Income Tax Department carried out search and seizure operation on business entities engaged in civil construction and real estate

On December 18, 2021, the Income Tax Department conducted a search and seizure operation on numerous individuals and business entities engaged in civil construction and real estate, as well as running educational institutes in UP and Karnataka. The campaign also included a search for a Kolkata-based entry operator.

The search spanned more than 30 areas, including Lucknow, Mainpuri, Mau, Kolkata, Bengaluru, and the National Capital Region (NCR). During the search, a large amount of incriminating evidences, including hard copy papers and digital data, were discovered and seized. Preliminary investigation has uncovered the following tax avoidance strategy:

1. It was discovered that various businesses involved in the civil construction business were involved in reporting fake spending amounting to crores of rupees. Various incriminating documents, such as blank bill books, stamps, and signed cheque books from fictitious suppliers, were discovered and seized. In the case of one company, the directors’ Undisclosed income of nearly Rs. 86 crore was discovered. The individual in question has admitted to having an unreported income of Rs. 68 crore and has promised to pay tax on it. Books of accounts for a private firm with a turnover surpassing Rs. 150 crore in the last few years could not be produced. In another case, it was discovered that it employed shell firms as a conduit for its unexplained revenue and investments. An unexplained investment of Rs. 12 crore has been detected. Another person has an unexplained investment of Rs. 11 crore in a shell business and investments in benami properties worth Rs. 3.5 crore.

2. In addition, a Kolkata-based accommodation entry supplier was named in connection with giving lodging entries to these individuals. It was discovered that the entry operator constructed several shell businesses in order to offer accommodation entries of bogus share capital worth Rs. 408 crore and bogus unsecured loan worth Rs. 154 crore through these shell firms. During the search, a significant amount of digital data demonstrating hawala transactions was also discovered and seized. The entry operator has admitted to the aforementioned mode of operation and has also reported unaccounted commission income of Rs. 5 crore.

3. It has been revealed that substantial amounts of trust funds amounting to Rs. 80 lakh have been transferred, in the guise of donation, for non-trust purposes, to certain Kerala-based entities, including Markazu Saquafathi Ssunniyya Trust and Markaz Knowledge City Trust, connected with Gulf countries, for the personal benefit of the trustees in the case of a Bengaluru-based Trust and its related entities covered by the search action. This, prima facie, shows a violation of applicable laws relating to trust registration under the Income-tax Act of 1961 for the purpose of claiming exemption, as well as FEMA provisions. Evidence has also been acquired about the receipt of a capitation fee of around Rs. 10 crore in cash, as well as costs of more than Rs. 4.8 crore incurred from the Trust’s account for the trustees’ personal benefit during the last three years.

The search resulted in the seizure of Rs. 1.12 crore in unaccounted cash.

More research is being conducted.