Dept finds tax evasion in unique client code modifications worth Rs 55,000 crore on NSE in cash equity, equity derivative and currency segments in March 2010
The income-tax (I-T) department has issued notices to 82 stock brokers after completing its long-drawn assessment in the case involving tax evasions by brokers through client code modifications on National Stock Exchange (NSE) in March 2010. The tax department has shared the information with the stock market regulator, Securities & Exchange Board of India (Sebi), to initiate action against these brokers.
In March 2010, unique client code modifications worth Rs 55,000 crore were made on NSE by 82 brokers in cash equity, equity derivative and currency segments. As the finance ministry and the revenue department along with Sebi investigated the matter, the stock exchange failed to explain a large number of client code modifications. According to sources, the I-T department has completed its assessment on most of the brokers involved in the case, while the remaining would be completed by December.
D S Saksena, former chief income-tax commissioner who retired on September 30, told DNA Money, "We have shared all details with Sebi on client code modifications by brokers. We have found tax evasions by them. Now, Sebi will take action on these brokers since it comes under their jurisdiction." "With the help of Sebi, we gathered information on all the brokers and their client code modifications. The number is so large and which is why it is taking so much time to conclude the case," said Saksena.
When contacted, NSE replied in an e-mail, "We are not aware of I-T department's initiative/ findings, etc. Therefore it is difficult for us to comment."
A questionnaire sent to Sebi did not elicit any response. On NSE, client code modifications had seen a sudden jump during January to March in 2010. A source told DNA Money, "Most of the client code modifications on non-institutional clients raised the alarm at I-T department."
Another source close to the development said, "These clients are mainly from Ahmedabad, Rajkot, Mumbai and Kolkata. So, the department has to coordinate with regional offices and it takes to time to complete such cases.
It is very difficult to crack this case because some brokers have wound up their businesses or started businesses in other names."
Modification of the client code is an integral and operative feature of the stock market system, which is consistent across all segments of the market. It is permitted by both Sebi and the stock exchanges so as to take care of human error that occurs during the entry of client code while placing orders. The errors in the client code entry could either be due to the broker or the client's mistake. The error at the client level could occur when the client is issuing transaction instructions on behalf of his family accounts or trading accounts of affiliated companies forming part of a group or a foreign institutional investor (FII) representing various sub-accounts or mutual fund representing various schemes.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "money")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}