Black money probe: SIT finds 2,672 persons on board 20 firms, flags 77,696 shell companies

The Supreme Court appointed Special Investigation Team (SIT) probing black money has come out with some incriminating findings in its third report. It has found that as many as 2,627 persons were holding directorship in more than 20 companies, in violation of the Companies Act, and has recommended action against 77,696 companies involved.

"A total of 345 addresses have at least 20 companies operating from the same address. The total number of companies sharing their address with at least 19 more companies are 13,581," the SIT said in its third report. The SIT said while there is no specific law to debar companies from having the same address, it recommends greater vigilance by law enforcement and intelligence agencies while examining the operations of such companies.

The SIT, headed by Justice MB Sha and vice-chairperson Arijit Passayat (both retired Supreme Court judges), suggested detection of creation of shell companies and deterrent penal action against persons involved in such activities. The shell companies are referred to those entities which are incorporated as companies and are used only for routing funds, without undertaking any real business activity.

The SIT further observed that in many cases of creation of shell companies, the shareholders or directors are persons with limited financial means like drivers, cooks or other employees of those who intend to launder black money. It asked the Central government to frame rules at the earliest, to provide for the manner of holding and disclosing beneficial interest and beneficial ownership.

The report added that primary method of generation of black money remained suppression of receipts and inflation of expenditure. The tax-payers also try to inflate expenses by obtaining bogus or inflated invoices from 'bill masters', who make bogus vouchers and charge nominal commission.

The report added since these persons are of very modest means, upon investigation, they tend to leave the business and migrate from the city. This is one of the reasons for a proportion of income tax arrears attributed to 'assessee not traceable'.

"Serious Frauds investigation office (SFIO) under the ministry of company needs to actively and regularly mine the database for certain red-flag indicators. These red-flag indicators could be based on common director identification number (DIN) in multiple companies, companies with same address, same contact numbers, use of only mobile numbers, sudden and unexpected change in turnover declared in returns etc," the SIT recommended.

"These indicators are illustrative in nature and the SFIO (serious fraud investigation office) can prepare a set of indicators based on its own experience and consultation with other law enforcement agencies like the CBDT (Central board of direct taxes), ED (enforcement directorate) and FIU (financial intelligence unit)," it added.