Unholy nexus between ARCs and borrowers found after IT raids: CBDT

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The Income Tax Department has found an "unholy nexus" between four asset reconstruction companies (ARCs) based in Mumbai and borrower groups after they were raided recently, the CBDT said on Wednesday.

The searches were launched on December 8, and a total of 60 premises in Mumbai, Ahmedabad, Delhi and few other places were covered.

The department seized Rs 4 crore cash and a "large volume" of documents and digital records, the Central Board of Direct Taxes (CBDT) said in a statement.

The policy-making body for the department said it was found during the raids that the "ARCs had adopted various unfair and fraudulent trade practices in acquiring the non-performing assets (NPA) from the lender banks".

"It has been found that an unholy nexus existed between the borrower groups and ARCs and in the process, a maze of shell or dummy concerns have been used," the statement claimed without identifying the ARCs.

The tax officials found that the amount at which the NPA has been acquired by the ARC was "far less" than the real value of the collateral securities covering the said asset.

Minimum cash payout made out by the ARCs to lender bank(s) for acquiring the stressed assets have usually been using the funds of the borrower group, it said.

"Such funds have been routed through several layers of dummy companies controlled by the borrower group or through hawala channels.

"...the ARCs have been following non-transparent methods in disposal of assets that were acquired by them from the banks," it said.

The CBDT said it was found that "more often than not, the underlying assets had been re-acquired by the same borrower group, albeit at a fraction of their real values".

"The ARCs are found to have concealed the profits on disposal of the underlying assets by diverting the actual profit to their related concerns, under the garb of consultancy receipts or unsecured loans/investments," it said.

The ARCs, through this method, have not only "evaded" the payment of due taxes but also deprived the lender bank(s) of their share of actual profits, the statement claimed.

"One of the ARCs was found to be maintaining a parallel set of accounts on Tally accounting software, in a pen drive, recovered from the custody of the trusted employees of the promoter.

"This parallel set of accounts contained cash transactions aggregating to more than Rs 850 crore," it said.

The department found some handwritten diaries containing detailed entries substantiating the deliberate act of layering of transactions by the promoter group and use of a "network of middlemen" for the same.

"There are also evidences of routing of funds through offshore structures to acquire the assets," it said.