The income tax department has searched at least 15 individuals and unearthed undisclosed income of Rs 100 crore in connection with alleged misuse of the stock exchange system to launder unaccounted money, according to two senior officials.
This comes four months after the Securities and Exchange Board of India first barred 260 entities, including individuals and companies, for misusing exchanges to generate fictitious long-term capital gains (LTCG) to convert their unaccounted income into white without paying taxes.
LTCG accrue from the profits made from holding on to securities for over a year and are tax-exempt. “This is the first leg of investigation and we are planning to search more individuals in connection with evasion of taxes through LTCG,” said one of the officials.
“These 15 individuals include beneficiaries connected with companies that have been barred by Sebi among some other scrips. We are doing a comprehensive investigation that include a number of scrips that are misusing the exchange platform to launder money and evade taxes,” said the second I-T official.
The official, however, declined to divulge the names of these individuals and the stocks under investigation. On February 20, Sebi imposed trading restrictions on 33 entities for making undue gains of over Rs 1,800 crore. Sebi has so far suspended 27 listed companies and 400 entities over this matter.
According to Sebi, the modus operandi of these companies involved preferential allotment of shares to related or connected entities.
Later, the share prices of the firms in which allotment is made are artificially inflated. Finally, the preferential allottees are provided an exit whereby they show the source of this income to be from legitimate source i.e. stock market, said Sebi in an interim order passed on 19 December against two such firms — First Financial Services Ltd and Radford Global Ltd. Phone calls made and emails sent to First Financial Service and Radford Global Ltd did not elicit a response.