The Telegraph
Since 1st March, 1999
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Big brokers under tax watch

Mumbai, Aug. 2: The income tax department today swooped on a couple of big-ticket stock brokerages here in a major search and survey operation.

The department conducted searches at the offices of the Mumbai-based Motilal Oswal Securities and SSKI Securities, which has an e-broking outfit named Sharekhan. Unconfirmed reports suggest that a few other brokerages have also come under the survey.

The motive for the tax survey was not known though the officials from the brokerages observed that “it could be a fallout of the recent Securities and Exchange Board of India’s (Sebi) probe into the spurt in bank scrips and dabba or illegal trading.

The searches began this morning at the three offices of Motilal Oswal and as the word spread fast, the market grapevine suggested that several other prominent brokerages were also being searched.

Tax officials were unwilling to give details on what prompted this exercise except for a cryptic statement that said: “The searches are on and it is too early to comment”.

Motilal Oswal has a clientele of more than 7,000 investors. It has four Bombay Stock Exchange memberships and one National Stock Exchange membership and has operations spread across three locations in the city. Incidentally, Motilal Oswal, the promoter of the firm, is also on the board of BSE.

Income tax sources revealed that the department was waiting for the stock markets to close for the weekend before initiating the raid as otherwise the markets would have been in jitters.

“The directors of Motilal Oswal are high tax payers and they have been awarded Sanman Patra by the tax department for timely compliance on many occasions,” the spokesperson for the brokerage said.

The markets were clueless on the reason for the raid. “Frankly, we don’t know,” said Rajiv Phadke, senior vice-president of Motilal Oswal.

One possibility, according to Phadke, for the tax department to come calling could be their “good call on banking and PSU sector”. Incidentally, Motilal Oswal was one of the first brokerages to spot the potential of the banking sector and had recommended ‘buy’ reports for many public sector bank scrips.

Whether Monday will see the markets in a tumult is difficult to say. “It all depends on what they find in the searches and whether these operations spread across to other broking outfits,” a veteran stock market observer said.

“The sensex has rallied by more than 1000 points and has seen gains for the eighth consecutive day.” A correction is due, he added.

“The income tax department will have to clarify on the nature of the operations before Monday,” he said.

Income tax sources revealed that following the directives of the Sebi to probe illegal stock trading, some brokers had come under scrutiny.

The past few weeks have seen several investigative agencies getting into the act to weed out dabba traders. The directorate of revenue intelligence (DRI) initiated a probe to find any tax evasion in illegal stock trading.

A joint team of Sebi and the National Stock Exchange is also investigating dabba trades and is sharing information with the DRI.

The market estimate of Rs 6,000 crore of dabba trades per day is indicative of huge tax evasion.

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