Names of as many as 11,217 Tamil Nadu-based companies have been struck off the Registrar of Companies (ROC) register between 2018 and June 2021 after it was found that they were not active, but had significant assets.
It was also found that some of these companies were used for illegal purposes including tax evasion. The most number of company names struck off the ROC list are from Mumbai (52,869). Many of the companies were found to be shell companies during income tax raids conducted over the past few years.
Although the Companies Act doesn’t have any definition for the term ‘shell company’, it is generally used to refer to companies which exist without active business operation or significant assets. These companies in some cases are used for illegal purposes such as tax evasion, money laundering, obscuring ownership, benami properties, etc.
A special task force was set up by the Centre to look into the issue of shell companies. The government has also recommended the use of certain red flag indicators as alerts for identification of shell companies.
The government has undertaken a special drive for the identification and scrapping of shell companies.
“Normally when accounts of assessors are checked after searches, we get information about shell companies. These companies usually have an office address, but when we visit the place, not even a watchman is found on the premises. We term such companies as shell companies,” said a senior Income-Tax official.
In August last year, Income-Tax officials raided the properties of a few Chinese individuals and their Indian associates and found their involvement in money laundering and hawala transactions through a series of shell entities.
Searches revealed that at the behest of Chinese individuals, more than 40 bank accounts were created in various dummy entities, entering into credits of more than ₹1,000 crore over the period. A subsidiary of a Chinese company and its related concerns have taken over ₹100 crore bogus advances from shell entities for opening businesses of retail showrooms in India, said the I-T official.
Similarly, searches conducted in Tamil Nadu from 2016 onwards, have found several shell companies of being operated by the assessor to use his black money.
Just like the Income-Tax department, the central as well as the state GST departments have also found several shell companies being operated by traders to avoid paying tax.
The Tamil Nadu commercial taxes department found a big racket in Chennai region which used fake bills across 31 shell companies to cheat the department of a few crores of tax revenue. The department has also found the involvement of a few officers of a private bank and the department commissioner has complained to the Reserve Bank of India about the involvement of the bank officials in evading tax.
The racket’s kingpin, who owns a company, used the names of vegetable vendors and other gullible persons in the area to create documents and also open bank accounts in their names.
The department searched all 31 places and seized a large number of debit and credit cards in various names used to withdraw money.