Common Mode of Tax Evasion

Book Details

Chapter 1: Introduction
Tax Evasion Meaning	1
Understanding Tax Evasion with Example	2
Chapter 2: Existing Legal Provisions and Administrative Machinery to deal with Tax Evasion
[A] Income Tax Act, 1961	4
[B] Benami Transactions (Prohibition) Act, 1988	5
[C] Foreign Exchange Management Act (FEMA), 2002	5
[D) Prevention of Money Laundering Act (PMLA), 2002	5
[E) Prevention of Corruption Act & United Nations Convention againstCorruption (UNCAC)	6
Chapter 3: Tax Evasion - Vulnerable Sectors
(1) Unaccounted Money in the Urban Real Estate Sector	7
(2) Unaccounted income in the Manufacturing sector	8
(3) Unaccounted Income in the Indian Securities Markets	8
(4) Unaccounted income in the Indian Diamond Industry	9
Chapter 4: Impact of Tax Evasion on the Indian Economy
(i) Revenue loss:	14
(ii) Inequality and social justice:	14
(iii) Erosion of trust in institutions:	15
(iv) Distorted economic incentives:	15
(v) Underinvestment in public goods:	15
(vi) Increased tax burden on honest taxpayers:	15
(vii) Weakened rule of law:	15
(viii) Encourages Anti-Social Activity:	15
(ix) Enhance in the Inflation:	16
(x) Effect on GDP of the country due to less tax collection:	16
Chapter 5: Difference between Tax Planning, Tax Avoidance and Tax Evasion
General Anti-Avoidance Rules (GAAR)	19
Difference between tax planning, Tax evasion And Tax avoidance	21
Chapter 6: Different ways of Tax Evasion occurs
[1] Underreporting of income	23
[2] Non-payment of due taxes	23
[3] Smuggling to save different taxes	24
[4] Submit incorrect tax returns	24
[5] Out of Book Transactions	24
[6] Manipulations of Book of Accounts	25
[7] Maintaining fake financial statements	25
[8] Financial Market Transactions:	25
[9] Shell companies and Trusts/ nominees	25
[10] Land and Real Estate Transactions:	25
[11] Hiding Money or Assets in Offshore Accounts (Keep money outside India)	26
[12] Tax Havens countries	26
[13] Transfer pricing manipulation	26
[14] Manipulation by through their subsidiary companies	27
[15] Using Fake documents to claim exemption	27
[16] False invoicing and billing	27
[17] Over-Invoicing’ and ‘Under-Invoicing’ of Goods and Services:	27
[18] Tax evasion through bogus transactions	28
[19] Misuse of tax treaties	28
[20] Non-profit Sector:	28
[21] Illegal Activities and Money Laundering:	28
Chapter 7: Manipulations of Books of Account for Tax Evasion
Manipulations of Accounts for Tax Evasion	29
Out of books transactions	30
Parallel Books of accounts	30
Chapter 8: Tax Evasion using Agricultural Income & Land
Exemption as a tool of tax evasion and money laundering	35
Numerous official reports have highlighted the misuse of agricultural income tax exemption for decades	35
Tax Evasion by Rich Farmers [Lok Sabha Unstarred Question No. 375]	38
Legal position of Tax on Agriculture	39
Taxes on agricultural income falls under Entry 46 in “State List� under the Constitution of India	39
Legislative position of agriculture and agricultural income	39
Legal framework	40
Agricultural Income & Its Tax Treatment	40
Objective of the Department	41
Chapter 9: Tax Evasion - Gems & Jewellery Sector
What is gems and jewelry?	66
Structure of the Industry	66
Liberalization of the Indian economy in 1991	67
Major Hubs for Gems and Jewellery	68
Sources of information on this trade for purposes of investigations	69
Co-ordination between ITD and other Government agencies	69
Factors that affect the profit margin in the gold jewellery business:	71
Profit margins and ratio analysis	76
Assessee did not furnish any explanation for a sharp decline in gross profit rate from 11.7 per cent in immediately preceding year to only 5.99 per cent in assessment year under consideration,Assessing Officer was justified in making flat addition at 5 per cent of disclosed sales	125
Chapter 10: Tax Evasion in the Real Estate Sector
Effect on Land Prices	127
Recommendations of Various Committees for Specific Legislative Measures	128
Emergence of RERA and understanding its certain concepts	134
Chapter 11: Tax Evasion through Penny Stocks
What are penny stocks?	193
Results of Kolkata Investigations [Investigation Report of the Directorate of Income Tax (Investigation) Kolkata, in case of Project Bogus LTCG through BSE Listed Penny Stocks]	194
SEBI Investigation and ban	195
Types of penny stock companies	195
Method of Transaction	195
Modus operandi as per Investigation report	197
Bogus capital gains from Penny stocks	200
Chapter 12: Tax Evasion through Share Premium
Objective of the amendment to section 56(2)(viib)	248
Extract of object Memorandum of Finance Bill, 2012	249
Applicability of clause (viib) to section 56(2)	252
Chapter 13: Tax Evasion in garb of Share Application Money
Share application money pending for allotment of shares	314
Checklist for Verification	314
Chapter 14: Tax Evasion - Income earned in providing the Accommodation Entries
What is accommodation entry?	320
As per the “Report of the DIT (Investigation), Kolkata - Modus operandi in brief	322
Role of Income Tax Department	323
Suggestive questionnaire for Assessing Officer to make investigation while dealing with Accommodation entry issues	323
Chapter 15: Tax Evasion through Shell Companies
What is shell company	350
How does a Shell company operate in India?	351
Modus operandi	352
The checklist should interalia include	353
Chapter 16: Tax Evasion through Client Code Modification
What is Client Code Modification (CCM)	362
Purpose of Client Code Modification (CCM)	363
Misuse to evade taxes	363
Policy for Client Code Modification	363
Chapter 17: Tax Evasion through Options Trades
What is options trading?	394
Types of Options Trading	394
Modus operandi	394
Familiar script	395
Chapter 18: Tax Evasion through Payment of On-Money for Purchase of Property
What is On-money	397
Tax evasion through understatement of the value of properties	398
Chapter 19: Tax Evasion through Bogus Transactions
Role of Income Tax Department	411
Bogus transactions	411
Bogus transaction under Income Tax Act	412
Burden of proof	412
Type of additions seen made in different cases of assessee	413
Chapter 20: Use of Tax Haven Countries for Tax Evasion
Modus operandi	432
Tax Free Crypto Countries	432
Chapter 21: Tax Evasion through Cryptocurrencies
What is Crypto Tax Evasion?	434
There are two kinds of crypto tax evasion:	435
Techniques used for Cryptocurrency Tax Evasion	435
Existing guidance on crypto taxes from the Income Tax Department	437
Penalties for crypto tax evasion in India	437
Chapter 22: Provisions to Check Tax Evasion
Aggregate Payment has to be seen	441
Limit for disallowance of expenditure made otherwise than by an account payee cheque or account payee bank draft	442
Burden of proof	442
Chapter 23: Penalty for Tax Evasion under Taxation Law
Overview of Section 270A	499
Difference between underreporting and misreporting of income	499
Applicability of section 271AAB	499
False entries for the purpose of penalty under section 271AAD	508
Chapter 24: Prosecution for Tax Evasion under Taxation Law
The term “willful�	515
What is an “Attempt�?	515
The word ‘evade’	515
Evasion of tax	516

