Follow Us :

An income-tax raid on a Delhi-based infrastructure and power major with a turnover of over $2.5 billion led to the disclosure of unaccounted income worth Rs 212 crore. Assuming a profit rate of 10%, the disclosure also amounted to an admission that the businessman had withheld disclosing a turnover worth Rs 2,000 crore which, had it been accounted for, would have spelt big gains for other tax departments such as service tax, central excise, VAT and others.

But with the departments failing to come together and with the income-tax department itself fighting shy of using stringent provisions in its armoury to deal with tax evaders, the businessman has got away simply by agreeing to pay income tax.

This is not an isolated instance. Last month, a steel manufacturer on the outskirts of Delhi made a bigger disclosure after an income-tax raid.

The reluctance of the I-T department to use provisions designed to deal with such cases and the lack of co-ordination among different tax departments is encouraging a new way of legalizing income kept hidden from the government. Under Section 271(1)C and 271 AAA of the I-T Act, the I-T department has powers to levy a penalty of 100%-300 % on all such disclosures where the modus operandi is not revealed and the source of funds not fully explained. For every Rs 5 crore disclosed, I-T laws provide for a penalty of Rs 1.5 crore in addition to a tax of Rs 1.5 crore and an interest of Rs 50,000.

System flaws make India a big tax haven

Although the income-tax department is empowered to slap a hefty penalty in tax evasion cases, rarely has any firm which makes “disclosures’ ‘ after an I-T raid been subjected to such penalty. “If an entity can disclose unaccounted income of Rs 200 crore in one year, is it possible that the firm was fair in its dealings in all the previous years of its existence,” asked an official.

The laxity seems to have started a trend. According to the finance ministry, during the financial year 2009-2010, over 2,300 search and survey operations were conducted up to December 2009, leading to the seizure of cash and assets worth Rs 602 crore and a disclosure of Rs 1,832 crore of unaccounted income.

The I-T’s Gujarat unit recently claimed to have unearthed Rs 2,877 crore as undisclosed income in 25 raids on industrialists and businessmen across the state in the last one year. The figure for the previous year was Rs 1,000 crore.

Every year since 2005, income-tax raids lead to disclosures of thousands of crores which are estimated to amount to less than 10% of the actual

evasion. This makes the country one of the biggest tax havens, where a parallel unaccounted economy thrives. Why have enforcement agencies failed to plug loopholes that lead to corporates tricking the system even after a multitude of search and survey operations?

Sources said the accused firm or individuals always manage to get away by paying a tax of 30% and cess on the disclosure. Seldom have they revealed the mode and the manner in which such income has been earned or the entities where such unaccounted money has been reinvested, as mandated under the I-T Act. That ensures the unhindered run of the parallel economy.

The enormity of money laundering was revealed in a data compiled by the I-T department in 2005-06. The information was packed in a CD that contained a list of over 6,000 individuals, many of them among the who’s who of the country, and a copy was circulated among all chief commissioners for further action. The CD contained particulars of 20,000 bank accounts and details of transactions between hawala dealers and beneficiaries. Simultaneously, the department, in a crackdown on hawala dealers, had unearthed transactions worth over Rs 3,000 crore in Delhi alone. The entry operators had issued cheques against cash deposits in their accounts and raised bogus bills for a commission of 1% of the total transaction.

In one such case, I-T sleuths had unearthed transactions of Rs 1,540 crore at the Fatehpuri branch of Federal Bank in the capital in 2005. During investigation, it was found that only three individuals had transacted the entire amount of Rs 1,540 crore.

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.


  1. B R Lall says:

    It is correct that “the penalty and punitive IT provisions, are meant exclusively for smaller businessman, traders, tiny shopkeepers, doctors having no social and political clout. retired and petty salaried people”The big only order Police ,MCD and even the CBI. There is neither any need nor do they pay to them.They collect from the other categories and many more at the lower levels only.

    Read more:

  2. Jileesh.K.R says:

    It is very shocking to hear that persons are able to hide thousand crores just likethat. It is high time to bring proper co-ordination in Govenment system so that purpos will get served. More than Government every citizen should make teir own contribution to the same. Being a memeber of CA I will also make my own contribution.

  3. TUYDIB says:

    A total lack of purposeful coordination/cooperation among the IT Deptt. on the one hand and the Central Excise & Customs, Enforcement Directorate, Directorate of Revenue Intelligence, Police, CBI, IB, Anti-Corruption deptts in the States, the al, powerful Money laundering authority/Serious Fraud Office/RBI/Passport authority, etc., etc., emanating from the basic concept of comparative official rank/status of the authorities concerned, has been the main cause of many an ill in this country, and well within the knowledge of-rather to the advantage of-the power elite and the top business houses who nurture, pamper and protect the corrupt officers at the top. This is not the first instance when the IT gepptt has stumbled upon a businessman earning in trillions over decades, never filing IT returns, never paying any taxes. After all. what does any officer/bureaucrat in India cost? So, this case will also, as usual. end up in a very happy and satisfying conclusion, with all officers getting their TIPS for ignoring this Tax Evader who wlll one day be awarded a Padmabhushan, or become a Minister, or a Governor-either in one rule or another.
    And as regards the penalty and punitive IT provisions, they are meant exclusively for smaller businessman, traders, tiny shopkeepers, doctors having no social and political clout. retired and petty salaried people. They must continue to pay bribes to survive-to the MCD, CBI, Police, what/whom not?

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
May 2024