income Tax Department has unearthed over Rs.1,000 crore of bogus expenses and Rs.100 crore of cash transactions pertaining to Hero Motocorp. This is way above the limits of cash transactions that are permitted and clearly look like an effort to evade taxes by accepting payments in cash. There has been no official statement yet from the side of Hero Moto on the subject.

During the week, the Income Tax Department conducted search and seizure operations at the premises of Hero Motocorp across its various offices in India. In addition, the search operations were also conducted at the residence of Pawan Munjal, the managing director of Hero Motocorp. Pawan Munjal had purchased a farmhouse in Chattarpur near Delhi, where the market price had been allegedly manipulated and cash payments had been made.

The cash transactions were in clear contravention of Section 269SS of the Income Tax Act. This just adds to the already existing problems of the company. The stock has reacted sharply, falling 7%. The stock is one of the major losers on the Nifty during FY22. On the one side it has been hit by falling rural sales amidst stiff competition from Bajaj, Honda and TVS Motors. On the other hand, rising input costs are punishing the operating margins.