NSEL scam: Tax sleuths go after investors; summons thousands of assessees

Harried investors of the now defunct National Spot Exchange Ltd (NSEL) have a new worry on their hands. Income tax sleuths have issued summons to the investors under a law that provides them wide leeway to investigate and probe tax related matters. The notices, issued earlier this month under section 131 (1A) of the Income Tax Act, 1961, have sought a wide ranging amount of information from the investors in the scandal tainted company. There are around 13,000 investors in NSEL who are owed around Rs 5,574 crore by NSEL.

Among other aspects of this gigantic fraud, which was unraveled after a payment crisis due to a regulatory intervention, is the suspicion that many key players were actually using the spot exchange to evade tax. Some of the 24 “buyer-members” of the exchange are already being investigated by the tax authorities.

CNBC-TV18 now learns that the notices have been issued by the Criminal Investigation wing of the Income Tax department at Mumbai and asked the recipients to give evidence and produce documents that have been sought. Failure to comply with the instructions, could lead to a fine of up to Rs 10,000 under section 272 (1) (c) of the IT Act.

A recipient told CNBC-TV18 that while the tax authorities are free to probe the matter the worry was that this could lead to a witch hunt of sorts. “The notices have been issued under a specific section that gives the assessing officer the same powers as vested under the Code of Civil Procedure. Investors are complying with the directive, but instead of compelling us to produce such a wide body of evidence, the taxman should also take into account the fact that we are also waging a battle to recover our dues that have been lost in the scam. We are victims in this instance,” he said.

The summons seeks information and documents related to 11 broad heads. These include the name and address of the brokers through whom the investors traded in NSEL, a copy of account of the brokers and NSEL in the investors books for the financial years from 2010-11 to the present. The taxman also wants details of the contracts purchased and sold on NSEL by investors during from 2010-11 to the present.

Some of the queries indicate that the taxman is attempting to discover and probe the whether investors had disclosed the income made from such trades. Other details sought include specifics on the amount of brokerage and commissions made in connection with the trades and investment in the spot exchange.