Mumbai: The Mumbai income-tax (I-T) department is set to prosecute Pune-based stud farm owner and realty consultant Hasan Ali Khan, the main accused in a case involving alleged money laundering to the tune of $8.04 billion (Rs 36,180 crore).
The 24 February I-T show-cause notice issued in this regard has pegged Khan’s total undisclosed income at Rs 37,274 crore and raised a tax demand of Rs 15,180 crore for assessment year 2007-08. Mint has reviewed a copy of the notice.
Also See Money Trail (PDF)
Charged with violating foreign exchange laws and tax evasion, Khan has been under the scanner of the Enforcement Directorate (ED) and the I-T department since 2007.
The Supreme Court (SC) has also shown its interest in the case. On 4 March, SC asked the government why Khan was not being interrogated in custody. This came during the hearing of a petition filed by lawyer Ram Jethmalani and some former bureaucrats seeking the court’s direction to the government to bring black money—to the tune of $1 trillion, according to some estimates—back to the country.
ED had issued a show-cause notice to Khan in 2008 for foreign exchange violations and keeping $8.04 billion in a UBS AG account. The I-T department in Mumbai had also issued a notice against Khan for not disclosing funds in several foreign bank accounts, including the one in UBS.
Khan had in March 2010 challenged the I-T notice before an appellate authority, which upheld the department’s claim.
The 13-page I-T notice said Khan had “wilfully attempted to evade payment of tax, penalty or interest imposed” and was “liable for prosecution under section 276C (2) of the I-T Act 1961.”
Wilful attempt of tax evasion or payment of tax demand attracts rigorous imprisonment and fine.
The department has given Khan 15 days to respond to the show-cause notice, which will end on 11 March.
Interestingly, Khan has also been summoned by ED on 10 March for investigation into cross-border transactions undertaken by him.
He will be interrogated by a joint panel consisting of officials from ED, I-T, the Intelligence Bureau and the Central Bureau of Investigation.
“Hasan Ali Khan is under medical treatment in Mumbai and is not available for comment,” said Sunil Shinde, Khan’s chartered accountant.
The I-T department had first raided Khan’s residence at Koregaon Park in Pune in January 2007 and seized documents that disclosed his $8.04-billion account with UBS Zurich. The department said Khan had concealed income and not filed I-T returns since 1999. The department also raided his properties in Mumbai and Hyderabad.
The latest I-T department show-cause notice has listed several foreign bank accounts, cross-border transactions, investments in real estate across India, purchases of luxury cars and membership of various clubs—allegedly made or paid for with unaccounted income.
“In your (Hasan Ali Khan) return of income, the source of income has been shown mainly from horse racing and betting. The income shown does not explain the huge investments noted above that have been made by you,” the notice said.
According to the notice, in December 2006 Khan paid Rs 61.5 lakh for a 2005 Porsche Cayenne and not disclosed it to the department. “The assessee in his statement recorded on 27 February 2007 admitted that Rs 46.5 lakh paid in cash (for the car) mentioned is out of winnings from race horses, which was not disclosed to the department and offered the same for taxation,” the I-T notice said.
Similarly, documents seized from Khan indicate he had borrowed Rs 26.8 lakh from GMAC Financial Services for buying a 2002 Mercedes Benz. However, the department has found no proof of repayment of loan and added the “entire amount of investment in Mercedes as undisclosed investment”.
Besides, the tax authority also said Khan’s saving bank accounts with ABN Amro Bank in Pune had “huge deposits” till 2007. The tax authority has also noted three cross-border transfers made by Khan to various entities for which he was not able to explain the source of income.
In September 2006, Khan transferred $1.6 million to the Verwaltungs- und Privat-Bank AG, Liechtenstein, on behalf of Philip Anandraj, said to be a close associate, according to the I-T notice. Anandraj could not be immediately reached for comment.
In November 2006, Khan transferred $700,000 from his account in Bank Sarasin, Postfach, Switzerland, to SK Financial Services, UK, through correspondent banking in the US, according to the I-T department’s findings.
“As per information received from ED, this transaction has been confirmed by USA in a response to letter rogatory issued by them,” the I-T notice said.
Correspondent banking is an arrangement under which one bank makes or receives payments on behalf of another.
Later in the same month, Khan transferred $108,000 to the Credit Suisse, Zurich, account of Remo Maurer.
Maurer, according to the I-T department, is an employee of a bank in Zurich and has been closely associated with Khan and his alleged associate Kashinath Tapuriah, also alleged by the I-T department to be a close associate. Tapuriah rejected the categorization.
“I am not Khan’s associate,” Tapuriah said. “I came in touch with him regarding my company Incab. Khan promised that he will help me raise money for my firm.”
According to the I-T notice, ED found a notarized document of Khan on 29 June 2003 in London that was “a private and confidential letter to Prabhu Guptara, director organizational development at Wolfsberg Executive Development Centre, Switzerland—a subsidiary of UBS —and asked for assistance in clearing up a situation after UBS froze an account belonging to Khan, following a $300 million transfer from Saudi arms dealer Adnan Khashoggi, labelling it as ‘funds from weapon sales’.”
The tax department said that in May 2010, ED got a confirmation from the UK Law Society that the document bore the certification of a bonafide notary, which further confirms that Khan had a “foreign bank account not disclosed in India”.
UBS, the world’s biggest wealth management firm, in a press note in February, denied any business relationship with Khan. “UBS does not have accounts for, or any assets of Hasan Ali Khan, and has no knowledge of any of the alleged transactions referred to in recent media reports,” it said.
Khan, the I-T notice said, has denied knowledge of the foreign banking transactions and accounts in his replies to the department.
“The reply of assessee cannot be accepted on merits. Simply stating that he is not aware about this transaction will not serve the purpose, especially when there are certain other documents found and seized from the residence of assessee, which reaffirm that assessee was involved in cross border transaction of money,” the tax notice said.