Companies & Sectors
Genom Biotech: Curious case of using paper companies to create wealth

Using paper companies, the little-known pharma company’s CMD created huge wealth that was unearthed following a tip-off to the Income Tax department. The company’s modus operandi also finds a mention in the “White Paper of Black Money”

Mumbai-based Genom Biotech Pvt Ltd and its promoter and directors may not be known in their neighbourhood but their modus operandi of using paper companies abroad for creating wealth has found mention in the “White Paper on Black Money”, prepared and submitted by the Indian government in the Parliament.


Genom Biotech is manufacturer and exporter of pharmaceutical products. It is promoted by Binod Kumar, who is also the company's chairman and managing director. The company is operating in Ukraine, Cyprus and UK and claimed a huge amount for advertising and marketing expenses for marketing its products in these countries. It claimed the payments to be made to the Cyprus and UK companies as reimbursements of the expenses of the Ukrainian company.


Here is what the “White Paper on Black Money” says about a company and its modus operandi...

Box 4.2 Evidence Found during Search Operations

Supplemented by Information Received from Abroad

A search and seizure operation was conducted on the Indian company G Ltd. In the course of the operation, evidence was collected that indicated the use of international entities for tax evasion. G Ltd was a private limited company with Mr X being its managing director and major decision maker. G Ltd was engaged in the pharmaceuticals business with exports to the Ukraine, Cyprus, and Russia. G Ltd claimed bogus marketing expenses through dummy companies in the Ukraine, Cyprus, and the UK. It claimed the payments to be made to the Cyprus and UK companies as reimbursements of the expenses of the Ukraine company. These funds were diverted to the personal accounts of Mr X who accumulated wealth in foreign countries. In the course of search and seizure operation, the marketing/business promotion expenses were found to be unusually high at 50 per cent of the turnover. The Cyprus and Ukraine-based companies had previously been owned by Mr X. The seals and stamps of these companies were found on the premises of G Ltd. Some of the employees of G Ltd were found to be closely linked with the Ukraine and Cyprus companies. Details of huge investments in the name of Mr X and his family members were found on the premises. Enquiries were made from the UK, Germany, Switzerland, Cyprus, and the Ukraine for the following:


• The ownership structure of these companies
  • • Details of the shareholders, ultimate beneficial owners of these companies
  • • Copy of incorporation documents
  • • Nature of business by these concerns
  • • Details of the bank statements and the sources of funds in the bank accounts of Mr X
  • • Source of funds from which the properties in foreign countries have been purchased by Mr X and family members
  • • Source of funds from which the properties in foreign countries have been purchased by Mr X and family members


Enquiries into the whereabouts of the Ukraine companies revealed the following facts:

As per the local tax database, one of the companies was not registered at the address mentioned in the documents seized. As per the statement of a legal representative of the company, no relationship existed with the UK and G Ltd claimed that these Ukraine companies had raised invoices in the name of Cyprus and UK companies which in turn raised invoices in the name of G Ltd. Enquiries revealed no such relation between the Ukraine and UK/Cyprus companies. The UK enquiries revealed that Mr X and his wife used to be directors of the UK-based companies. No expenses for office premises and wages/salaries were incurred by these concerns. The balance sheets of these companies did not have any property and the registered office address was the residential address of the accountant. This supported the conclusion of these companies being paper companies. Enquiries revealed flow of funds into the bank accounts of Mr X and his wife from the bank accounts of the Cyprus companies in whose name, the expenses had been claimed. Enquiries from the UK into the properties of Mr X and his wife revealed huge investments. A detailed statement of the taxpayer was recorded and he failed to explain the transactions. Based on the EOI enquiries and documents seized in the course of action u/s 132, the taxpayer was denied the bogus claim of expenses of around Rs150 crore.

Source: “White Paper on Black Money” (

Although the White Paper does not name the company involved in this huge tax evasion, similar modus operandi is mentioned by the high court in its judgement about Genom Biotech Pvt Ltd, and its chief Binod Kumar.


Acting on a tip-off, the I-T department, on 14th-15th May 2008 searched the offices and residents of Genom Biotech, its CMD Binod Kumar, and its directors CMP Singh and Amit Kumar and found incriminating documents.


On 24 July 2008 the deputy director of I-T (investigation) issued a notice under section 153A of the Act calling upon the assessee (Genom, its CMD and directors) to file return of income for the past six years. On the same day, the Assistant Commissioner of I-T, Mumbai passed an order under Section 281B(1) of the Act for provisionally attaching the immovable properties of the assessee and also shares of various companies held in demat account by Binod Kumar.


The assessee, then filed a petition in the Bombay High Court. In the petition, Binod Kumar claimed that the investments by him and his family members in India are made from funds transferred from his foreign income brought in the country through proper banking channel. He also said since he is a non-resident Indian (NRI), the income earned by him outside India is not taxable in the country and initiating search and seizure action with a view to tax the amount brought to India as undisclosed income does not arise at all.


