In a fresh clampdown on shell companies, the income tax (I-T) department has identified 2,138 firms that deposited unaccounted cash during the demonetisation period. Tax officials have found deposits of Rs 1,321 crore so far, and expect the amount to swell to ~5,000 crore.
The new data also have details of 3,676 directors and associated entry operators, who deposited cash in banks during the note ban period (November 8 to December 30, 2016).
According to tax officials, the fresh data include both listed and unlisted firms, allegedly associated with some of the big corporate entities, which have used these firms to deposit their unaccounted cash in banks.
The new list has been prepared on the basis of challan identification numbers (CINs) of the shell firms and then segregated by mapping it with the jurisdiction of the Registrar of Companies for incorporation information of shell companies.
The data, so far, show gross amounts of cash deposited in bank accounts held by shell firms and associated directors without details of the “particulars” of the bank in which the cash was deposited, said a tax officer. The particulars in banking terms mean the written- down details that the bank maintains about the entity and keeps for record.
“The first phase of the probe reveals that these entities held multiple bank accounts so the absence of such particulars could hamper the investigation. However, we are trying to retrieve details through other sources of information, perhaps by segregating their permanent account number,” an official explained.
Based on the information, Central Board of Direct Taxes (CBDT) is said to have directed tax officials to conduct extensive enforcement action of search, survey and seizure on these companies as part of the next phase of “Operation Clean Money” launched early this year to detect the generation of black money post note ban.
Sources said the tax department was planning a mega pan-India search operation on these companies in the coming weeks.
This is the second big crackdown against shell companies within a month. Last month, the Ministry of Corporate Affairs (MCA) had identified 331 suspected shell firms and shared the data with market regulator, Securities and Exchange Board of India (Sebi). Soon after Sebi received the data, it had directed stock exchanges to immediately restrict trading in the companies identified.
While, by definition, a shell company is one without any business operations or assets, several companies with active business dealings, too, were part of the list with 331 names. As a result, Sebi’s move to suspend trading was criticised. Some of the companies got relief after moving to the Securities Appellate Tribunal (SAT) against the regulator’s order. Trading in the rest of the companies remains suspended.
This time, the government is said to have asked the tax department to analyse the data according to classification of shell firms after concluding the probe and then share it with respective regulators to avoid mishaps like in the previous case.
The government decided to crack down on such sham transactions after the special investigation team (SIT) on black money suggested a mechanism to detect shell companies and put in place checks and balances to curb stock market abuse.
In the last three years, the I-T department has identified over 1,155 shell companies which were used as conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was over Rs 13,300 crore. So far, the I-T department has launched criminal prosecution complaints against 47 persons.
The typical modus operandi has been to buy shares of shell firms, jack up the prices and sell shares after a year to claim long-term capital gains exemption.
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