Income Tax Department conducts searches PAN-India in a prominent group having diversified businesses
Income Tax Department carried out a search operation under section 132 of the Income – tax Act, 1961 on 22.07.2021 on a prominent business group, which is involved in businesses in various sectors, including Media, Power, Textiles and Real Estate, with a group turnover of more than Rs. 6,000 crore per annum. 20 residential and 12 business premises spread over 9 cities including Mumbai, Delhi, Bhopal, Indore, Noida and Ahmedabad have been covered.
The group has more than 100 companies including the holding and subsidiary companies. During the search, it was found that they have been operating several companies in the names of their employees, which have been used for booking bogus expenses and routing of funds. During the search, several of the employees, whose names were used as shareholders and directors, have admitted that they were not aware of such companies and had given their Aadhaar card and digital signature to the employer in good faith. Some were found to be relatives, who had willingly and knowingly signed the papers but had no knowledge or control of the business activities of the companies, in which they were supposed to be directors and shareholders.
Such companies have been used for multiple purposes namely; booking bogus expenses and siphoning off the profits from listed companies, routing of funds so siphoned into their closely held companies to make investments, making of circular transactions etc. For example, the nature of such bogus expenditures booked, vary from supply of man power, transport, logistics and civil works and fictitious trade payables. The quantum of income escapement using this modus operandi, detected so far, amounts to Rs. 700 crore spread over a period of 6 years. However, the quantum may be more as the group has used multiple layers and investigations are being carried out to unravel the entire money trail. Furthermore, these involve violation of S.2(76)(vi) of Companies Act and Clause 49 of Listing Agreement prescribed by SEBI for listed companies. Application of Benami Transaction Prohibition Act will also be examined.
Cyclical trading and transfer of funds among group companies engaged in unrelated businesses to the tune of Rs. 2,200 crore has been found. The enquiries have confirmed that these have been fictitious transactions without any actual movement or delivery of goods. The tax effect and violation of other laws is being examined.
The real estate entity of the group operating a Mall had been sanctioned a term loan of Rs. 597 crore from a nationalised Bank. Out of this, an amount of Rs. 408 crore has been diverted to a sister concern as loan at low interest rate of 1%. While the real estate company has been claiming expenses of interest from its taxable profit, it has been diverted for personal investments of the holding company.
The listed media company does barter deals for advertisement revenues, whereby immovable properties are received in lieu of actual payments. Evidences have been found indicating cash receipts in respect of subsequent sale of such properties. This is under further examination.
Evidences have been found which indicate receipt of on-money in cash, on sale of flats by the reality arm of the group. The same has been confirmed by 2 employees and 1 director of the company. The modus operandi as well as the corroborating documents have been found. The exact amount of out- of – books cash receipts are being quantified.
A total of 26 lockers have been found in the residential premises of the promoters and key employees of the group, which are being operated.
The voluminous material found during the search operations is being examined.
Searches are continuing and further investigations are in progress.
Income Tax Department conducts searches in Uttar Pradesh
Income Tax Department carried out a search operation on 22.07.2021 on a group in Uttar Pradesh dealing in Mining, Hospitality, News Media, Liquor and Real Estate. The search began in Lucknow, Basti, Varanasi, Jaunpur and Kolkata.
Cash of more than Rs. 3 crore has been seized and 16 lockers have been placed under restraint. Documents including incriminating digital evidence indicating nearly Rs. 200 crore of unaccounted transactions have been seized.
Evidence found during searches establishes that the group has been earning huge outside-the-books income through mining, processing and sales in liquor, flour business, real estate etc. Unaccounted income emanating out of these transactions has been found exceeding Rs. 90 crore as per preliminary estimates. This income has been brought back into the books through a network of shell companies and other bogus entities without paying any taxes, thereby creating a charade that the money has been accounted for.
During the searches, more than 15 companies incorporated at Kolkata and other places were found to be non-existent. Share premia of over Rs. 30 crore were collected by these shell companies through other similar entities or through individuals of no means. There is no economic rationale for any such premium.
Searches have also established that individuals as well as shell entities were used by the group to launder huge funds amounting to more than Rs. 40 crore, showing them as loans obtained by media companies. Taxation profiling of such shell entities who have provided ‘loans’ indicates that they neither possess the financial ability nor had any economic rationale for advancing such ‘loans’. These persons and entities were found to be closely related to the final beneficiaries. One of these persons had provided loans of more than one crore to media entities and was himself not only unlettered but also of very meagre financial means.
Taxation profiling of each individual and entity indicated that either no returns were filed or very meagre taxes had been paid which were not at all commensurate with the huge amount of loans and premia running into crores. One paper company was found not to have any business, the address mentioned was false and it had no employees. Yet it had been paid more than Rs. 4 crore of share premium by another bogus concern.
Similar modus operandi was also followed in having so called ‘trade payables’ in the books of the main entities of these businesses through such dubious concerns with unaccounted sources of funds. These so called ‘payables’ alone amount to more than Rs. 50 crore . One of the branches of the group has voluntarily disclosed an income of Rs. 20 crore during the search once they were confronted with the evidence. This disclosure includes Rs. 13 crore of bogus ‘trade payables’.
The group therefore devised a complex strategy of earning huge unaccounted income through the creation of sophisticated financial layers of dubious and bogus entities spread across multiple States, to route this unaccounted money back into the main businesses without paying any taxes. The total amount of such unaccounted layering through bogus entities exceeds Rs. 170 crore while the total unaccounted transactions exceed Rs. 200 crore.
The unaccounted amounts so earned were used partly for the purchase and construction of property. Evidence of unaccounted payments in cash running into crores has been found during search. Evidence has also been found to indicate that payments exceeding Rs. 2 crore have been made in cash by one of the businesses in violation of provisions of Income-tax Act, 1961. Huge unaccounted money has also been deposited in a group Trust and routed to the main concerns.
Further investigations are in progress.
