Kolkata is shell companies'

favourite address, taxmen plan

major crackdown
Taxmen say almost 90% of such firms are in the city, plan crackdown
Namrata Acharya | Kolkata Last Updated at February 14, 2017 08:54 IST

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Kolkata has turned out to be Indias own tax haven, thanks to the presence of a large
number of shell companies (the term for formal existence but with close to no operations or
assets).

The income-tax (I-T) department is now planning a major crackdown on such companies
here. This is part of a recent initiative by the central government to put a curb on paper
companies, to unearth undisclosed money. Arijit Pasayat, vice-chairman of the Special
Investigation Team on such money (it was appointed by the Supreme Court) comes here on
Tuesday to meet I-T officials.

Almost, 90 per cent of shell companies are in Kolkata. Hence, it will be a major activity
centre for the governments planned crackdown on such companies, said a senior I-T
official.

The reason why Kolkata is the preferred choice of venue is said to be easy availability of
professionals in this type of activity, with an established network.

The effective tax rate is around 24 per cent. Hence, for earned capital of Rs 1 crore, one
pays Rs 24 lakh as tax. In Kolkata, one pays Rs 50,000-70,000 to the entry operator to form
a shell company through a structured transaction and save on taxes, said an official.

The method is somewhat like this. If one needs to convert Rs 1 crore capital from black
(hidden) to white, the original owner of the money will give Rs 1 lakh to an entry operator,
whod divide the sum into 10,000 shares of Rs 10 each. Each of the shares would then be
sold at an exorbitant premium of around Rs 1,000 to directors of shell companies. This
would instantly increase the value of the company from Rs 1 lakh to Rs 1 crore. Through a
network of fake companies, the money then moves to the original owner. The entry operator
charges a fee. Often, the directors of these companies are daily-wage earners like tea
sellers or office guards.

The more the capital, the higher the cost of registration for opening such a company. Thus,
opening one with Rs 1 lakh capital would require much less of registration fee than opening
one with a capital of Rs 1 crore.

In Kolkata, there is a community of chartered accountants (CAs), and it is easy to find

directors, who for Rs 5,000 will sign anywhere. There are brokers and entry operators; they
run many companies from a single premise and a laptop, said an official of the I-T
department.

According to sources, the department has identified at least 150,000 shell companies in this
city, with nearly 6,000 CAs allegedly involved. Subrata Kumar Das, chief commissioner of I-
T here would not comment on the issue.

According to informal estimates, about 75 per cent of the professionals involved in

opening shell companies in Kolkata are not even professional CAs. Setting one up does
not even require CAs. A person with a basic knowledge of finance can undertake such
transactions. A CA only certifies the books, not the company, said a source.

This apart, the cost of hiring a CA is three to four times lower in Kolkata than in Mumbai.

Recently, the Prime Ministers Office formed a task force to prevent the formation
of shell companies. In a statement, it had said that a sample survey found Rs 1,238 crore in
cash was deposited in these entities during November-December. And, that 559
beneficiaries laundered money to the extent of Rs 3,900 crore with the help of 54
professionals.