Transactions Worth Rs75000 Cr by 4 ARCs Under I-T Scanner

Transactions estimated to be worth more than Rs75000 crore allegedly executed by four asset reconstructions companies (ARCs) are under the scanner of the income tax department, people with knowledge of its investigation said.

These ARCs are being probed for allegedly passing on just about 20% of this amount as recoveries from the non-performing asset they had acquired from banks, said the people.

The department had on December 8 raided as many as 60 premises linked to the four companies. The department didn’t name the companies. The people ET spoke to said they were CFM Asset Reconstructions PVT LTD. Omari Assets Reconstructions PVT LTD, Rare Asset Reconstruction PVT LTD and Invest ARC PVT LTD.

Emails and text message sent to the four ARCs didn’t elicit any response till press time Thursday.

The department is still in the process of studying and scrutinizing electronic evidence collected during the search operations. In the case of Omari, the department claims to have recovered Rs 850 crore in cash, said the people cited.

“Cash transactions of these ARCs itself will run into a few thousand crores as the evidence recovered from the diary, pen drive and other electronic devices where the logs were maintained is still bring studies. Many of these entries are in code,” said an official, requesting anonymity. “…the unaccounted cash is a clear case of tax evasion, which has become the central focus of the department. However, a larger fraud is at play with a thriving ecosystem involving defaulting borrowers, ARCs a maze of shell companies and hawala operators preferred to layer the sham transactions to hoodwink the regulators,” added the official.

Official said the department will share the information with the Central Economic Intelligence Bureau, the nodal agency for economic intelligence. The bureau shares data with all member agencies, including the Reserve Bank of India.


A senior tax department official said in several cases, the defaulting borrowers themselves had approached these ARCs to acquire the bad loans along with the assets pledged as collaterals from the bank.

“Banks adopt the ‘Swiss challenge method’ which is a two-stage process to sell bad loans. Bankers first hold an auction of the NPA wherein the highest bidder is identified as the anchor bidder.

Subsequently, lenders hold another auction inviting bids at better prices, but the anchor bidder will get an opportunity to match the best bid. The method is opaque in nature and once the NPA is off the books of the lender, a proper account of what’s the actual value of the collaterals and how much has been paid by the ARCs is seldom maintained by the lenders,” the official said.

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