IT search unearths bogus expenses of over ₹800 cr

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The income tax department unearthed several financial discrepancies while conducting searches at a total of more than 35 premises of a leading automobile manufacturer, a company operating chartered flights and a real estate group last week, the finance ministry said on Thursday.

The premises were all in the National Capital Region and the searches took place on 23 March.

The income tax department did not reveal the identity of the companies. However, according to people aware of the development, the automobile manufacturer is Hero MotoCorp Ltd and the other companies were “connected entities” of the group.

The income tax department said it had found bogus expenses of around 800 crore made by the automobile company in the form of purchase of services from a specific event management entity, which had in turn siphoned-off the money by “layering”—the practice of moving funds around in order to conceal their origin.

“Various incriminating documents and digital evidence have been found and seized, indicating that expenses ostensibly shown to have been claimed towards business purposes are not fully supported by evidence. Such claims towards non-business purposes are inadmissible expenditure under the provisions of the Income-Tax Act, 1961,” the IT department said.

Mint had reported earlier this week that mismatches between the income declared with the income tax department and information from other sources, including the GST Network (GSTN) may have been the trigger for the massive search and seizure operations at various premises of Hero MotoCorp, which is led by Pawan Munjal. The department found that 10 acres of farmland had been bought through “paper companies”, purportedly involving unaccounted cash of more than 60 crore.

“The ultimate beneficiary of the land deal is a prominent person of the automobile manufacturer group,” the department said. The intermediary who facilitated the deal has admitted that the major part of the sale consideration was paid in cash, it said.

The I-T department and GSTN signed an agreement in 2019 to facilitate the exchange of data. This was aimed at allowing the I-T department to verify information filed by businesses in their income tax returns (ITRs) by comparing it to the annual GST returns.

The department unearthed several incriminating documents from the premises of persons involved in the real estate business, which include records of “on-money transactions” where cash was received in lieu of sale of units in their various real estate projects across Delhi, it said.

“In the case of the company operating chartered flights, evidence related to booking bogus expenses, non-recognition of income of more than 50 crore, rotation of funds, suspicious loans through a dubious non-banking financial company floated by a key person, layering and re-routing of funds through paper companies, and claiming bogus interest expenses, have also been unearthed,” the department said.

Investigations are going on, but undisclosed cash exceeding 1.35 crore was seized and jewellery worth more than 3 crore has been kept “provisionally under restraint”.

Queries sent to spokespersons for Hero Motor Corp and the finance ministry did not elicit a response as of Thursday evening.

Tax officials had said that information shared by the Central Board of Indirect Taxes and Customs with the income tax department “sometime ago” led to the opening of a probe against the two-wheeler giant.

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