Hawala via penny stocks under I-T lens

The income tax department has tracked down two small stocks "� Dataline Finance Ltd and Fast Track Entertainment "� that have been grossly manipulated by market operators for helping individuals bring unaccounted funds to the mainstream financial system.

No tax is levied on long-term capital gains and 10 per cent tax is levied on short-term capital gains. As per the I-T department estimates, around Rs 1,000 crore gets channelised into the financial system through deals in penny stocks.

The modus operandi is buying these stocks at a back date and then claiming capital gains or losses to net off the taxes, department officials said. The department has carried out a series of searches recently to find out more such instances.

"Investigations are on and we have been sending notices to all such individuals or stock brokers who have availed of such benefits worth Rs 5 crore or above," a source said.

Initially, entities that had availed of benefits above Rs 10 crore were probed. I-T sleuths had recently unearthed a racket wherein an individual with accounted income bought bills showing purchases of penny stocks a year back from market operators. Then these share certificates were dematerialised and sold in the open market at a higher price.

The entity could either take back the money without paying taxes if the transaction is done after a year or pay 10 per cent capital gains tax (if it is done within a year) before receiving the money.

Some ambitious operators even try to set off the gains against losses. The department has also found that the same group of operators rig prices of penny stocks to book losses and thereby make gains.

This is because some investors who book capital gains can again show losses by selling these stocks at very low prices.

No actual transaction happens as the entire trading operation is conducted by a group of inter-related persons. The entier operation is a mere book entry.