The high court said it did not found any merit in this contention. “...the information received in the present case was that during the period from FY 2001-02 to 2007-08 the petitioner  No.1 (Genom Biotech) had evaded tax by claiming deduction of business expenditure amounting to Rs170 crore on the ground that the said amounts have been paid to Cyprus/UK based companies towards  marketing and advertisement expenses, but in fact the said amount has been credited by the said Cyprus & UK based companies in the private bank account of petitioner No.2 (Binod Kumar) in Cyprus,” the court said.


Genom Biotech used Biogenetica Ltd, Nicocardia Pharma Ltd and Selesta Holdings Co Ltd (all Cyprus based companies having same address) and UK-based Zyus Corp Ltd for claiming tax refunds.


However, during investigations it was found that the payments made by Genom Biotech towards advertisement and marketing expenses never reached their logical destination i.e. advertising agencies in Ukraine.


During the search, the I-T department also recovered incomplete and or unsigned invoices of the foreign companies along with their seals or stamps. “These incriminating documents prima facie establish that large scale tax fraud has been committed,” the court observed.


The I-T department conducted enquiries in foreign countries through tax authorities to independently ascertain the claim on marketing expenditure by Genom Biotech. Confidential investigation was conducted through tax authorities in Ukraine to ascertain transactions between advertising agencies in that country, supposed to have entrusted with the advertisement assignments by Cyprus and UK based companies on behalf of Genom Biotech.


The outcome of the investigation in Ukraine revealed that there was no commercial transaction between these companies for the investigation period. These advertising agencies did not issue any invoice to and they did not receive any funds from these Cyprus-based or UK-based companies.


Enquiries also revealed flow of funds from Cyprus and UK based companies into personal account of Binod Kumar. The bogus advertisement expenses and marketing expenses were disallowed by the I-T department. Similarly, the high court also dismissed Genom Biotech and Binod Kumar’s petition, against the I-T department.


It said, “…the argument that the assessee ought to have been permitted to shift the security from one banker to another banker so as to avail higher facilities cannot be accepted, because, the petitioner No.2 who appears to be the brain behind the massive tax evasion is not co-operating with the department in unfolding the truth. As a result of non co-operation the investigation is hampered. Consequently, there is delay in determining the demand."


Since then the I-T department raised demands of Rs100 crore each against Genom Biotech and Binod Kumar. After taking several twists and turns the case is now before the Commissioner of Income Tax (Appeals) (CIT-A).


More about this in the next part...




MK Gupta

5 years ago

This modus operandi is nothing new nor novel. Hundreds of paper companies with table-space addresses with just one telephone number, were created and operating for years after independence in Calcutta, during the Haridas Mundhra-Indianisation of “Sterling” companies period for easing black money into the books of accounts to fraudulently acquire the erstwhile British companies. This of course Had started even earlier during the jute boom, with bogus companies operating with impunity and making huge profits and duping dshareholders en masse! Post independence, all this nefarious activities got patronage from the Congress party bosses and top bureaucrats in Delhi, including the RBI executives. The income tax department in Calcutta, the birthplace and nursery even today for all fly-by-night operators, had started a special cell (Jute Circle) to deal with the menace of huge black money in the uncontrolled jute business known for atrocious labour policies. The jute circle of Calcutta ITO did a splendid job, negated later by the inundation of hordes of corrupt officers in the following days.
Paper companies never died, but in fact spread all over the country with West Bengal (remote corners of Howrah, BNurdwan, Bankura, etc.) as the originating source to be used to introduce unaccounted income into books of accounts of even big companies of now prestigious groups! The filth started again in a big way, from Calcutta as usual and spread all over, during the 70s and continued till the 90s during the boom of bogus “Investment Companies”. Even Bank managers were involved in this multi-crore racket all over the country with the direct patronage of top IRS officers in the CBDT, ministry of finance, etc., and, of course, the lower ranks in the income tax department and all banks, to introduce black money as share application money to float numerous inter-connected companies and then siphoning off the entire funds without any trace. In many cases, the bogus bank accounts opened to facilitate all this were closed immediately after crediting the IT refunds obtained in the names of the non-existent persons shown as shareholders, thus leaving no trace of the ghosts! A South based ITP was specialized in this line who even got bogus IT challans introduced into the records to generate crores of bogus IT refunds and is still flourishing in profession for 50 years with impunity. (According to one estimate, he defrauded the revenue to the extent of not less than Rs. 2000 crores during the period from 1970 to 1990 by creating thousands of bogus IT files all over the country, in bogus names of non-existent ghost names—of idividuals, companies, etc.--- and created own receipted bofus income tax challans to create evidence of tax payments and then claiming refunds in those cases, of course with the connivance and patronage of the top bosses and hence remained scot frree!) He even used a company’s name which was never found registered with the ROC and the companys address was shown as Baksara, a village in Howrah of West Bengal!
The once useful inspection division of CBDT had done a very challenging job in the area of these fly-by-night menace of the mushrooming invest companies (which again surfaced during the share market boom in the early 90s under the aegis of Harshad Mehta), but a corrupt chairman of CBDT in 1986-87 hushed up the entire report and the file though the CBI did dhow some perfunctory interest.
Thus, paper companies are still in vogue despite all legal provisions only because corruption is paying and it is not possible for the CBI to delve into all cases from the topmost level downwards to catch the corrupt. After all, every top post is the reward for corruption only! And, what after all is SBI or NSE or RBI? What really is the activity of SFIO, under a generalist IAS officer without ever having any hands-on experience of carrying on any investigation?

