IT department investigating tax evasion by showing bogus investment losses, May take action against chartered accountants

Income tax department in the past has stumbled up on many strange things, but nothing as strange as a company exclusively providing bogus stock contract notes to evade taxes, a trail that may lead to it knocking on the doors of many auditors.  The Mumbai I-T department estimates that around Rs 1,000 crore of taxes may have been evaded by producing these bogus investment losses, and it now knows the beneficiaries too, a senior department official in the know of things said. It was not just losses, but many transactions were tampered with to show as long-term capital gains, which do not attract tax. A company doing all this claimed to be doing securities business. But it did not transact any business, other than that of supplying supporting documents to evade tax, the official said.

The firm has been running a roaring business by providing bogus bills to clients, in return for a commission ranging from 2-5% of the taxes evaded.

The department is also on the trail of chartered accountants who have bought these bills, and action is expected against them within a fortnight. Also, the department managed to raise more than Rs 2,000 crore between April and December from assesses who admitted to have evaded taxes. These include real estate developers, duty-free shops, shipping, textile and infrastructure companies.

The evasion estimated by the department but disputed by the parties would run into another Rs 2,000 crore.

In most other cases, the parties have tried to inflate the expenses or take undue advantages of tax benefits they are not entitled to. For example, they have come across a number of builders who constructed high-end apartments, claiming the benefit meant for buildings with smaller sized flats.

Income-tax raids are essentially a preventive measure rather than an exercise in mobilising resources. It serves as a warning to potential tax evaders. Unreported income or assets detected after a raid attracts 60% tax and a penalty of 100% of the tax sought to be evaded.

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