Starting March, the Income Tax Department has started sending notices to over four lakh shell companies, which is over a third of the 1.1 million registered companies that have failed to file returns for 2013-14 and 2014-15, as part of the crackdown on shell companies.
These companies now face the prospect of their names being struck off or deregistered as they have failed to file their returns for three financial years, The Times of India reported.
Although these companies have also not filed their returns for the 2015-16 financial year, the window for filing is still open. The government has given these companies 30 days to file returns, failing which some could even get their names struck off the list.
The ministry of corporate affairs (MCA) will make the names of defunct companies public and also share information about these companies and their directors with the income tax department, banks and the Reserve Bank of India so as to ensure that these companies do not undertake any transactions. The MCA will also make the names of such companies public.
While the Companies Act provides for companies to seek a "dormant" tag, very few companies have opted for it. At the end of March 2015, there were 1.46 million companies, but only 1.02 million were considered active with only 214 classified as dormant.
In March, the I-T Department had reported instances of money laundering involving Rs13,300 crore by using 1,155 shell companies as conduits over the three years to March 2016.
According to information provided by minister of state for finance Santosh Kumar Gangwar, investigations conducted by the income tax department have led to identification of number of entities, which existed and operated only in form but not in substance.
These entities were used as conduits for non-genuine transactions such as bogus purchases, sales, expenses, long term capital gains in shares, layering of transactions.
"During last three financial years (2013-14 to 2015-16), investigations led to detection of more than 1,155 shell companies / entities, which were used as conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was more than Rs13,300 crore," Gangwar said in a written reply to a question in the Rajya Sabha.
He said action against such entities as also against the beneficiaries of non-genuine transactions is a continuous process under the Direct Taxes law.
"Such action includes searches, surveys, enquiries, assessment of income, levy of taxes, penalties and filing of prosecution complaints in criminal courts, wherever applicable," Gangwar said.
The government in February had constituted a task force under the chairmanship of the revenue secretary to monitor action against "deviant" shell companies.
Other members of the task force are from Department of Financial Services, CBDT, CBEC, CBI, Enforcement Directorate, SFIO and Financial Intelligence Unit.