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Supreme Court: We can not act on mere suspicion that Black Money is being made White illegally


Except for suspicion, there is nothing in the Petition.

Black Money is being made White illegally
Black Money is being made White illegally

The Supreme Court on Wednesday refused to entertain a plea seeking investigation into alleged conversion of black money into white by certain companies.

A bench comprising Chief Justice T S Thakur and Justices R Banumathi and U U Lalit disposed of the petition after Additional Solicitor General Manindar Singh said “except for suspicion, there is nothing in it.”

He further said the petitioner has made a representation before the Ministry of Finance and the Income Tax authority.

Taking note of submission of Singh whose assistance was sought, the Bench declined to go any further on the issue.

The petition was filed by an NGO — India for Rule of Law.


Some Basics about Black Money-

What is Black Money – Black money is Tax evaded income. It can be earned through both legal and illegal means. The majority of the black money is the income received in cash not accounted in books and not revealed to the government for tax purposes.

How does the black money get generated?

Corruption– An officer in Government service, demands Rs.1 lakh from a Business man for doing a favour (say to approve the building sanction plan). The Business hands over Rs.1 Lakh to the officer in cash (no one takes a bribe in cheque/demand draft!). This money will not be accounted in the books of Government Servant and he won’t pay any taxes on it. ere whole Rs.1,00.000 is Black Money.

Sale of property – A Buyer buys a property from a Seller for a total sale value of Rs.50 Lakhs. He takes Rs.35 Lakhs in cheque/DD and the balance in cash. He pays stamp duty on Rs.35 Lakhs, and the seller pays capital gain tax considering the value as Rs.35 Lakhs. ere whole Rs.15,00.000 is Black Money.

Sale of goods/services without invoice – You buy a sofa set from a furniture dealer. What is the price? The shopkeeper will tell “the price is Rs.60,000 plus taxes at 14.5%”. Any discount? The answer from him will be “Yes madam, I can offer it at Rs.58,000 without the bill. If you want, I can write on a piece of paper or on a quotation”, Here whole Rs.58.000 is Black Money.

Accounting for fictitious expenses –  A businessman tells his accountant “I can’t pay so much tax. Do something, reduce the taxes” The accountant accommodates by booking fictitious expenses. If the businessman declares a profit of Rs.15 Lakhs against the actual profit of Rs.25 Lakhs, Black money of Rs.10 lakhs is created.

Black Money Trails
Black Money Trails

How is it converted?

The difficult part is converting the black money into white money without any taxes. In all the above examples, the people who have earned money in cash (black money) can’t deposit it in the bank. Right? So, they have to hoard the cash somewhere, say in a bank locker, suitcase, etc. Or they can also spend this amount in cash towards the purchase of property, white goods, etc. Let’s understand the ways of converting black money.

Showing fictitious sales – There was a movie casted by the son of a powerful politician. This movie was an utter flop. But, it ran ‘houseful’ (fictitious) in Kalpana Theatre of K G Road for a year! During those days, people were talking that the black money earned by the father is converted into white by showing the income from the movie!

The money earned through illicit means or corruption is converted with the help of businessmen by booking fictitious sales in the books of the company.

Increase the sale price of an asset – One of my clients decided to buy a property from a senior government officer for a price of Rs.42 Lakhs. But the Officer wanted him to pay Rs.60 lakhs in cheque! In turn, he wanted to return the difference amount of Rs.18 Lakhs and additional stamp duty/registration charges in cash to the buyer. Thereby the Officer converted Rs.18 Lakhs of black money to white without paying any taxes. (He reinvested the sale proceeds in another property and got the long term tax exemption!)

Hawala Route – Have you heard about hawala transactions? If not, I will tell you in simple words. Assume Mr.ABC, a politician or government officer in Bangalore has Rs.25 Lakhs in cash. Since it is black money, he can’t deposit the same in the bank. So, he identifies a hawala agent. The Hawala operator takes the cash in Bangalore and through his counterpart, hands over Rs.25 Lakhs worth in dollars/pounds/dirhams in a foreign country to his/to his representative. Mr.ABC gets this money back to India as Foreign Direct Investment (FDI) or seed fund in a private company, etc. Or he may choose to invest abroad in properties / shares. Thus, he converts black money to white without paying any taxes.

Depositing in banks less than Rs.50000 – This route is taken by small time operators. They open multiple bank accounts and deposit cash upto Rs.50000 at a time. Remember, if you have to deposit over Rs.50000, you have to give PAN details to the banker. Mostly, these kind of petty transactions goes unnoticed by the income tax department and thus, black money is converted to white without paying any taxes.

Agricultural Income – Agricultural Income is exempt from Income Tax. This means the money earned from the sale of paddy, pepper or wheat is exempt from tax. So, the people who earn black money will obtain a fictitious receipt from traders in agricultural commodities as if they have sold the products. For the sake of records, these people will acquire or show the proof of ancestral property in villages!

Gifts from relatives and friends on occasions – Any amount of money received from relatives (gift) is exempt from Income Tax. Is it not an easy way to convert black money to white? Simple, show the cash received in your son’s or daughter’s birthday as gifts from relatives!

Gifts from non-relatives and friends attract income tax. But those who have huge black money can show gift and pay taxes. Still the money earned through corrupt practices can be converted into white (after paying taxes). One of the classic examples is the amount of gift declared by a former Chief Minister who paid huge taxes during that year. She declared around Rs.200 Crores as gift received from her well-wishers and paid taxes on it!

Sale of Gold and Diamonds – Well-known professionals suggest this route. Suppose, Mr.XYZ has Rs.25 Lakhs cash and gives this amount to a Jewellery shop (not all shops will do this kind of dirty job). The Jewellery shop will issue a receipt for having bought Gold/Diamond worth Rs.25 Lakhs and make payment in a cheque to Mr.XYZ. For facilitating this transaction, he will charge a fee. Thus Mr.XYZ converts his black money into white, without paying any income tax.

How Companies are sending Money out of Country-

An Indian company, either promoter-owned or registered under a shell company typically located in Kolkata, can start by importing everything from heavy machinery to software – say, an ice cream machine, which costs $100,000. The company quotes an inflated price of $1 million. The manufacturer of the machine or its suppliers may not want to produce a fake voucher with the inflated price. Therefore, another shell company will be set up offshore, for instance in Dubai.

It will first import the ice cream machine at the original price, and then sell it to the Indian company for $1 million. “No one will have an inkling about the fact that the Dubai company is also related to the promoters. The Indian company next remits $1 million to the Dubai shell. This is done through a banking channel,” says Jagvinder Brar, Partner of Forensic Services at consulting firm KPMG.

There are shell companies in Mumbai and Surat, too, but Kolkata became the epicenter since the 1980s. One of the oft-cited reasons on why Kolkata flourished was because operators in the city charged less commission.

Similarly, one can import software – get a shell company in Singapore or Hong Kong to send a blank CD. “You declare that you have received a proprietary software and it costs $200,000. Even on a small scale, you can remit the money abroad. The claim is backed up by the invoice and a genuine courier,” says an Expert.

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