About the Author

Ram Dutt Sharma

Ram Dutt Sharma was born on 27th June, 1958 in Narnaul, Haryana. He got his post-graduation from M.D. University, Rohtak in 1980. He joined the Income-tax Department in the year 1983 and retired as Income Tax Officer on 30.06.2018. He worked at various stations of North-West Region of Income-tax Department. He has wide experience of all wings of Income-tax Department such as Assessment Unit, Special Range, TDS Wing, Investigation Wing, etc. He has been Contributing articles and addressing on topics relating to Income Tax at NADT Regional Campus, Chandigarh & Bhopal. He has also addressed number of seminars organized by the Income-tax Department, Chartered Accountants, Advocates and various Trade Associations.

He is recipient of first-ever Finance Minister's Award 2017, the Income Tax Departments highest honour for sustained devotion, commitment to duty & promoting excellence in the field of Direct Taxation at National Level. The Hon'ble Union Finance Minister, Shri ArunJaitley conferred this Finance Ministers Award for Excellence for his meritorious services at VigyanBhawan, New Delhi on 24.07.2017.

Awarded by Hon'ble Member (Revenue& TPS), CBT, Special Secretary to the Government of India Certificate of Appreciation for his contribution recognized and included in the chapter Miscellaneous Orders in Let Us Share A compilation of Best Practices & Orders Vol. VIII released on 31stOctober, 2016.

View other books from Enterprise Information Systems and Strategic Management