Jewellery markets abuzz with ways to outwit tax authorities

So if someone has Rs 1 lakh in slush funds and he were to simply declare it he would have to pay Rs 30,000 as tax under VDIS. Instead, he says that he bought jewellery in 1987 for Rs 45,000. Now, he pays only about Rs 15,000 tax on it under VDIS, 1997. Subsequently, he shows a sale of this purported jewellery asset in 1997 and gets an accommodating bill from an obliging jeweller. In fact, no jewellery is sold or bought, but Mr X had laundered his one lakh rupees, by paying the government only Rs 15000, and creating a book asset worth Rs 1 lakh for himself.

Market watchers fear that at the closure of the scheme, difference between declared jewellery and actual stocks may be discovered. The valuer is obliged only to certify the value today and not the date when the metal was purchased. The I-T will accept an affidavit from the assessee for the date of acquisition of the jewellery with asking questions. But V N Muthuramalingam, Chief Commissioner of Mumbai, sounded a warning to those filing false affidavits and said the department would even take assessees to court. The Chief Commissioner’s office in Mumbai had recently clarified that disclosures in descriptions of “packet of loose diamonds” should be accompanied with a valuation report in prescribed form, the emphasis being on the mention of the value of each precious or semi-precious stone. This was to tackle the difficulty of several declarations containing mention of “small diamonds.”

Reports in the market suggest VDIS declarations in Calcutta are dominated by silver utensils, which also being personal effects, do not attract capital gains tax. But as D L Shah, a Tax consultant, warns, “Under the Customs Act, those who have silver articles weighing over a certain quantity, are required to inform the Customs department in a prescribed form. So, those making false declarations can get caught. The VDIS scheme is about coming clean on concealed income of past years. You pay a tax as low as 30 per cent. No interest, no penalty, and no prosecution under FERA, Companies Act, etc. VDIS is about true declarations. It should be taken as so.”

The Mumbai Directorate of Investigation also reiterated that raids would not be on the hold during VDIS. The Nitu Mandke case for example. Though Mande had paid tax to the tune of Rs 60 lakh he had made no declaration till the date of the of the raid on him on October 8. The raid allegedly unearthed undisclosed income (in benami accounts) to the tune of Rs 3 crore. Mayank Shah, Mandke’s CA, maintained that Mandke was to pay another instalment of taxes, and then make a declaration in time before the closure of the scheme.

In fact, that is one grey area that is being hotly debated. If the assessee had paid tax before the raid, but not made a declaration, would he get the immunity under 30 per cent (VDIS), or would he pay 60 per cent tax, as any other raidee? The chief commisioner (CC) of Mumbai has clarified that in such a case, the declarant will not be debarred from the benefit of VDIS to the extent of taxes paid. However, CCs in other cities have not accepted this.

A top official in Mumbai clarified that the raids would be withheld only in cases where the department knows that the assessee had made a declaration under VDIS. Which means the Investigation Wing and the Commissioners before whom declarations are being made would now coordinate. Even then, if the Investigation Wing has definite knowledge that the declaration is not an honest one, the assesee may be raided.