MANU/PIBU/1476/2015

Department/Board : Press Information Bureau

Date : 03.11.2015

Special Investigation Team calls for greater vigilance by law enforcement and intelligence agencies while examining the cases of persons holding Directorship in more than 20 Companies and where more than 20 companies are operating from the same address

The Special Investigation Team (SIT) in its Third Report had observed the following with respect to Shell Companies and Beneficial Ownership:

"Shell Companies and beneficial ownership (Reference p. 73-76 of the Third SIT Report)

The Report of the Committee headed by Chairman, CBDT on "Measures to tackle Black Money in India and Abroad" submitted in 2012 observed as follows:

"3.4 The primary method of generation of black money remains suppression of receipts and inflation of expenditure. The suppression could be over a range of businesses and industrial activities which are covered by what may be called 'primary' enactments to regulate sale receipts, actual production, charging amount in excess of statutory amounts, etc. .....

3.6 However, as manipulation of income is not always possible by suppression of receipts, tax-payers may try to inflate expenses by obtaining bogus or inflated invoices from 'bill masters', who make bogus vouchers and charge nominal commission. As these persons are of very modest means, upon investigation, they tend to leave the business and migrate from the city where they operate. This is one of the reasons for a proportion of income tax arrears attributed to 'assessee not traceable'.

3.7 Similarly, there are other categories of small 'entry operators', who provide accommodation entries by accepting cash in lieu of cheque/ demand draft given as loans/advances/share capital, etc and thereby launder large sums of money at miniscule commissions. Due to frequent migration, such entry operators escape prosecution under the Income Tax Act. The appellate tax bodies also tend to tax their income at nominal rates. There is no effective deterrence, except for taxing commission on such bogus receipts and tax in the hands of beneficiaries. Providing fake bills and entries need to be dealt with strongly and as criminal offence under the tax laws."

Use of shell companies to provide accommodation entries to launder black money has been observed in a number of high profile cases investigated or under investigation in the recent past.

The strategy to curb this menace has to be twofold:

(i) Proactive detection of creation of shell compan........