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Surat tops list of maximum number of shell

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November 16, 2017 17:29 IST
2,138 firms deposited unaccounted Rs 5,000 cr in zero-balance accounts during
the note ban

Illustration: Uttam Ghosh/Rediff.com

Surat has replaced Kolkata as the new capital of shell firms that evade taxes. Related Links
According to the income tax (I-T) department, a majority of the companies featuring on the
Will crackdown
new list of shell firms provided by the government are based in Surat. on shell cos work?

Kolkata had topped the first list.

The tax department began tightening the noose around shell firms earlier this year, as more
309,000 'shell'
details about such companies came to light after demonetisation. company
directors
In the new list, tax officials have found that over 80 per cent of the 2,138 shell firms, which disqualified
deposited unaccounted cash of at least Rs 5,000 crore during the note ban, were from Surat.

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3/19/2018 Surat tops list of maximum number of shell firms in India - Rediff.com Business

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The tax department expects this number to go up.

FA Cup:
This list featured 5,800 shell companies, shortlisted by the finance ministry, which had Southampton
reach semis as
deposits of Rs 17,000 crore in near zero-balance accounts after demonetisation and nearly an Wigan dream
ends
equal amount of withdrawal thereafter.

Earlier, the tax department had identified 16,000 shell firms floated in Kolkata between 2011
and 2015, to launder money. Moneywiz Live!
Mar 16, 2018
The probe further revealed that Surat had become a safer bet for shell firms compared with BSE 33,176.00 -509.54 09:00 15:59
Kolkata for two main reasons.
NSE 10,195.15 -165.00 09:00 15:50

First, Surat’s diamond business has also resulted in a flourishing parallel trade, with traders
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shipping diamonds worth millions of dollars illegally abroad, mostly to Dubai and South Asian
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countries, from where they can be sold to western markets.
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Since the system was in place and operators were well-versed with the parallel economy, it was
easy, explained a senior I-T official.

The second reason is that Surat also has indirect exposure to overseas markets, which is
complex and tough to crack.

The earlier modus operandi of converting black money into white was to buy shares of listed
shell firms, jack up their prices, sell shares after a year and claim long-term capital gains
exemptions.

However, in the new cases, the entities are adopting new strategies to make transactions more
complex in nature.

“Surat is known for complex financial structures, which have evolved over the years.

"There are professional services firms, chartered accountants, and lawyers located both
overseas and in India, who help such companies launder money,” said a tax consultant,
requesting anonymity.

Under one such scheme, called “layering”, which the Surat operators have mastered,
laundering takes place through multiple transactions involving several entities making it
difficult to expose the money trail, the officer pointed out.

In the case of shell companies, assets are seldom in the beneficiary’s name and money moves
to jurisdictions where Indian law has no reach.

“In the recent past, we have come across a significant number of cases where promoters have
parked money in overseas bank accounts with some links with Surat-based firms.

"The matter is currently under investigation,” said the officer quoted above.

The I-T officer said this was how Surat replaced Kolkata, which was the previous centre for
shell companies since 1980.

Also, shell companies based in West Bengal have already been prosecuted, said another I-T
official.

“The continuous crackdown on companies in Kolkata by us is another probable reason for

entities avoiding West Bengal to launder money through shell routes,” he added.

The action on shell companies gathered momentum in August, when the Ministry of
Corporate Affairs identified 331 such firms. About 150 of these were in Kolkata.

Acting on the list, the capital market regulator Securities and Exchange Board of India directed
stock exchanges to immediately restrict trading in these firms.

The government decided to crack down on such sham transactions after the Special
Investigation Team on black money suggested a mechanism to detect shell companies and put
in place checks and balances to curb stock market abuse.

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3/19/2018 Surat tops list of maximum number of shell firms in India - Rediff.com Business

In the last three years, the tax department has identified over 1,155 shell companies, which
were used as conduits by over 22,000 beneficiaries.

The amount involved in non-genuine transactions of such beneficiaries was over Rs 13,300
crore.

So far, it has launched criminal prosecution complaints against 47 persons.

Meanwhile, the department has also initiated action against chartered accountants involved in
helping shell companies to flourish.

Shrimi Choudhary in Mumbai

Source:

Related News: Kolkata, Surat, I-T, Securities and Exchange Board of India, Ministry of Corporate Affairs

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