Income Tax Department conducts searches in 60 Locations of four Asset Reconstruction Companies

On December 8, 2021, the Income Tax Department conducted search and seizure operations on four Asset Reconstruction Companies (ARCs). A total of 60 locations in Mumbai, Ahmedabad, and Delhi have been covered.

The search action found that the ARCs engaged in a variety of unfair and deceptive trading practises when obtaining Non-Performing Assets (NPA) from lender banks. It was discovered that an evil linkage existed between borrower groups and ARCs, and a tangle of shell / dummy concerns were deployed in the process. The ARC’s acquisition of the NPA was discovered to be significantly less than the real value of the collateral securities covering the aforementioned asset/NPA.

The investigation indicated that the minimum cash payout made by the ARCs to the lender bank(s) for acquiring the stressed assets/NPAs was typically made using the borrower group’s finances. Such monies have been funnelled through numerous layers of sham firms owned by the borrower group, as well as through hawala routes.

It has also been discovered that the ARCs have used non-transparent ways in disposing of assets acquired from banks. The underlying assets were frequently re-acquired by the same borrower group, although at a fraction of their true value. The ARCs were discovered to have concealed the profits on the disposal of the underlying assets by channelling the actual profit to their affiliated enterprises, disguised as consultancy receipts or unsecured loans/investments. The ARCs have not only avoided paying taxes, but have also denied the loan bank(s) of their part of actual earnings.

One of the ARCs was discovered to be keeping a parallel set of accounts on Tally accounting software on a pen drive confiscated from the promoter’s trusted employees’ hands. Cash transactions totaling more than Rs. 850 crore were recorded in this parallel set of accounts. During the search, handwritten diaries with extensive entries substantiating the promoter group’s deliberate conduct of layering transactions and employment of a network of middlemen were also discovered. There is also evidence of monies being routed through offshore organisations in order to acquire the assets.

During the search, a total of Rs. 4 crore in cash was discovered. Large amounts of documentary and digital data collected are being examined further in order to uncover violations of the Income Tax and related Acts.

More research is being conducted.