Introduction: On October 5, 2023, the Income Tax Department carried out a search and seizure operation in the states of Tamil Nadu and Puducherry, targeting two distinct groups. These groups are primarily associated with running educational institutions that offer professional courses. However, the scope of their operations extended far beyond education, encompassing diverse sectors such as distilleries, pharmaceuticals, hospitals, and hotels. The operation covered approximately 100 premises in the region, unearthing a web of financial irregularities and tax evasion.
Detailed Analysis
During the search and seizure operation, the Income Tax Department uncovered substantial incriminating evidence. This evidence took various forms, including loose sheets, hard copies of documents, and digital data. It pointed towards a pervasive modus operandi employed by these groups to evade taxes in the management of educational institutions. This modus operandi involved practices like concealing fee receipts and making bogus claims of scholarship disbursements.
The preliminary analysis of the seized evidence revealed significant financial discrepancies. Notably, unaccounted fee receipts amounting to over Rs. 400 crore were identified. Additionally, there were improper claims of scholarship disbursements to the tune of Rs. 25 crore. In one of the groups, evidence indicated that they utilized the services of agents for student recruitment, leading to unaccounted commission payments of approximately Rs. 25 crore.
Furthermore, in the distillery business operated by one of the groups, the investigation uncovered false expenditure claims totaling around Rs. 500 crore. These claims pertained to purchases of various inputs, including bottles, flavors, Extra Neutral Alcohol, and freight charges. However, no corroborating purchase invoices or entries in stock registers were found. The seized evidence also revealed payments made to non-existent entities, with the funds subsequently reappearing as cash for unaccounted investments and non-allowable business expenses.
The documents in possession of the authorities indicated that over Rs. 300 crore had been diverted from the trusts associated with these groups. These diverted funds were used for personal expenses of the trustees and for investment in a range of businesses. Notably, one of the groups had used these funds for the acquisition of an industrial entity in Andhra Pradesh.
In the course of these operations, the authorities seized unaccounted cash amounting to Rs. 32 crore and gold bullion valued at Rs. 28 crore, resulting in a total seizure of Rs. 60 crore.
Conclusion: The Income Tax Department’s search and seizure operation in Tamil Nadu and Puducherry have unearthed a complex web of financial irregularities and tax evasion within educational institutions and diversified businesses. The operation has revealed significant discrepancies in fee receipts, scholarship disbursements, and expenditure claims. It also exposed the diversion of funds for personal and business purposes, including investments and acquisition. These findings underscore the importance of robust tax enforcement measures to ensure transparency and accountability in financial dealings. Further investigations are ongoing to uncover the full extent of these irregularities and take appropriate legal action.
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Ministry of Finance
Income Tax Department conducts search and seizure operation in Tamil Nadu and Puducherry region in the cases of two groups
Posted On: 18 OCT 2023
The Income Tax Department conducted search & seizure action in the cases of two groups, primarily running educational institutions engaged in professional courses, on 05.10.2023. These groups are also carrying out other businesses such as distillery, pharmaceuticals, hospitals and hotels, etc. About 100 premises were covered during the search action in Tamil Nadu and Puducherry.
A large amount of incriminating evidence in the form of loose sheets, hard copy of documents, and digital data has been found and seized. The modus-operandi of tax evasion detected in running such educational institutions includes concealment of fee receipts, bogus claim of disbursement of scholarships, etc.
Large scale evidence about receipt of fee which are unrecorded in the books of account and claim of non-genuine disbursement of scholarships has been seized. The preliminary analysis, so far, has resulted in collecting evidence for such unaccounted fee receipts of more than Rs. 400 crore and incorrect claim of disbursement of scholarship to the tune of Rs. 25 crore. In one of the groups, seized evidence indicates that trust was utilizing the services of agents for garnering students, for which unaccounted commission payment of about Rs. 25 crore has been made.
In the distillery business run by one of the groups, it has been found that bogus expenditure has been claimed for about Rs. 500 crore towards purchase of inputs such as, bottles, flavours, Extra Neutral Alcohol and freight charges, etc. Such purchases are not corroborated by purchase invoices or entries in stock registers. A lot of evidence has also been recovered showing that cheques have been issued to various non-existent entities and the same have been received back in the form of cash for making unaccounted investments and for other expenditure which are not allowable as business expenses.
The seized documents suggest that amount exceeding Rs. 300 crore has been diverted from trusts either for personal expenses of the trustees or for deployment in diverse businesses. It includes payments made by one of the groups for acquiring an industrial entity in Andhra Pradesh.
So far, the searches have resulted in seizure of unaccounted cash amounting to Rs. 32 crore and gold bullion of Rs. 28 crore, thereby aggregating to Rs. 60 crore.
Further investigations are in progress.
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