Income Tax Department's Major Search Operations Targeting Gujarat Diamond Manufacturer

Search and Seizure Operations by the Income Tax Department

On 22nd September 2021, the Income Tax Department conducted significant search and seizure operations targeting a well-known diamond manufacturer and exporter based in Gujarat. This operation was initiated following credible intelligence reports indicating potential tax evasion. In addition to the diamond trade, the group was also engaged in tile manufacturing. The raids encompassed 23 locations across Surat, Navsari, Morbi, Wankaner in Gujarat, and Mumbai in Maharashtra.

Key Findings from the Operations

The operation yielded extensive unaccounted data, both in paper and digital formats, stored at clandestine locations managed by the group’s trusted employees in Surat, Navsari, and Mumbai. This data contained:

• Evidence of unaccounted purchases and sales
• Records of accommodation entries for purchases with corresponding cash receipts
• Documentation of cash and stock movements through angadia firms
• Evidence of unaccounted cash held with angadias
• Investments made from unaccounted income in properties and stock over the past five years

Financial Analysis

Preliminary analysis indicates that the assessee engaged in unreported purchases and sales of small polished diamonds amounting to approximately ₹518 crore during this period. Additionally, it was discovered that the assessee sold over ₹95 crore worth of diamond scrap for cash derived from manufacturing, which has not been recorded and constitutes undisclosed income.

The assessee reported a total of ₹2,742 crore from small diamond sales in its financial statements, noting that a significant portion of these purchases were made in cash and accompanied by bills from accommodation entry providers.

International Transactions

The investigation further revealed that major purchases of rough diamonds were conducted through imports, and export sales of larger finished diamonds were processed via a company incorporated in Hong Kong, which is effectively controlled from India. Specifically, purchases through this entity totaled ₹189 crore and sales reached ₹1,040 crore over the last two years.

Real Estate and Business Transactions

During the operation, detailed financial records of real estate dealings were uncovered, revealing unaccounted income of ₹80 crore. Examination of share transactions related to the tile business led to the detection of an additional ₹81 crore in unaccounted income.

Seizures and Continuing Investigation

The search yielded unaccounted cash and jewelry amounting to ₹1.95 crore, alongside undisclosed diamond stock of 8,900 carats valued at ₹10.98 crore. Numerous lockers belonging to the group were identified and placed under restraint, with plans for future examination.