IT Dept Raised Red Flags Over Nirav Modi Months Before PNB Scam Broke: Report

The income tax department had prepared a note documenting suspicious business practices in June 2017, but this was not shared with any other investigative agency.

New Delhi: A sensitive income tax investigation report on diamond jewellers Nirav Modi and Mehul Choksi, which documented suspicious business transactions and practices, was prepared months before they flew the coop but was not shared with other investigative agencies, according to a story published in The Indian Express on Monday.

According to the media report, the IT department’s probe red-flagged questionable loans, over-valuation of stocks and suspicious payments. The department eventually produced a “10,000 page” report that was finalised by June 8, 2017.

However, these findings weren’t shared with the Central Bureau of Investigation, the Enforcement Directorate or the Directorate of Revenue Intelligence until the Punjab National Bank (PNB) scam broke in February 2018.

Modi and Choksi fled the country in January 2018.

The Indian Express quotes an anonymous tax official as saying that the probe findings were not shared because there was no such protocol at that time.

“After the Nirav Modi and Mehul Choksi scam, since July-August 2018, the tax department has been asked to share all investigation appraisal reports with the Financial Intelligence Unit (FIU), which in turn shares these with other agencies for investigation and appropriate action,” the tax official told the newspaper.

As The Wire has reported, in the aftermath of the Nirav Modi scandal, the finance ministry had prepared an internal note that examined whether the import of diamonds were misused as a conduit for money laundering. In particular, Arun Jaitley’s ministry was concerned by certain related party transactions at inflated prices and high trade receivables of three Nirav Modi-promoted companies.

It appears that the IT department was already concerned over this and had delved quite a bit into how it was happening. From January 2017, it searched over 40 residential and commercial premises of Modi’s firms and companies owned by his maternal uncle, Mehul Choksi.

According to The Indian Express, the tax department reckoned that the “physical stock lying at Modi’s firms in the SEZ in Surat were hugely overvalued” to the tune of Rs 1,216.30 crore in 2016-17.

“Modi’s firms gave “huge amount of interest free loans and advances to group firms” when the concerns giving loans and advances had themselves taken “huge bank loans”. For instance, Diamond ‘R’ US gave an interest-free loan of Rs 528 crore to NDM Family Trust even as the trust held only 0.5 per cent shares in the firm,” The Indian Express report notes.

On the Choksi-owned Gitanjali Group, the IT department figured out that two of its top creditors (Iris Mercantile and Premier Intertrade) were actually part of its business empire till FY 2014-2015.

“Subsequently, the partnership composition of these firms changed and new partners were brought on board. The IT found that the firms did not exist at their registered address,” the report notes.