Income-tax authorities do not want to let go the revenue dues owed by shell companies that have been deregistered by the Ministry of Corporate Affairs (MCA). But the task is easier said than done, as it would mean the restoration of over 4,000 companies identified by the Central Board of Direct Taxes (CBDT).

The CBDT has been holding talks with the MCA over this.

A senior MCA official told BusinessLine : “We have requested CBDT to file the restoration application with the National Company Law Tribunal (NCLT). MCA will support their stand.”

Direct tax targets

CBDT’s approach may appear bizarre, but it’s not surprising, given the gaping hole in meeting this year’s direct tax targets, say tax experts. By one estimate, the CBDT is short of revised estimates by ₹80,000-₹1,00,000 crore.

CBDT has directed its field formations across the country to file applications with the NCLT for the restoration of shell companies.

“There are several (shell) companies with outstanding dues. Once they were deregistered, it became difficult for us to recover our dues.

“If there is no identity of the companies, whom do we chase to recover our dues from? So the applications are being filed for restoration,” a CBDT spokesperson said.

No immediate solution

The recovery of dues will not happen overnight, the spokesperson was quick to add.

The NCLT has to agree to admit the application, and the deregistered companies have to be restored before the CBDT can look to lay its hands on the dues, the spokesperson added.

In September 2017, the MCA and CBDT had signed an MoU for data exchange in a bid to curb shell companies, money laundering and black money, and prevent the misuse of the corporate structure by shell companies.

Last December, Finance Minister Arun Jaitley, who also heads the MCA, had informed Parliament that while there is no definition of the term ‘shell company’, it normally refers to an entity without active business operations or significant assets, which in some cases is used for illegal purposes such as tax evasion, money laundering, obscuring ownership and benami properties.

Special Task Force

A Special Task Force set up by the Centre to look into shell companies had, inter alia, recommended the use of certain red-flag indicators to identify shell companies, he had said.

Around 2.26 lakh shell companies were struck off in the first drive pertaining to FY14 and FY15. Similarly, 1,00,150 companies were struck off till November 30, 2018, in the second drive pertaining to FY16 an FY17.

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