Evaded Tax on `Penny' Gains? Face the Music

Mumbai: Sachin Dave & Maulik Vyas





I-T to send notices to 1k individuals, also target promoters of such cos

[News Story published in Economic Times Mumbai Edition on 29 July 2016 on page 17 - In the Story Paras Savla was quoted]

The income-tax department is planning to send notices to about 1,000 individuals who may not have paid tax on money earned through trade in penny stocks, people aware of the matter said. Penny stocks are shares with value not exceeding a few rupees.

This follows an analysis done by the revenue department and the Central Board of Direct Taxes (CBDT) earlier this year of transactions in penny stocks on the country's bourses. The analysis was based on data obtained through the capital markets regulator, the Securities and Exchange Board of India (Sebi), and from some investigation agencies like the Investigation Directorate and Enforcement Directorate.

“While manipulation of penny stocks is an offence and Sebi may have penalised investors caught doing that, these investors may not have paid tax on such transactions,“ one of the persons cited earlier said. “Also, there were some investors who may not have come under the scrutiny at that time.“

The revenue department's notice to such individuals will give them time until September to declare undisclosed income under the income declaration scheme (IDS). Tax officials will go after those who do not fall in line, the person quoted earlier said, adding that the revenue department is also planning to send notices to promoters and senior executives of penny stock companies who may have benefited from such transactions.

“While Sebi had come down hard on some of the penny stock manipulations done by some investors, tax payers who have evaded income tax may be asked to declare their undisclosed income under the current IDS,“ said Paras Savla, Partner, KPB & Associates, a tax consultancy "Failure to declare money would lead to reopening of assessment after after September. On confirmation of addition, they may face concealment penalty at the rate of 200% on tax evaded.“

Industry trackers said the government is keen on making the IDS a success. Officials in the income tax department say the scheme as not had “much success“ as not many people are coming forward to declare their unaccounted income and wealth.

“This is a step by the govern ment in line with its aim of cracking down on the source of black money . The government has been urging people to come forward and declare undisclosed income wealth by paying a onetime tax at the rate of 45% and to put the matter to rest once and for all,“ said Sanjay Sanghvi, partner, Khaitan & Co, a law firm.

In March this year, the CBDT had issued a circular regarding manipulation in penny stocks.It had pointed out that some investors had artificially raised prices of some penny stocks in order to book profits or claim losses. The manipulation was done on some stocks traded on the Calcutta Stock Exchange.Officials said similar manipulations may have happened on other stock exchanges too.

Tax officials are also looking at business transactions of some small companies. There is a suspicion that some companies may have converted black money to white for investors for a small fee.

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