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Income Tax comes a cropper tracking shell firms
October, 11th 2017

The difference between Income Tax department's and Registrar of Companies' (ROC) definitions of 'shell' companies have put brakes on I-T action against 'shell' firms which were misused for depositing black money during the demonetisation phase between November 8 and December 31, 2016.

As per the Companies Act, a shell company is one that does not submit financial statements for three or more quarters continuously. Subsequently, the company's name is removed from the register. But going by I-T definition, a shell company is one that either has no capital or does not have proper source for its capital. The data sent by Union commerce ministry to I-T department does not specifically point out shell companies into which black money was deposited during demonetisation.

As per Section 248 of the Companies Act, "Registrar of Companies has powers to remove name of a company from register of companies where a company fails to commence its business within one year of its incorporation or the subscribers to the memorandum have failed to pay their subscription within a period of 180 days or where a company is not carrying on any business or operation for a period of two years."
The Registrar of Companies (RoCs) had removed 1,62,618 companies from the register as on July 12, 2017 after following the due process under Section 248 of the Companies Act, 2013.

"We received the same data from RoCs and based on that we asked our officials to visit the address. When we rang the bill at one address, a policewoman opened the door. Our officials were surprised. With that, we stopped visiting the addresses provided by RoC," a senior I-T official told TOI.

"Going by I-T definition, a shell company means a company which has not filed its returns, or has not submitted is financial statements, or the ones whose accounts have been misused for depositing black money. We are chasing only such companies to unearth the trail of black money deposited during demonetisation," said the official.

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The I-T department has written to the Central Board of Direct Taxes (CBDT) about the problems faced. "All the data on money deposited during demonetisation was given by various banks and the commerce ministry, based on their own definition of shell companies, to the CBDT. But we have asked for details of accounts misused for depositing black money," said the official.

"The CBDT is in the process of preparing list of companies in which black money was deposited. Once that is ready, we will initiate action against them," the official said.

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