Income Tax Department conducts searches in Mumbai

The Income Tax Department carried out a search and seizure operation on July 28, 2022 on an ex-fund manager and chief trader of equities of a prominent mutual fund house along with related sharebrokers, middlemen and entry operators. The search action covered more than 25 premises, spread across Mumbai, Ahmedabad, Vadodara, Bhuj and Kolkata.

As a result of the search operation, various incriminating evidences in the form of documents and digital data have been found and seized. These evidences gathered during the search including sworn statements recorded from various persons have revealed the modus operandi.  It has been detected that the said fund manager and chief trader were sharing specific trade related information with brokers/middlemen and persons located in certain foreign jurisdictions. These persons in turn, used such information for illicit gains in the share market by trading in such scrips either in their own account or the account of their clients. These persons including family members of the fund manager have admitted in their statements that the unaccounted cash generated from the above operations was routed mainly through Kolkata based shell entities into their bank accounts. From these bank accounts, funds have been further diverted into the bank accounts of companies/entities incorporated in India and other low tax jurisdictions. The gleaning of seized evidences has exposed the nexus between the ex-fund manager, middlemen, share brokers, and entry operators.

Evidences of large-scale unaccounted investment in cash loans, fixed deposits, immovable properties and their renovation, etc. have also been found and seized. More than 20 lockers have been put under restraint. So far, unaccounted deposits exceeding Rs. 55 crore have been seized.

Further investigations are in progress.

The Press Release can be accessed at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1848847

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The Income Tax Department carried out search and seizure operations on February 25, 2022 on certain contractors executing contracts of Brihanmumbai Municipal Corporation (BMC), a prominent person and their close associates. In all, more than 35 premises in Mumbai have been covered during the search operation.

During the course of the search operation, numerous incriminating documents, loose sheets and digital evidences have been found and seized. The evidences so seized strongly indicate a close nexus between these contractors and the said person. Particulars of about 3 dozen immovable properties, whose value could be more than Rs. 130 crore have also been detected. It includes properties acquired either in their name or their associates or benamidars. Evidences of their involvement in international hawala transaction and routing of the ill-gotten money to certain foreign jurisdictions have also been recovered. Loose sheets and excel files with details of unaccounted cash receipts and payments aggregating to several crores have also been found and seized, which have not been recorded in the regular books of account.  

In the case of contractors, the seized documents reveal the modus-operandi adopted by them for large-scale suppression of taxable income by inflating their expenses. For this purpose, the prominent recourse is over-invoicing of sub-contract expenses through a maze of entities and by claiming non-genuine expenses.  Certain instances show that cash has been taken out from these entities and the same has been utilized for obtaining undue favours for awarding of contracts and also for making unaccounted payments for investments in properties. The preliminary investigation indicates that these contractors have evaded income to the extent of Rs. 200 crore on account of the above malpractices.

During the search operation, undisclosed cash of Rs. 2 crore and jewellery of Rs. 1.5 crore have been seized so far.

Further investigations are in progress.

The Press Release can be accessed at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1802581

The Income Tax Department carried out search and seizure operations on December 08, 2021 on four Asset Reconstruction Companies (ARCs). Total of 60 premises spread over Mumbai, Ahmedabad, Delhi, etc. have been covered.

The search action has revealed that the ARCs had adopted various unfair and fraudulent trade practices in acquiring the Non-Performing Assets (NPA) from the lender banks. It has been found that an unholy nexus existed between the borrower groups and ARCs and in the process, a maze of shell / dummy concerns have been used. The amount at which the NPA has been acquired by the ARC has been found to be far less than the real value of the collateral securities covering the said asset/NPA.

The search has revealed that the minimum cash payout made out by the ARCs to lender bank(s) for acquiring the stressed assets/NPAs have usually been using the funds of the borrower group. Such funds have been routed through several layers of dummy companies controlled by the borrower group or through hawala channels.

It has also been found that the ARCs have been following non-transparent methods in disposal of assets that were acquired by them from the banks. More often than not, the underlying assets had been re-acquired by the same borrower group, albeit at a fraction of their real values. The ARCs are found to have concealed the profits on disposal of the underlying assets by diverting the actual profit to their related concerns, under the garb of consultancy receipts or unsecured loans/investments. Through this method, the ARCs have not only evaded the payment of due taxes but also deprived the lender bank(s) of their share of actual profits.

One of the ARCs was found to be maintaining a parallel set of accounts on Tally accounting software, in a pen drive, recovered from the custody of the trusted employees of the promoter. This parallel set of accounts contained cash transactions aggregating to more than Rs. 850 crore. Handwritten diaries have also been found during the search, containing detailed entries substantiating the deliberate act of layering of transactions by the promoter group and use of a network of middlemen for the same. There are also evidences of routing of funds through offshore structures to acquire the assets.

Cash of Rs. 4 crore has been seized during the search operation. Large volumes of documentary and digital evidence seized are being further analysed for detection of violations under the Income Tax and allied Acts.

Further investigations are in progress.

The Press Release can be accessed at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1781842

The Income Tax Department carried out searches on 17.03.2021 in the case of a prominent builder and developer group based in Mumbai. Searches were also conducted in the case of dealers engaged in the business of trading of mobiles accessories. In all, 29 premises located in Mumbai were covered under search operation, while 14 premises were covered under survey action.

The real estate group is developing a commercial Mall, having 950 units exclusively for the mobile accessories business. Of these, about 905 of the units have been sold starting from 2017 till date. The evidences stored in a pen drive found in the searched premises revealed that the builder group, has taken an amount of Rs. 150 crore as on-money receipts over and above the agreement value, which is not accounted for in the books of accounts on sale of such units. Further, similar evidence of on-money amounting to Rs. 70 crore has been found in the pen drive pertaining to a residential-cum-commercial project. Cash amounting to Rs. 5.50 crore has been found and seized from various premises of this group. The receipts of on-money for sale of shops/flats by the builder in various projects recorded in digital form have been seized.

In respect of the dealers engaged in the business of mobile accessories, various incriminating evidence has been found pertaining to out-of-books sales. The group imports goods from China and sells these goods to various parties all over India. The imports are under invoiced and payments are made through hawala channels. 13 secret godowns containing unaccounted stock have been discovered, wherein the stock is being inventorised and valuation is under progress.

Further, evidence of unaccounted investments in properties by the said dealers amounting to Rs. 40.5 crore has been detected. Out of this, unaccounted investments worth Rs. 21 crore are against the purchase of units in the said commercial Mall. Four undisclosed bank accounts in the names of employees have also been detected, which are used to collect the sale proceeds from the retail vendors of the groups. The total deposits in the bank accounts amount to Rs. 80 crore.

This operation has revealed that the entire sector of trading in mobile accessories is largely unaccounted. The main components are imported from China through Mumbai and Chennai ports. Search has revealed that the dealers are undervaluing the sales and purchases in a major way. The transactions with Chinese counterparts take place through the We-Chat app. The Department has recovered the We-chat messages using forensics. The information pieces are being verified and collated to extract information regarding the quantum and cost of Chinese imports.

Unaccounted cash of Rs. 5.89 crore has been seized, so far, in this operation. The searches, as yet, have resulted in the detection of undisclosed income of around Rs. 270 crore. Further investigations and the exercise of valuation of unaccounted stock are in progress.

The Press Release can be accessed at: https://pib.gov.in/PressReleasePage.aspx?PRID=1706271