PNB scam: IT report had red flagged Nirav Modi case in June 2017; did not share with CBI

Eight months before the Nirav Modi-PNB scam surfaced, a Income Tax investigation report had red-flagged bogus purchases, over-valuation of stocks, dubious loans and many more. Interestingly, the report was not shared with any other agency.

The 10,000-pages report on the fugitive diamond jewellers Nirav Modi and Mehul Choksi was finalised on June 8, 2017. The report was not shared with other agencies like the Serious Fraud Investigation Office (SFIO), Central Bureau of Investigation (CBI), Enforcement Directorate (ED) and the Directorate of Revenue Intelligence (DRI) until February 2018, when the Punjab National Bank (PNB) scam became public

According to the report in the Indian Express, before Feburary 2018, the tax department also didn’t share its report through the Regional Economic Intelligence Council (REIC), a mechanism for sharing of information between various law enforcement agencies, sources said.

Nirav Modi and Mehul Choksi are accused of routing ₹13,500 crore worth of fraudulent transactions through PNB. Both left the country in the first week of January 2018, weeks before the scam broke.

On January 14, 2017, the IT department, searched Modi’s firms and surveyed companies owned by his uncle Mehul Choksi. The search covered at least 45 residential and commercial premises across India.

The tax investigation report on Nirav Modi and Mehul Choksi was not shared with other agencies because there was no protocol for sharing such reports with other agencies at that time, said a senior tax official,

According to report in the Indian Express, official said, “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. Since July-August, we are sharing information and investigation reports on real time basis.”

Interestingly, the findings of the tax probe have now been mentioned by the CBI and ED in their chargesheets filed against Modi and Choksi between May and July 2018.

Here are the eight key findings of the June 2017 report of the IT department:

• Nirav Modi’s Firestar International Pvt Ltd received ₹284.14 crore from Cyprus-based Jade Bridge Holdings Pvt Ltd and Mauritius firm Forcom Worldwide Investment Ltd in financial year 2013-14. Firestar also received ₹271 crore from Singapore-based firm Islington International Holdings Pte Ltd, owned by his sister Purvi Mehta. The Income Tax report said that the documents claimed to be submitted by Jade Bridge and Forcom were prepared at Nirav Modi’s office in India. Modi was not able to establish the “creditworthiness” of these foreign firms and the source of these funds “remain suspicious”.
• The physical stock lying at Modi’s firms in the Special Economic Zone (SEZ) in Surat were hugely over-valued. For instance, the over-valuation of diamonds and gems by Modi’s SEZ units for financial year 2016-17 was to the tune of ₹1,216.30 crore.
• The partnership composition of Diamond R US, Solar Exports and Stellar Diamonds changed on January 4, 2016 and, as a result, these firms were no longer managed by Modi. However, the new partners had “meagre capital contribution” and did “not seem to have worth to justify their introduction” in the firms.
• 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 ₹528 crore to NDM Family Trust even as the trust held only 0.5 per cent shares in the firm.
• The top two creditors of Choksi-owned Gitanjali Group — Iris Mercantile and Premier Intertrade — were a part of Gitanjali Group till financial year 2014-15. 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 Nirav Modi Group and Gitanjali Group made “bogus purchases” of ₹344.4 crore and ₹2021 crore respectively from three accommodation entry firms in Mumbai.
• The Nirav Modi Group did not report international transactions of ₹515.87 crore entered with its associates.
• Gitanjali Gems Ltd made several “suspicious” payments to relatives or family members of its top management in financial year 2016-17.