Sebi unearths tax evasion case; cracks whip on 33 entities for making Rs 1,800 crore undue gains
MUMBAI: The Securities and Exchange Board of India has banned 33 entities for allegedly misusing the stock exchange system to generate fictitious long-term capital gains of over Rs 1,800 crore and for converting their unaccounted income into legal money.
Sebi said Kamalakshi Finance Corp (KFCL) made preferential shares to connected entities. Since preferential shares have a one year lock-in period, any gains made by selling them are considered long-term capital gains, which don’t attract any tax. “The preferential allottees, acting in concert with the specified group, have misused the stock exchange system to generate fictitious long-term capital gains, which are tax exempt,” said Sebi’s whole-time member Rajeev Kumar Agarwal in a 37-page order released late on Friday. ..
The regulator had observed that the transactions in the shares of KFCL were mainly carried out by connected entities, with the Kamalakshi group buying and selling most of the shares. Sebi said considering both the average and total traded volume during its period of analysis (January 15, 2014 to December 26, 2014), it observed that the shares of KFCL were not in demand from general investors in the market, it observed that the shares of KFCL were not in demand from general investors in the market, with very low average daily volume of 1,385 shares against the 2.84 crore subscribed shares. It alleged that in the whole process, the principle of price discovery was kept aside and the market lost its purpose.
“Investment in a company having such poor and meagre fundamentals cannot prima facie be termed as a rational investment behaviour. Such investments, as in this case, normally could be made if the allottees had a nexus with KFCL and its directors/promoters and the issue of these shares was under a prior arrangement between them,” Sebi said.
The regulator also observed that prior to the preferential allotments, trading in the scrip of KFCL occurred rarely.
