Banks provide shocking data relating to demonetization activities of suspected shell companies

In a major boost to the crackdown on black-money, data from banks regarding the demonetisation period has just begun pouring in and the details have proved to be shocking.

We had argued long back that a higher percentage of cash returning to banks during the demonetisation period was not actually a bad sign, and in fact could strengthen the hands of the Income Tax Department.

“Black” money can turn “white” only once you pay taxes on it. As such, all the money deposited in banks will have to be explained by the depositors by showing the source of income (on which tax has already been paid) or, the depositors will have to now pay tax on these deposits. Further, since all the money has come into banks, there is a trail as to who deposited the cash. From here, it is a simple process of identifying the suspicious transactions and scrutinizing them.

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The Government now is finally moving to this stage.

After multiple crackdowns and using information from the banks, the latest set of data received by the Government is shocking. A press release by the Government of India stated that vital information had been received from 13 banks regarding the bank account operations and post-demonetisation transactions of some of the suspicious companies that had been struck off the Register of Companies earlier this year.

It  may be recalled that earlier this year, the government had advised banks to “put restrictions” on the operation of bank accounts of the 2,09,032 companies delisted by the Registrar of Companies. Most of these companies are suspected to be shell companies.

The data received from the banks says that these companies had a meagre balance of Rs 22.05 crore to their credit on 8th November, 2016. However, from 9th November, 2016 i.e. after the announcement of demonetization, till the date of their being struck off, these companies had altogether deposited a huge amount of Rs. 4,573.87 crore in their accounts and withdrawn an equally large amount of Rs 4,552 crore. With loan accounts, there was a negative opening balance of Rs 80.79 crore.

The release further speaks of specific cases:

  • One of the company reportedly had 2134 bank accounts, followed by others having accounts in the range of 900, 300 etc.
  • In one of the Bank, 429 companies having zero balance each as on 8th November, 2016 have deposited and withdrawn over Rs 11 crore and are finally left with a cumulative balance of just Rs 42,000 on the date of freezing.
  • Similarly in the case of another Bank, more than 3000 such companies, most having multiple accounts, have been located. From having a cumulative balance of about Rs. 13 crore as on 8th November 2016, these companies have deposited and withdrawn about Rs 3800 crore, leaving a negative cumulative balance of almost Rs 200 crore at the time of freezing of their accounts.

The best part of all this is the fact that, the above is only the First instalment of data.

As of now, the banks have provided data only for about 5,800 companies which is only about 2.5% of the total number of suspected companies. This indicates that this is just the tip of the iceberg and one can only wonder what the final figures would look like!

It is expected in the coming days that the Income Tax Department will now start investigating these companies and it remains to be seen what action is taken against their promoters.


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