Protecting Hassan Ali ~ and who else?

Rajinder Puri

On 20 OCTOBER, 2009, this scribe explained how the government was not pursuing the Hassan Ali Khan money laundering mega scam. The cover-up continues. Mr LK Advani is elated because the President’s address in Parliament referred to the issue of Indian black money stashed in foreign banks. Mr Advani has demanded a White Paper on the subject and has expressed satisfaction that the government has taken note of his concerns. However, his joy may be premature. A distinguished Chennai-based chartered accountant, Mr MR Venkatesh, who closely studied the current budget, has raised some pertinent questions that need clarification.

The budget gave figures of the tax revenues raised but not realized by the government of India. This provides details of the unrealized dues on various taxes, such as Income Tax, Excise, Customs and Service tax. These are further categorized under amounts under dispute, where the assessee has filed an appeal, and those not under any dispute. According to Budget 2010-11, the Tax revenues raised but not realized aggregates to Rs 117,065 crores.

Now recall the strange case of Hassan Ali Khan. In January 2007, the income-tax department first raided Hassan Ali Khan’s residences across the country and seized documents that revealed he had a sum of US$ 8 billion deposited in the UBS AG bank, Zurich. The department also found that Khan had not filed income-tax returns since 1999. Later, the Enforcement Directorate (ED) got into the act and started investigation as it was also a case of suspected money laundering.

Subsequently, the income-tax department issued notices to Hassan Ali Khan, along with others, alleging money laundering to the tune of several billion dollars for suspected tax evasion. According to press reports a show-cause notice was issued by the I-T department demanding Rs 40,000 crores in taxes alone against Hassan Ali for not disclosing several foreign bank accounts, including the above-mentioned US$ 8 billion stashed in UBS AG bank, Zurich .

Hassan Ali Khan is out on bail on a fake passport case. On 10 February, 2010, media reported that the Bombay High Court had dismissed the appeal of the state government to cancel this bail. The court observed that the state itself was not interested in cancelling the bail granted to Hassan Ali Khan. Mr Justice DG Karnik said, “The state government is not interested in serving notice (to the accused) even after six months of filing an appeal.” Mr Justice Karnik added that if the government was not keen on pursuing its own appeal, the court had no reason to waste time on it.

On 4 August, 2009, while disclosing the list of tax defaulters in the Rajya Sabha, the government stated that Hassan Ali Khan topped the list of tax defaulters with outstanding arrears of more than Rs 50,000 crore. The tax due after adding interest for belated payment of tax according to rough estimates presently exceeds Rs 70,000 crore. Add the tax arrears of his money laundering associates and this amount could be as much as a staggering Rs 100,000 crore.

Yet, the entire tax dues of the government of India stated in this Budget for all taxes (disputed and non-disputed) as per the statement of tax revenues raised but not realized aggregates to a mere Rs 117,065 crore. And the income tax due from individuals (both disputed and undisputed) alone is even lower at Rs 50,000 crores. Where did the Rs 100,000 crores due from Hassan Ali and his associates disappear?

Could Hassan Ali and his associates have paid their taxes aggregating to approximately Rs 100,000 crores by 26 February, 2010, when the Budget was delivered? The Week in its issue dated 14 March, 2010, interviewed finance minister Mr Pranab Mukherjee precisely on this subject. The FM asserted that the government recovered the tax dues from Hassan Ali. If true, the revised estimates for 2009-10 do not reflect this. Rs 100,000 crore is too large a sum to be lost even in the government of India’s budget. Either the FM was wrong or he was misquoted by The Week.

Things become even murkier. Under the existing provisions of the Income Tax Act, no application can be made to the Settlement Commission when a search has been initiated under the Act. Budget 2010 has proposed to waive this. Experts think this amendment could help Hassan Ali Khan to approach the Settlement Commission and settle his tax disputes with the IT department without impediment. This escape route for Hassan Ali Khan has profound implications. To appreciate it, note Para 124 of the Budget where the FM stated:” Last year, amendments to the statute enabled Government to enter into tax treaties with specified territories besides sovereign states. We have commenced bilateral discussions to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad.”

The gathering global momentum against illegal money in tax havens compels India to disclose the names of tax defaulters who have illegal accounts in such havens. But if, as the FM told The Week, the government had collected taxes from Hassan Ali, the government need not pursue this matter further in other countries. In case he has not yet paid the taxes the escape route provided by the amendment of the Income-Tax act pertaining to the settlement commission will enable government to avoid further pursuit of the case abroad. Either way, the probe into Hassan Ali's foreign assets could be aborted.

In the Hassan Ali case money was transferred by the Hawala route. It is likely that Hassan Ali, like Abdul Karim Telgi of the stamp paper scam, is just a front man. A mere stud farm owner could not generate such huge funds. The manner in which the government is going soft on him suggests that he could be the conduit for political bigwigs.

So, the questions that need to be addressed are: Did the FM mislead the House by giving a false figure of the Tax revenues raised but not realized of Rs 117,065 crore? Did the FM actually tell The Week that Hassan Ali had paid his taxes or was he misquoted? What has impelled the FM to amend the Income Tax Act relating to the Settlement Commission? Mr Pranab Mukherjee needs to answer these questions to dispel doubts that a brazen cover-up of another mega scam has not occurred.

Mr Venkatesh, like other whistleblowers, could end up as a voice in the wilderness. Unless of course Mr Advani and other Opposition leaders actively pursue the matter in Parliament. Mr Advani raised the issue. It remains to be seen whether he was sincere or he was merely posturing for public approval.