New Delhi: The income-tax department’s search-and-survey operation has unearthed a money-laundering scheme involving transactions in the Mumbai, Delhi and Kolkata stock exchanges during the last two years.
The operation has found the purchase receipts to be backdated by over a year in order to avoid paying short-term capital gains tax of 10%. Long-term capital gains on shares were exempted from tax from 2004-05, which seems to have been the reason behind using this route for converting black money into white.
For the first time, the department has revealed that the value of such tax-evading transactions is at least Rs300 crore. “This is a conservative estimate. The figure is expected to be in excess of Rs500 crore,” a finance ministry official, who did not wish to be identified, said.
The amount of tax evasion in such transactions will be ascertained only when the assessment proceedings are completed sometime during the calender year and the appellate proceedings are finalized, officials said.
They added that the extent of the involvement of brokers and the stock exchanges would be also known after the completion of the assessment proceedings.
According to officials, the modus operandi of the people, who have claimed such longterm capital gains, was to purchase physical shares, mainly of penny stocks (thinly traded shares), along with backdated bogus purchase bills, which showed that the shares had been purchased at very low prices.
The prices of these shares were then artificially raised through circular transactions of sale and purchase of these shares—financed through black money.
These shares were then dematted and sold on the stock exchange platform at a peak, with the beneficiaries booking fictitious long-term capital gains.
An internal committee set up by the revenue department on black money, had in December 2004 warned the department about the need to finetune the capital gains tax regime in securities.
The committee has pointed out that several investment companies, listed at stock exchanges such as Kolkata were using their black money to trade in shares and earn longterm capital gains.