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Last Updated : Aug 28, 2017 07:24 AM IST | Source:

Govt dossier lists 17,000 companies as main conduits for funneling dirty money after demonetisation

Crackdown soon on thousands investment advisory firms, realty companies, hotels, grain mills, media houses based on SFIO,CBI, I-T and ED data

Gaurav Choudhury @gauravchoudhury

The government will launch a multi-agency crackdown on about 17,000 companies including some stock market listed investment advisory firms, realty businesses, hotels, grain mills, jewellery traders and a few film production and media houses for funneling thousands of crores of undisclosed funds over the last several months.

A latest government dossier lists 16,794 companies as the main conduits for moving around slush money after the sudden demonetisation of Rs 500 and Rs 1000 notes on November 8 last year.

Moneycontrol has reviewed the dossier running into hundreds of pages that four government agencies—the Serious Frauds Investigation Office (SFIO), the income tax department (ITD), the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED)—have prepared based on payment records, tax returns, intelligence bureau inputs, foreign exchange deals and banks’ suspicious transactions reports (STRs).


ITD sleuths have found that 14,247 of these companies have disclosed income in their tax returns far lower than what their bank records and spending patterns suggest. The ED, which tracks overseas transactions and money laundering deals, have found 50 companies to have salted away funds to foreign accounts flouting rules.

The CBI has found substantive evidence of financial crime against 482 companies, while the SFIO have recommended framing of corporate fraud charges against 2015 companies where directors and promoters have been found to be directly involved in tax evasion and financial swindle.

Also read: 3.6 million instances of cash deposits above Rs 10 lakh since April 1, 2016 under scanner

This dossier contains names of 43 food companies, nine rice mills, five flour mills, 17 oil traders, 860 real estate, construction and infrastructure companies, about 150 steel and metal firms, more than 40 advertising and mutli-media firms, two news media organisations, dozens of gems and jewellery traders, two broadcast houses and thousands of financial advisory and stock broking companies among others.

It also lists an industry association, a residents’ association and a consumers’ group for seeking to obscure the source of funds through multiple cash-based transactions.

Instances have come to light where companies borrowing money through “cash” from investors using instruments such as “convertible debentures” and “optionally convertible debentures”.  Many investors have “lent” funds in cash through a convertible debenture to companies, which real estate companies have used to pay vendors for ongoing projects. Within weeks, these investors have converted the money lent in cash as equity shares and become legitimate shareholders of the company.

There are about 40,000 unlisted companies in India, many of which often obscure their ownership and shareholding patterns through a web of related firms.

The dossier has mapped data upto June 1, 2017 based on permanent account number (PAN) that companies had disclosed while filing their advance taxes. Unlike salaried individuals, who file their tax returns after the financial year ends, companies pay advance tax every quarter based on their projected income.

Also read: Govt orders shuttering of 1.75 lakh shell companies found to be funneling black money: Modi

A PAN number, besides serving as a unique 10-digit alpha numeric identity for citizens, has also become mandatory in a host of transactions.  Furnishing PAN is now mandatory for cash transactions such as hotel or foreign travel bills exceeding Rs.50,000, purchase of jewellery, above Rs.2 lakhs in cash or through card, purchase of immovable property of over Rs.10 lakh, term deposits exceeding Rs.50,000 at one go or Rs.5 lakh in a year with banks, post offices and non-banking financial companies (NBFCs).

The dossier contains data from banks, corporate account credit cards, mutual funds, stock market and property registrars. The income tax department has been using technology to match personal details to ensure that duplicate PANs are not issued.

However, some taxpayers managed to get more than one PAN by making some changes in their personal information at the time of submission of the PAN application.  Of the 16,794 companies that the dossier lists, 1710 companies did not disclose their PAN number in many transactions.

Banks have also reported accounts that show "unusual activity compared with past transactions," sudden activity in dormant accounts, and fund movement in accounts that are inconsistent, with what would be expected from declared business.

According to government sources, during demonetisation, through which the government had outlawed old Rs 500 and Rs 1000 notes, cumulative cash deposits of more than Rs 25 lakh were made in about of 4.62 lakh bank accounts during November 8 to December 30, 2016. Cash deposits of more than Rs 5 lakh were made in 23.87 lakh accounts during these 50 days.

The government has signaled its intent to go after tax dodgers. Earlier this month, Prime Minister Narendra Modi said that the government has deregistered and shuttered more than 1.75 lakh `shell’ or paper companies with doctored accounts based on data mined from demonetisation. As many as 400 bogus firms were found to be operating from a single address.

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First Published on Aug 28, 2017 07:24 am
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