Income Tax Raid, ITAT Finds Money Laundering, Directs Assessing Officer To Inform SEBI, PMLA Authorities

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has directed the AO to share information on all persons allegedly involved in the racket of money laundering.

The bench of Sandeep Singh Karhail (Judicial Member) and Prashant Maharishi (Accountant Member) has issued the directions to the AO to communicate vital details on 32,855 beneficiaries involved in accommodation entering schemes.

The ITAT's decision represents a key step towards dismantling a massive money laundering scheme. This ruling affects 32,855 beneficiaries, therefore it has an effect beyond just the appellant.

The Tribunal observed after looking at the magnitude of the operation of money laundering carried on by the assessee along with several other persons and the number of beneficiaries who have availed the services of the assessee in converting that unaccounted income into long-term exempt capital gain, short term capital gain or business losses, directed the assessing officer to pass on this information to various other authorities and regulators.

The matter started when the assessee/appellant submitted his initial tax return in July 2012 and listed a meagre total income. However, a search that was undertaken in October 2016 turned up a lot of data that was incriminating. The estimate of the appellant's unreported income resulted from subsequent judicial disputes and orders.

The assessee is alleged to be one of the leading kingpins in providing bogus long-term capital gains. The assessee is in connivance with the directors of the companies whose share prices are rigged and several exit providers who engaged in price rigging and buying shares in fraudulent manners to help several beneficiaries who converted their unaccounted income into an alleged long-term capital gain in shares exempt under Section 10 (38).

The AO relied on various incriminating material against the assessee and passed the assessment order for A.Y. 2012-13 under Section 143(3) read with section 143A of the Income Tax Act. The assessee appealed before the CIT (A) against the AO’s order. However, the CIT (A) upheld the AO’s observation.

The appellant/assessee submitted that the CIT (A) has erred in restoring the matter back to AO in respect of an addition of Rs. 39,80,99,612. The CIT (A) has erred in confirming the addition of Rs. 50,43,02.754 as income of the appellant without there being any incriminating material or either corresponding cash or unexplained assets. There was nothing on record to show that the appellant had ever indeed received such income and hence it should be deleted being merely based on a predisposition to a purported theory for making an addition to income.

The evidence was gathered during the search, showing links between the operators, promoters, share brokers, exit providers, and intermediaries who facilitated the sham transactions on the stock exchange. The assessee also admitted that he is earning a commission of 2 to 3% of the amount.

For A.Y. 2012–13, 32855 persons were identified, among whom Rs. 1,680 crores were found to have been laundered by the assessee in nine identified scripts. The assessee did not reply to any of the notices, and therefore, the Assessing Officer passed the order under Section 144.

The tribunal has held that, as per the admission made by the assessee, he is engaged in the business of providing bogus accommodation entries to various persons to convert their unaccounted income into tax-free long-term capital gain, business losses, and short-term capital gain by operating several companies through a cartel of several persons.

The ITAT issued various directions to the AO, which are to be complied with within 90 days.

Firstly, the AO was directed to share information about all those persons who are involved in the above racket of money laundering with the concerned assessing officer to take action in accordance with the law.

Secondly, cases involving all the assessees who are named as beneficiaries, such as Ranka Jwellers and its entities, and individuals may also be reopened and dealt with according to the decision of the Supreme Court in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. and the instructions of CBDT. The AO may treat it as directions under Section 150 of the Income Tax Act. It applies to all the beneficiaries and other persons named in the assessment order or as per the information available with the AO referred to in the assessment order.

Thirdly, intimate the Securities and Exchange Board of India with the names of those directors who are involved in the operations. Intimate the list of beneficiaries to the Securities and Exchange Board of India who have earned unaccounted income by way of a synchronised trade through the cartel of these accommodation entry providers. Intimate to SEBI, all the share brokers and depositories through whom buy and sell transactions of these securities are carried out did not report such suspicious transactions to SEBI and RBI.

Lastly, to intimate the above money-laundering activities carried out by all those persons along with the names of the persons, companies, and beneficiaries to the respective authorities for examination of the applicability of the Prevention of Money-Laundering Act, 2002.

Case Title: Naresh Manakchand Jain Versus ACIT

Case No.: ITA No. 1945 & 1946/Mum/2023

Date: 31.08.2023

Counsel For Appellant: None

Counsel For Respondent: S Srinivasu

Click Here To Read The Order