Money laundering racket uncovered in Delhi

By Sujay Mehdudia

NEW DELHI, JAN. 4. The Income Tax Department has come across strong evidence suggesting ``criminal misuse'' of Section 80 HHC of the Income Tax Act, pointing to a flourishing ``money laundering'' racket here by individuals, export firms and unscrupulous elements. Some of them have set up fraud units here and abroad, leading to the evasion of taxes running into several crores of rupees.

The evidence comes close on the heels of revelations of alleged money laundering operations undertaken by Abhishekh Verma, son of the Congress(I) MP, Ms. Veena Verma. The Comptroller and Auditor General (CAG) has also called for a review of the concessions for export earnings under Section 80 HHC.

``Despite the fact that tax holiday provisions, export incentives and deductions from profits retained from exports have been in the statute for over 15 years, no review or study has been carried out by the Department to evaluate the impact of the scheme. No records have been maintained in respect of the assesses who are availing the export incentives under various provisions of the Act,'' the CAG observed in its latest report, which was very critical of the Central Board of Direct Taxes (CBDT).

Insiders in the CBDT are of the view that the uncapped concessions granted under Section 10A and 10B of the Act to export units should be reviewed immediately and a monitoring mechanism put in place to keep a check on the inflow of money to such units and their ultimate utilisation or destination. ``Such is the efficiency that the Department doesn't even have a trace of the people who have been availing of these concessions. It has no mechanism in place to deal with this kind of evasion,'' a senior official said.

Already, voices are being raised for a review of Section 80 HHC. The strictures passed by the CAG could well pave the way for such a review.

The CBDT had been conducting investigations for quite some time into reports that a large number of export houses had been set up with the purpose of laundering money and routing it into the country through legal channels by exploiting various loopholes. The most misused has been Section 80 HHC, which clearly states that no tax would be levied on the income earned through exports.

Taking advantage of this, a large number of criminal and unscrupulous elements have reportedly entered into export business to turn black money into white - that too in dollars - using this channel.

Such ``rogue export units'' undertake some ``false export orders'' and export highly sub-standard items. For this purpose, they tie up with hawala dealers who operate such export units abroad or the export house itself sets up a front in a foreign country to receive the exported item for official purposes. After this, the money is paid through the hawala route to the conduit in some foreign country which in return sends the money back to India in the form of export earnings.

The exported items are either dumped after reaching the destination or, in a majority of the cases, the ``export transaction'' doesn't take place at all. Connivance of the Customs and other revenue agencies is also implicit in this whole operation.

Officials in the Income Tax department are also of the view that safeguards should be developed to prevent the misuse of Section 80 HHC. ``Money laundering could also pose a security risk to the country as the money brought in has no trace and could be misused by anti-social elements,'' a senior official remarked.

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