The revenue department is investigating some companies for suspected price rigging of 'penny stocks' with the intention to evade taxes, revenue secretary Shaktikanta Das said.

This comes a day after capital market watchdog, the Securities and Exchange Board of India (Sebi), barred 59 entities from stock markets for executing fictitious trades in illiquid stock options for the purpose of avoiding taxes. "Sebi has certain facts before it and it has enough proof to show market rules and practices were not in line with legal provisions," Das said on Friday, adding that the revenue department is working on companies that use certain penny stocks to misuse provisions of capital gains.

As per a Sebi report, stocks with aface value of Rs 10 or less and market capitalisation of less than or equal to Rs 200 crore, quoting at less than face value, are generally referred to as penny stocks.

"It is a matter which our investigation wing is examining and taking a lot of action," Das said.

Sebi had on Thursday said that it has come across several instances wherein a set of entities were consistently making loss by their trading in options on stocks listed on the Bombay Stock Exchange. "Trading of these entities appeared abnormal because they were consistently seen making significant loss by trades, which were reversed with the same counter parties either on the same day or the next," the regulator had said in its ex-parte ad interim order.

At a PHD event, Das said India's stringent new black money law was not a revenue mobilisation exercise, adding that the government has made huge commitments to fight the menace of black money.

Decision on steel duty soon

On the issue of imposition of safeguard duty on import of steel, Das said some applications have been filed and those are under consideration of the Directorate General of Safeguards.

"There will not be any delay in this matter and as soon as a report comes (from DG Safeguards), the government will take a decision on this matter," he said, adding that the safeguard duty is not related to China's recent decision to devalue the yuan but to a sudden surge in India's imports.

No arbitration in tax disputes

The revenue secretary also said that arbitration cannot be used to resolve tax disputes. "Developing countries, including India, feel that arbitration cannot be the best method for dispute resolution. Taxation is the sovereign function of every government," he said.

The comment comes ahead of a meeting of the inter-ministerial panel to decide on the government's stand on an arbitration notice slapped by British company Cairn Energy against a tax demand of Rs 10,267 crore raised on its eight-year old internal reorganisation.

"It is, therefore, desirable that when there is a tax issue, it's better that two governments sit together and resolve the matter through the Mutual Agreement Procedures (MAP) rather than involving a third party who arbitrates," Das said.

"I must say that our focus is to resolve as much problems as possible in the matters of international taxation through MAP and APA (Advance Price Agreements)," he said. India would soon be settling about 120 tax dispute cases related to US companies through MAP, the revenue secretary said.