Suspecting “several thousand entities” of violating securities law to avoid taxes, Sebi plans to clampdown on those involved in stock manipulations and take action against all listed companies, along with their directors, found to be in cahoots with such operators.
Besides, Sebi will refer the findings of all the details about the beneficiaries and facilitators of such trade to the Income Tax department for further action.
A proposal in this regard would be presented before Sebi’s board this week, which follows an analysis of trades in various stocks referred by the Tax department, sources said.
“Based on analysis, approximately 32,000 entities in various categories were identified for further examination,” they added.
Schemes were devised by listed companies, operators and connected entities to provide benefits of booking illegitimate profits or losses for generation of bogus long term capital gain tax (LTCG). These LTCGs were generated based on cash transaction provided by the beneficiaries to exit providers.
The move comes after Sebi received references from the tax department highlighting methods used by the operators by allegedly manipulating prices of scrips and thus misusing the stock exchange platform for booking LTCG, short term capital loss and thereby evading tax.
Broadly two methods were adopted to pass on bogus long term capital gains tax benefits either by way of issuance of shares on preferential basis or through amalgamation.
Under the proposal, Sebi would initiate enforcement proceedings against entities involved in price manipulation, listed companies and its whole time directors.
The regulator would also refer the finding of the investigation along with details of beneficiaries (sellers), exit providers (buyers) and their trade to the tax department for necessary action at their end.
In cases where Sebi could not establish price manipulation charges, the regulator would request the tax department for additional evidence.
