Electronic tax

IT department detects alleged tax evasion by property developers

NEW DELHI : The Income Tax Department said on Monday it had detected undisclosed capital gain and suspected tax evasion in transactions involving two property developers in Bengaluru and Hyderabad.

The alleged irregularities were revealed during search operations carried out on the two real estate groups carrying out activities of construction, sale and rental of commercial and residential spaces, and educational and hotel services. The search action covered more than 40 premises located in Bengaluru, Hyderabad and Chennai.

During the search, incriminating documents and digital evidence were seized, the department said. A preliminary analysis of the evidence showed that some landowners had entered into a joint development agreement with a Bengaluru-based developer. They received a super built-up area from the developer instead of the land given to the developer for the development of various projects. However, the landowners have not declared the capital gains resulting from the transaction, although certificates of completion for the projects have been obtained. The amount of these undisclosed capital gains is estimated to be over Rs. 400 crore, the department said.

Initial analysis of the seized documents showed that these groups would have removed income to the tune of Rs. 90 crore in recognizable revenue from the sale of units in the real estate, the department said.

The two groups allegedly engaged in tax evasion by inflating expenditure in the construction and development sector to the tune of Rs. 28 crore by claiming bogus purchases and resorting to overcharging for construction materials, a indicated the department.

Interest-bearing borrowed funds were also found to have been diverted to related parties for non-trading purposes by key entities of the two groups, according to the department. In the case of a trust covered by the search action, it was found that the trust failed to utilize, within the specified allowed time, the accrued amount of Rs. 40 crore for the specified purpose as per the objects of the registered trust deed, the department said. So far, the search action has led to the seizure of undisclosed cash from 3.50 crore and jewelry worth Rs. 18.50 crore, the department said.

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