The massive hunt for undeclared cash launched across the country post demonetisation has revealed that this was either converted into gold or routed through shell companies to make it legal tender, IT sleuths said.
Income Tax officials said black money holders avoided the bank-deposit route because they wanted to conceal their identities and somehow had “managed to get many jewellers” to convert their unaudited cash into gold.
“They bought gold and jewellery from jewellers across the cities on November 8 (the night Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 currency notes from midnight) and, thereafter. Jewellers camouflaged the identities of the actual buyers and offered split bills,” an Income Tax official, who was part of the investigations, told on condition of anonymity.
According to him, jewellers saw in demonetisation an opportunity to ramp up their sales and thought “they could get away” by showing these amounts as sales.
“Jewellers offered a platform to convert unreported cash into gold,” the official said, adding that split bills were below the value of Rs 2 lakh, the threshold above which buyers have to provide the permanent account number (PAN) issued by the income tax department.
“The buyers’ lists provided by the jewellers were false. After verification, it emerged that many of the buyers were financially weak and not in a position to spend such huge amounts shown in the invoices,” the official said.
Taxmen tried to find an answer to a common question: How did jewellers meet the huge spurt in demand following the announcement of demonetisation, particularly after the festival season?
“We found many of these sales were booked as advance collection for future sales. Due to preceding sales during Dhanteras and Diwali, jewellers had a stock crunch and they delivered gold later,” another IT official told, asking not to be identified.
Taxmen said they have stumbled upon records which suggested many shops — as many as 90 per cent across cities — were closed at the time of the demonetisation announcement and sales at the day’s closing had been reported.
“Still, we found sales were registered in the accounting system either on November 8 or a date prior to that after the closing sales were reported. These sales were manipulated,” another IT official said, also requesting anonymity.
Sankar Sen, Chairman and MD, Senco Gold Ltd, which was one of the jewellery houses under the I-T department scanner, said: “We keep records of all buyers on the basis of the names and contacts provided by the customers. We cooperated with officials and provided all the documents, including the CCTV footage that we had.”
“It is difficult for jewellers to verify whether the customers have provided a legitimate identity or not, particularly when the sale value is less than Rs 2 lakh,” he said.
The hunt for black money by the IT officials picked up after November 29 as they waited for some time to collect information from the Central Board of Direct Taxes (CBDT) or other agencies about the movement of funds.
Asked how taxmen identified jewellers, an official said: “The first set of information showed that jewellers deposited huge amounts of money into banks. Then, we went after jewellers.”
The IT sleuths were able to identify legitimate transactions easily. “We also had given options to the jewellers to disclose the name of actual buyers or declare that the amount is your money,” the official said, pointing out that such moves proved successful.
Many actual buyers and jewellers contributed to the Pradhan Mantri Garib Kalyan Yojana (PMGKY), an amnesty scheme to declare unreported wealth.
Had a robust and quick information-sharing system among state and central agencies been in place, the hunt for black money would have been more effective, the officials lamented.
“A compilation of unique features found in transactions post-demonetisation across states is expected soon,” an IT official said.
According to the Union Finance Ministry, the CBDT has detected undisclosed income of over Rs 9,334 crore between November 9, 2016, and February 28 this year.
Under Operation Clean Money (OCM), more than 60,000 persons, including 1,300 high-risk persons, have been identified for investigation into claims of excessive cash sales after demonetisation was announced.
According to officials, shell companies provided a strong support system for black money after demonetisation.
The officials found dummy directors of these companies included a cancer patient who signed documents for a Rs 10,000 monthly fee or charges of Rs 200 for every signature.
The officials said reporting of cash seizures was relatively less in Kolkata because of the existence of the shell companies as an established channel to stash ill-gotten money.
Explaining how active the channel was, the official said: “Many cash handlers with whom we interacted told us that the money does not stay for more than half-an-hour at a particular point.”
Shell companies were also used as instruments to buy bullion. “We found invoices for bullion sales were generated against such companies while actual beneficiaries received the bullion.”