LTCG Tax Scam: SEBI finds no manipulation in 49 out of 80 cases

Moneylife Digital Team 20 July 2017

Economy & Nation

Market regulator Securities and Exchange Board of India (SEBI), in its submission before the Securities Appellate Tribunal (SAT), has given a detailed explanation about the outcome of its investigations into market manipulation done by players to take advantage of long-term capital gains (LTCG). SEBI's submission came on an order issued by the SAT in previous hearing. The Directorate of Investigation (DIT) of the Income Tax Department, Kolkata, had referred 361 scrips to SEBI to probe LTCG manipulation. Of the 361 scrips, SEBI identified 144 scrips for investigation and concluded investigation in 94 cases.

SEBI said out of the 94 scrips investigated, in 14 cases it could not take any action due to lack of permanent account number (PAN), without which it could not analyse trading pattern. It is seeking more information and evidence from DIT. According to the market regulator, out of the 94 scrips, it found preferential allotments in 54. However, in 30 scrips it found no manipulation, while in 24 scrips it detected manipulation. In the 26 scrips where there were no preferential allotments, SEBI said in 19 cases there was no manipulation, while in seven cases it found manipulation. Moneylife magazine has been writing about one case of brazen manipulation in each of its fortnightly issues. In all, it found no manipulation in 49 cases.

SEBI has been taking strange positions on the issue of the LTCG scam. In an Information Memorandum (IM) signed by the previous chairman, UK Sinha, SEBI has taken the position that “no documentary/ independent evidence in support of the statements of the operators were provided…the statements provided by DIT may not be sufficient to establish connection between” the various players. “Moreover, charges made on the basis of the statements of operators/ stock brokers/ front entities of operators etc., provided by DIT may not stand the test of legal scrutiny.”

SEBI argued that it “is primarily concerned with violation of securities laws… these cases are mainly resulting in evasion of tax.” However, if there is price manipulation, SEBI will act, said the IM. The note recorded that 145 cases were being investigated, of which, in 55 cases, investigation had been completed. SEBI passed no orders against the beneficiaries in 43 cases, despite completing investigations. However, SEBI had passed interim orders against 12 other cases on similar facts. One of the 12 aggrieved parties went to SAT accusing SEBI was acting selectively. It is in response to this that SEBI has been forced to disclose its record of investigations and actions on the LTCG scam.

What is the LTCG Benefit Scam?

Black money holders who want to convert their cash into tax-free income through long-term capital gains (beneficiaries) work with market operators to identify listed but dormant companies. The beneficiaries buy shares of such companies, after which the operator starts ramping up the share price of the scrip. After a year, the operator tells the beneficiaries to arrange cash to be laundered. Various small players convert this cash into cheque and transfer this to account/s of the dummy buyer/s of the share at ramped up price. The beneficiary offloads his shares and gets a cheque from his broker. The capital gain comes to him tax-free, since this is the income he had earned through long-term investment of 12 months.

Comments

User

ramanamurty malla

9 years ago

Yes, it is smart way to convert black money into white with the help of operators. I also heard that jacking up dormant and dud shares with the support of operators to do placement of shares at high premium. Is it true ?

Ramesh Poapt

9 years ago

law-breakers are smarter than law- makers.
regulators is 'smarter' than both.but....