In the latest move to curb tax evasion, the government has set up a task force to monitor actions of deviant shell companies. The setting up of the task force, under the co-chairmanship of revenue secretary Hasmukh Adhia and corporate affairs secretary Tapan Ray, followed a meeting held in Prime Minister’s Office Friday to review the functioning of shell companies to prevent their misuse for money laundering and tax-evasion, especially post-demonetisation.
Harsh punitive actions will be taken against the deviant shell companies including freezing of bank accounts, striking off the names of dormant companies, invocation of Benami Transactions (Prohibition) Amendment Act, 2016, a finance ministry release said.
The Serious Fraud Investigation Office (SFIO) has filed cases against 49 shell companies after it was found that Rs 3,900 crore was laundered by 559 persons with the help of 54 professionals. Also, Rs 1,238 crore cash has been deposited in shell or dormant firms, post demonetisation, the release said.
“There are about 15 lakh registered companies in India and only 6 lakh companies file their annual return. This means a large number of these companies may be indulging in financial irregularities,” it said. The concerned regulatory ministry will ensure that disciplinary actions are initiated against the professionals indulging in malpractices and abetting the entry operators of the shell companies, it said.
Information about the deviant shell companies has been shared with SIT, Income Tax Department, Enforcement Directorate, Sebi and The Institute of Chartered Accountants of India. Income Tax Department has reopened completed assessment in these cases and Enforcement Directorate has initiated action under Prevention of Money Laundering Act (PMLA), 2002. ICAI has also initiated disciplinary proceedings against its members, while winding up process has been initiated in respect of 49 shell companies.
In the meeting, it was also decided that appropriate “red flag” indicators will be used for identifying shell companies, and a database of such companies and their directors will be built by pulling in information from various agencies.
The database will also capture Aadhaar numbers of individual directors in the companies, the release said. Shell companies are characterised by nominal paid-up capital, high reserves and surplus on account of receipt of high share premium, investment in unlisted companies, no dividend income, high cash in hand, private companies as majority shareholders, low turnover and operating income, nominal expenses, nominal statutory payments and stock in trade, minimum fixed asset, it said.