Kamal Nath’s road-building target not possible admits CP Joshi

Earlier this year, a Parliamentary panel also stated that the NHAI's plan of building 20 km a day is a "distant dream"

New Delhi: With annual award of 9,500 km, it will take minimum three years before the much-touted target of building 20 km a day roads is achieved. "If everything is positive and if we award 9,500 km every year for three years, then we can achieve building 20 km of roads a day target," Road Transport and Highways Minister C P Joshi told PTI in an interview.
Asked whether the target set by his predecessor Kamal Nath was over-ambitious, Joshi said, "...with all good intention we had announced 20 km".
Nath had announced building 35,000 km in five years, which translated into 20 km a day. Nath, who has since moved to the Urban Development Affairs Ministry, had announced the target immediately after the UPA-II assumed office in 2009.
Under the National Highways Authority of India (NHAI), at present 10-12 km roads per day are being built.
The NHAI, which is responsible for 76,000 km of highways, had awarded contracts for 7,957 km in the 2011-12 financial year.
"This year, we have set a target of awarding 9,500 km," Joshi said, adding, "Road award is a process. Once the competition is there... The day we award and the day we start construction, on an average it takes three years, provided the stretch does not fall under the Wildlife area".
Prime Minister Manmohan Singh, in a meeting with core sector ministers last month, had set a target of over Rs2 lakh crore investment in the infrastructure projects, including road-building.
Earlier this year,a Parliamentary panel had also stated that the NHAI's plan of building 20 km a day is a "distant dream".
Under NHDP (National Highways Development Programme), the ministry has taken up the development of 35,000 km roads on various modes including PPP (public, private partenership).
"Initially we started with the Golden Quadrilateral which was built on item based construction. Roads at present are built under three modes - BOT (Toll), Annuity and EPC," Joshi said.
The Cabinet Sub-Committee headed by Chaturvedi had recommended that of the total projects 65 per cent should be built BOT (Toll), 25% on Annuity and the rest under EPC.
"For us, BOT (toll) is better as for 20-25 years maintenance lies with concessionaire. We have decided to award 20,000 km of single road under EPC in the 12th Plan. Out of this, 4,000 km will be in 2012-13," Joshi said.
"We have a model concession agreement which provides minimum six months to arrange funds. When in 2000 we started the PPP mode, we could award only 6,000 km. The award started reflecting in the third year. Bidders didn't come forward due the slowdown. With all good intention we have announced building 20 km," he said.
The road ministry also introduced the system of e-tendering in the highway sector.
"A large number of concessionaires are bidding through this route...It is my initiative. For every award, number of bidders has gone over 15 from previous two. Through my intervention the road ministry will get Rs3,000 crore per year as premium for 20 years," he added.


Traders to protest against FDI in multi-brand retail on 9th August


The Confederation of All India Traders said foreign investments by MNCs will hijack the country's retail trade which would lead to closure of majority of small businesses and job losses for lakhs of people
New Delhi: Traders across the country will observe the Quit India Movement Day as 'Quit FDI Day' on 9th August, to protest against foreign direct investment (FDI) in multi-brand retail, Confederation of All India Traders said, reports PTI.
The decision to allow 51% Foreign Direct Investments in multi-brand retail has been put on hold by the government following strong objections from the Opposition and key UPA allies Trinamool Congress and DMK.
"Foreign investments by MNCs will hijack the country's retail trade which would lead to closure of majority of small businesses and job losses for lakhs of people engaged in the sector," Confederation of All India Traders (CAIT) Secretary General Praveen Khandelwal said here.
He said traders across the country will observe Quit India Movement Day as Quit FDI Day to protest against foreign investments in multi-brand retail by staging dharnas.
The confederation said the government has assured that a consensus on the issue will be arrived at only after consulting all stakeholders including traders, farmers, consumers and various political parties.
"The government's effort to form consensus on FDI in multi-brand retail without consulting traders is highly undemocratic," Khandelwal said.
To reach a consensus, Commerce and Industry Minister Anand Sharma, has been consulting various state governments on the matter.
The opposing political parties have said FDI in the sector would hurt the interest of about 40 million people employed in the retail business.
The confederation claims a membership of over 5 crore traders.


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