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All 33k entities in a money laundering case face probe

Mumbai, Sep 9, 2023

Instead of just going after the kingpin, the tax tribunal has directed that nearly 33,000 individuals or business entities engaged in a money laundering racket worth Rs 1,680 crore be probed. In a far-reaching order, the Income Tax Appellate Tribunal (Mumbai bench) has looked beyond just bringing to task an individual defaulting taxpayer and upholding lower tax authorities’ assessment order.

As Naresh Manakchand Jain — the defaulting taxpayer — was engaged in a significant money-laundering operation, the tax tribunal has directed his jurisdictional I-T official to provide details of 30,000-plus entities involved within 90 days to various regulatory authorities for further investigation and action. The authorities include I-T officials, Sebi, exchanges, RBI, and the registrar of companies.

The ITAT bench, composed of Prashant Maharishi, accountant member and Sandeep Singh Karhail, judicial member, said: The real beneficiaries are the persons who have obtained the exempt long-term capital gain by converting their unaccounted income. The money laundering exercise involved serious violation of various laws such as I-T, securities laws, corporate laws, and banking. Such activities, if treated and dealt with in silos, are ineffective. Hence, it directed that details of parties involved be shared with a wide range of regulatory authorities.

According to chartered accountants, apart from being subject to re-opening of their tax assessment, these parties will also find themselves subject to probe under the rigorous provisions of the anti-money laundering law.

An appeal filed with ITAT by Jain, described in the I-T orders as a money laundering kingpin, relating to his tax assessment for FY12 opened a Pandora’s box. One of the grounds of appeal filed by Jain was against the action of I-T authorities to treat Rs 50.4 crore in his hand as undisclosed income and tax the same.

Two searches conducted in subsequent years (in 2016 and 2019) by investigation wings of the I-T department threw up a host of incriminating evidence. For FY12 itself, 32,855 individuals and entities who participated in money laundering activities were identified, and Rs 1,680 crore was found to have been laundered by Jain by rigging nine identified scrips.

Based on these findings, the I-T official passed his order seeking to tax a significant sum as unaccounted money in Jain’s hands, which was upheld by the commissioner (appeals). This led to Jain approaching ITAT — however he was unsuccessful as the tax tribunal upheld the treatment of Rs 50.4 crore as his undisclosed income.

Section 132(4) empowers the I-T officials to record a statement during a search operation. Under oath, Jain admitted that he is engaged in manipulation of share prices of various companies in order to provide bogus entries to benefit other parties (beneficiaries).

By rigging the prices of a few companies in connivance with various associates, Jain entered into prearranged transactions on the stock exchange using various dummy accounts. These prearranged transactions were ‘accommodation entries’ for various beneficiaries, who brought their unaccounted income into the books of account without paying taxes. The entries reflected that the beneficiaries earned long-term capital gain (which was then tax-free), or short-term capital loss or business loss.

The evidence gathered during the searches showed a link between the operators — promoters of companies, share brokers, exit providers and intermediaries, who facilitated the sham transactions on stock exchanges. Jain also admitted that he earned a commission of 3% of the transaction amount — in this backdrop the I-T officer had sought to tax Rs 50.4 crore in his hands.

[The Times of India]

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