Income Tax Department Conducts Searches On Four ARCs, Alleges Fraud In Buying NPAs

The Income Tax Department conducted search and seizure operations on four asset reconstruction companies across 60 locations in Mumbai, Ahmedabad, Delhi, among other cities, on Dec. 8.

The tax department said the ARCs had adopted various unfair and fraudulent trade practices in acquiring the non-performing assets from banks.

"It has been found that an unholy nexus existed between the borrower groups and ARCs and in the process, a maze of shell / dummy concerns have been used," the Central Board of Direct Taxes said in a statement. "The amount at which the NPA has been acquired by the ARC has been found to be far less than the real value of the collateral securities covering the said asset/NPA."

The searches also revealed that the ARCs have been following non-transparent methods in disposing of assets acquired by them from the banks and the underlying assets had been re-acquired by the same borrower group at a fraction of their real values.

Parallel Accounts

The ARCs are found to have concealed the profits on disposal of the underlying assets by diverting the actual profit to their related concerns, under the garb of consultancy receipts or unsecured loans/investments evading the payment of due taxes but also deprived the lender bank(s) of their share of actual profits, it said.

One such ARC was found to be maintaining a parallel set of accounts that contained cash transactions aggregating to more than Rs 850 crore.

The department seized cash of Rs 4 crore along with handwritten diaries during the search, containing detailed entries substantiating the deliberate act of layering of transactions by the promoter group and use of a network of middlemen for the same. "There are also evidences of routing of funds through offshore structures to acquire the assets."