Income Tax department raids BMC contractors

IT said they had conducted search action in Mumbai and Surat on November 6 on entry providers and beneficiaries who have been engaged in execution of civil contracts mainly BMC.

Agencies

BMC is one of the richest civic bodies in Asia.

Amid a high-voltage political drama in Maharashtra, the Income Tax department has turned its glare on a clutch of large contractors hired by Brihanmumbai Muncipal Corporation (BMC) - a Shiv Sena stronghold.

In a press release issued on Thursday, IT said they had conducted search action in Mumbai and Surat on November,6 on entry providers and beneficiaries who have been engaged in execution of civil contracts mainly BMC. “Detection on account of above mentioned issues is to the tune of Rs.735 crore and extent of accommodation entries is being quantified”, the press release states “A total of 37 premises were covered under search action and 7 premises were covered under survey. There were reports that certain contractors had taken entries in the form of loans, etc. from entry providers and also inflated expenses in the books of accounts to suppress income,” it added.

BMC is one of the richest civic bodies in Asia. According to sources at least two of the contractors raided by IT are blacklisted by the civic body and their promoters had been arrested by the Mumbai Police in over Rs 300 crores road repair scam


“Incriminating evidences showing large scale tax evasion and money laundering have been found. It has also led to the detection of the use of bogus companies (floated by entry providers) for giving entries to businesses in the form of loans or bills for expenses, etc. In the case of the entry providers, systematic modus operandi of bank fraud and forgery has been detected whereby the promoters have made investments in immovable properties and shares of group companies by siphoning off the bank loans. In the case of the contractor groups, several instances about inflation of expenses by bogus purchases/sub-contracts and taking of loans from entry providers have been identified,” the press release further added.

The raids took place at a time when the rift between BJP and Shiv Sena has widened to a point of no return. Civil contractors are often believes to be a convenient conduit to move funds, launder money and even escape tax. "Artificial expenditures, with amounts billed well above the actual expenses, can not only be a way to lower taxable income but also arrange pay offs. Only a detailed investigation and tracing the money trail will indicate the ultimate beneficiaries..Since some may give political colour to the raid, the IT department will have to thorough in establishing its point, " said a senior chartered accountant.

Issuing stocks at absurd premium has long been a modus operandi for parties keen to converted undisclosed cash into white money. On the other hand, it also serves as a tool to those interested to generate cash. Over the years the central government has tried to plug this loophole. As per the present tax regulations, any share premium which cannot be explained is construed as income and therefore liable to be taxed.
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A year ago capital market regulator Sebi and IT office had probed how stock exchanges were used to either convert black money into white or escape tax. Tax assessing officers, in the course of inspection and scrutiny, spotted transactions that involved purchase and sale of thinly-traded stocks. Income tax files of hundreds were reopened and the information was shared with other government agencies, including Enforcement Directorate and Serious Fraud Investigation Office.
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