Income Tax drawing up fresh list of penny stocks suspected of money laundering

The Income Tax department is preparing one more list of penny stocks based on the findings of an earlier probe into market operators who facilitate money laundering/tax evasion through listed companies.

Lot of penny stocks — so called because they quote at an absolute low price — belong to companies with no genuine business activity. These companies are shell firms, which exist for helping the wealthy either evade taxes or launder their undisclosed income.

During Income Declaration Scheme (IDS) 1, more than Rs 5,000 crore was disclosed by stock traders dabbling in such penny stocks, according to I-T sources.

Earlier this year, the I-T department had prepared a list of 84 penny stocks and shared it with the Securities and Exchange Board of India (SEBI). The list currently being prepared is expected to have some 250 names, a source told Moneycontrol.

The I-T department came across the fresh names while probing the money trail of the market operators.

In January this year, SEBI had told its board that it will take action against companies/market players where price manipulation can be proved. The regulator said it cannot take action for tax evasion as it does not come under the purview of SEBI. And SEBI has set a deadline of September for clearing all the penny stocks-related cases.

If SEBI is unable to establish a case of market manipulation then it would be difficult for Income tax department to act against operators evading taxes or laundering money through penny stocks.

For the last three years, the I-T department and SEBI have been jointly working on identifying penny stocks and have estimated around Rs 30,000 crore of tax evasion through this route.

“Taking action against shell companies is tricky, but the fact is that thousands of crores of taxes are avaded through this route,” Rajeev Aggwaral, former SEBI whole-time director said.