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January 27, 2021

Secret Tunnel found in IT raid on Jeweller

by CA Shivam Jaiswal in Income Tax

Secret Tunnel found in IT raid on Jeweller

India is a society that attached a lot of importance to gold, as an asset and in the form of jewellery from ancient times. India has been a net importer of gold throughout history. Gold smuggling was rampant in India until liberalisation, which repealed the Gold Control Act of 1968 that prohibited the import of gold except for jewellery. The huge gap between demand and supply is the prime driver behind the thriving gold smuggling activity. Smuggling happens because of high import tariffs, corruption, and shortages in supply. In India, all these factors are responsible for the activity.

Former Reserve Bank Governor Y V Reddy once mentioned that 80% of the gold consumption in India is for ornaments and only 15% goes to investment and 5% to industrial uses. Thus, the money spend on gold is not productive. The macroeconomic side of it is even more deleterious. The more the gold imports, the larger the deficits. Petroleum and gold are main the drivers of India’s trade and current account deficits. Smugglers use foreign exchange to purchase gold, driving down the value of the rupee.

On 21st January, 2021, income tax department conducted raids at 31 premises belonging to a jewellery firm and two real-estate developers based in Jaipur. The raids have turned out to be the biggest in the state with the unearthing of undisclosed transactions worth more than Rs 1,400 crore. The raid led to not only revealing unaccounted income of Rs 1400 crores but also led to unearthing of a secret tunnel-type cavity at a jeweller’s house, containing art jewellery and antique goods apart from benami property transaction documents.

When can the Income Tax Department conduct a raid?

A raid gets triggered under any of the following circumstances:

  • Credible information of tax evasion; for instance, any evasion coming out of reports received from the Intelligence Wing of the Income tax department.
  • Information coming from government departments.
  • Information procured from assessment records of taxpayers.
  • Information received with regard to spending being disproportionate to income of the taxpayer i.e., an instance of lavish spending without corresponding income to match the same.
  • Manipulation of books of accounts, vouchers, invoices etc.
  • Illegal investment in real estate.
  • Unexplained cash credits, share transactions etc.

What was discovered at the raid at the jeweller?

  • During the raid at the jeweller’s house, a secret tunnel-type structure was discovered. Inside, documents related to benami properties were found in addition to gold and silver jewellery, antique goods and art jewellery.
  • 15 sacks were also recovered from this secret room.
  • Even though the jeweller had denied maintaining any stock register before the raid but the raiding teams found that actual prices were mentioned in an alpha-numeric secret code on each item found in the tunnel. The team is working on cracking the code.
  • Two hard-disks and a pen-drive were also found.
  • The raided jewellery firm was also found to be possessing a benami property apart from suppressing sales figures.
  • Documents relating to benami property of Rs 15 crore were also found from the secret chamber.
  • A perusal of these incriminating documents, data and the regular books of account revealed that the assessee was suppressing the sales figures, ranging from 100% -150% on the items sold to foreign tourists.
  • The jeweller group had also advanced unaccounted cash loans to various persons amounting to Rs 122.67 crore and was also earning unaccounted interest on the same.

What was discovered at the raid at the real estate firms?

  • A plethora of incriminating documents and digital data, in the form of unaccounted receipts, unexplained development expenses, unexplained assets, cash loans and advances, on-money receipts were found and seized.
  • Pertaining to one of the raided firms, CBDT said that, total unaccounted transactions amounting to Rs 650 crore was detected.
  • The other real estate group to be raided was involved in the development of commercial centres, farm houses, townships and residential enclaves.
  • It was found that the assessee group had taken over a real-estate project at the airport plaza by showing an investment of Rs 1 lakh only in the books of account, whereas the WIP (closing stock) of the project, reflected in the balance sheet, was about Rs 133 crore.
  • The group had also advanced unaccounted cash loans to various persons amounting to Rs 19 crore and is also earning unaccounted interest on the same.
  • Total unaccounted transactions amounting to Rs 225 crore have been detected so far.

‘Search and survey operations’ are conducted by the Income Tax Department, also called as raids, when they suspect an individual or business to have hoarded illegal money. Raids are a legal move against corruption by the Indian Government. Out of all the viable ways to curb illegal wealth, income tax raids have been the most successful one.

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