AV Birla group company Grasim Industries on Saturday said it has received a Rs 5,872.13-crore tax demand from the income tax department relating to its merger with Aditya Birla Nuvo and Aditya Birla Financial Services.

“The company has, on March 15, 2019, received an order dated March 14, 2019, issued by the deputy commissioner of income tax (DCIT) raising a demand of Rs 5,872.13 crore on account of dividend distribution tax (including interest),” Grasim Industries said in a communication to the stock exchanges.

In September 2017, the Ahmedabad bench of the National Company Law Tribunal (NCLT) had approved the merger of Aditya Birla Nuvo (ABNL) with Grasim Industries to be followed by the listing of Aditya Birla Financial Services Ltd (ABFSL).

In 2016, the AV Birla group had announced a restructuring plan that involved the merger of Aditya Birla Nuvo with Grasim. After the amalgamation, the financial services business of Nuvo was demerged into a separate listed entity — Aditya Birla Capital.

For the merger of Nuvo with Grasim, each shareholder of Nuvo got three new equity shares of Grasim for every 10 equity shares held.

Similarly, for the demerger of the financial services business into Aditya Birla Capital, a Grasim shareholder received seven equity shares of the company for every one held.

Grasim disclosed that the DCIT had issued a show-cause notice on February 11, 2019, subsequently revised on March 1, 2019, as to why the provisions of section 115-0 read with section 115-Q of the Income Tax Act, 1961, should not be applied to the allotment of equity shares by Aditya Birla Capital to the shareholders of Grasim Industries.

The company added that on March 15, it received an order by the DCIT raising a demand of Rs 5872.13 crore on account of the dividend distribution tax (including interest).

The DCIT held that as the demerger was not in compliance with Section 2(19 AA) of the act, the value of shares allotted by Aditya Birla Capital to the shareholders of Grasim Industries amounted to dividend, within the meaning of the act. Grasim said that it is of view that the order is not tenable in law.

“The necessary action(s) against the order is being taken by the company,” it disclosed.