Black money hunt: Rs 2 lakh cr disclosure under IDS throws up many questions

The demonetisation juggernaut rolls along. The millions of spectators who have been watching this amazing spectacle are filled with admiration, awe, revulsion and perplexity. A section of the people admire the government for the political muscle it showed in ‘demonetising’ high value currency notes worth Rs 500 and Rs 1,000. But many are still perplexed.

The new income declaration scheme has begun to bring in applications which have mind-boggling figures. But, for perhaps the first time, the government is actually pushing the income tax department to scrutinise the applications and reject some of them. Two such applications that have got rejected are those of an Ahmedabad-based businessman who declared an income of Rs 13,860 crore and a Mumbai-based family who had reportedly declared an income of Rs 2 lakh crore.

In the first case, the police were instructed to look out for him, as he had not paid his first instalment of taxes due on the amounts declared. He finally surrendered but not before he had made startling disclosures to a media house before cameras that he was being used as a front by various powerful politicians whose wealth he was asked to launder. He was sent to police captivity (reminding one of a similar incident popularly known as the Nagarwala scandal ).

In the second instance, the family based in Bandra west, Mumbai, has reportedly made the Rs 2 lakh crore disclosure, which has been termed ‘suspicious’ by the authorities as they have ‘very small means’. As per media reports, the declarants are Abdul Razzaque Mohammed Sayed, Mohammed Aarif Abdul Razzaque Sayed, Rukhsana Abdul Razzaque Sayed and Noorjahan Mohammed Sayed. Of them, three have PAN cards from Ajmer and then migrated to Mumbai, says this report in The Times of India. According to the report, the details given like even the mobile number could not be verified, raising the suspicion it could be an attempt to launder black money.

In fact, the first question that arises when one sees such reports is whether the income tax department will now begin rejecting some of the 8 lakh applications it received in 2011 and 2012 where the sums declared were in excess of Rs 870 lakh crore .

True, this was not under a black money income declaration scheme (IDS). It was declared as agricultural income. But unlike the current IDS, where the state gets to keep around 50 percent or more of the income declared, all the income under agricultural income goes entirely tax-free.

What is even more surprising is that the income tax department has not announced any details of the number of application forms rejected, and the amount of money so involved in respect of the declarations made in 2011 and 2012.

This is critically important because the figure of Rs 870 lakh crore over two years (2011 and 2012) is more than 8 times India’s GDP at that point of time. Since the money has not been acknowledged by the RBI, nor by the Economic Survey, are we to assume that the declarations are valid, but not yet accounted for?

This is extremely important, because in India there have been instances where declarations take the form of anticipatory bail. If an income declaration scheme is very attractive, businessmen are known to have borrowed money from other sources, and are said to have declared much more of black income than they were actually responsible for at that point of time. The idea is to get future black money generation also covered under this attractive income declaration scheme.

Bearer Bonds and India Development Bonds

This is what happened when the special bearer bond scheme of 1981 was announced. Many businessmen actually declared more black money than they had with them, thus ensuring that illegitimate money generated in the future would get protected under this disclosure. Businessmen refer to this as ‘anticipatory bail’. Since there was a complete amnesty granted to them, and since no queries could be raised about the source of these funds, they provided a very lucrative opportunity.

The same thing happened when the India Development Bonds (IDBs) were announced in 1991. This was meant for those declaring black money stashed overseas. The idea was to bolster India’s terribly low foreign exchange reserves.

Once again, there was the guarantee of total immunity, and with no-questions-to-be-asked. Overnight, the unofficial premium on the US dollar went up, as businessmen in India were reported to be converting their black money in India into foreign exchange, and sending it overseas via hawala and then declaring the amount as black money under the IDB scheme. Astute businessmen even borrowed money and declared more black money that they had generated. They, too, were taking the benefit of this anticipatory bail.

This is what appears to have happened in 2011 and 2012, when some businessmen must have thought that agricultural income would be given a tacit approval by someone in the finance ministry with no questions asked (P Chidambaram was the finance minister then). Whether such a tacit approval was given or not, the fact remains that the number of applicants declaring agricultural income swelled, and so did the average amount declared by these people.

The total amount declared during these two years was over 8 times the country’s GDP, and over 125 times the total tax collection.

What about this time? Were the two declarations (by the Ahmedabad and Mumbai-based businessmen) that have got cancelled also instances of anticipatory bail?

This time it is unlikely to be ‘anticipatory bail’ because the state confiscates around 50 percent of the money declared.

So was it to conceal the names of the politicians that the Ahmedabad-based businessman promised to disclose? Or is there something more at work?

Your guess is as good as mine.