The Directorate of Revenue Intelligence is probing tax evasion through trades in stocks of investment companies.
A source close to the development said the revenue intelligence department has started analysing data collected from different income tax circles of the country.
He said the department has prima facie reached the conclusion that stock market operators have been seeking to avoid tax liabilities through trades on investment stocks leading to widespread tax evasion.
He added the department was looking at the structure under which operators carried out their trading to find at exactly at which stage the income generated was re-routed to evade tax.
The practice of miminising tax through trades on investment firms, known as jama kharchi in Lyons Range parlance, was widespread across the country.
It appeared to be the dominant form of trade on the Calcutta Stock Exchange and the bourse was now surviving only on this. Over 80 per cent of the Rs 7 crore (Rs 70 million) plus turnover on CSE was being generated from jama kharchi.
The source said DRI would seek data from stock exchanges after September 15, the last date of payment of first installment of Income-Tax for financial year 2003-04.
Stock exchange sources said since the issue of tax avoidance came under the purview of the revenue department, they would share information with DRI, if needed.
The mechanism being followed by operators helped individuals who recorded profit from stock market operations to show loss on their books through fictitious trades in stocks of some investment firms. CSE officials were aware of the jama kharchi mechanism.
The bourse has been imposing special margins as well as changing circuit filter limits on such stocks to check the misuse, but with limited success.
CSE, on Wednesday, reduced the 20 per cent limit to 10 per cent on four stocks -- Jayshree Nirman, Offshore Fincap, Ramkrishna Fincap and Classic Growers. The limit was brought down to 5 per cent on three other stocks -- Toplight Commercial, Minolta Finance and P L Leasing.
In addition, stocks of a large number of firms recorded huge price appreciation. They included Nageswar Investments, Mint Investments, Mohan Finance, Stenley Credit, Stenley Securities, Paramount Finco & Traders, Arihant Enterprises, Commitment Finance, Shree Tulsi Online.com and Quest Financial Services.
