The hawala (transfer of unaccounted money through illegal channel) trade, unearthed by the income tax (I-T) authorities during two-day raid on three ‘diamond traders’ in Pancharatna building, is overall worth a whopping Rs 5,000 crore per annum.
Those in the market said that there are about 100 people who are operating close to 1,000 companies that imports and exports diamonds for other traders, who don’t want to get into paper work.
This is known as “accommodation entry” in the trade. These companies also provide fake bills for cutting and polishing of diamonds to some traders that helps the latter in showing inflated expenditure which is then used to reduce profit and in turn tax liability. All this is done at a premium of one to two per cent that gets these people an earning of about Rs 75 crore per annum (total for all 100 people) in total cash.
Those in the market said that a large number of such companies are situated in Pancharatna, the diamond hub in Opera House. Many other companies are also functional at places surrounding the diamond market in Opera House.
Moreover, many of these 100 people, run 10 to 20 companies each. “They get economically backward people from their villages and float companies on their names,” the trader said. The ‘traders’ also make these people sign cheques in advance to avoid problems in the future.
Explaining the modus operandi, a trader from Opera House said that there are many in the business who are not interested in doing paper work for import and export of diamonds, for obvious reasons of tax evasion. “Some traders go to Antwerp and place orders for import of rough diamonds. But as they don’t want to get into paper work, the diamonds are imported on the name of some of these 1,000 companies,” the trader said.
He added that the original importer then collects the delivery of rough diamonds here and sell it in the local market, as he is not interested in polishing and exporting the same. “The same ‘company’ then utilizes this import, shown in its accounts book, to export polished diamonds for some other trader who also doesn’t want to get into paper work,” the trader said.
Those in the market said that these people do the import and export on the name of more than one company so that the profit gets divided.
“With this they show minimal profit in the lowest slab that doesn’t attract tax or escape by paying minimum tax,” the trader said. He added that these people run a company for one to two years and then shuts down the same to avoid attraction of tax authorities.
The companies are then opened on different names using different people from villages. Those in the market said that many of these 100 ‘traders’ had come to Mumbai in poor conditions some years back, and stayed alongwith other people in one-room flats in far off suburbs. “But today they play in crores,” said another trader.
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