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23 october 2012

The income tax (I-T) department is all set to tighten its noose around diamantiares to unearth the diversion of crores of rupees in the city's real estate sector, Melvyn Thomas writes from Surat in an article posted by the online edition of the Times of India (

After recovering documentary evidence about the diversion of huge funds during the search and seizure operation on a brokerage firm last week [October 8-14], I-T officials on Wednesday raided the offices and residence of six leading realty groups in the city on Wednesday.

I-T's investigation wing had swung into action following a report published in TOI dated September 7 highlighting the diversion of at least Rs 30,000 crore worth of working capital loans borrowed by the diamond companies from the foreign, private and national banks in real estate sector in Surat, Ahmedabad, Bharuch, Mumbai, etc.

Official sources said the department had conducted search and seizure operation at the offices of a brokerage firm dealing in the real estate sector at two spots in the city namely Annapurna Market on Ring Road and at Rahul Raj Mall in Piplod last week.

Further investigation and scrutiny of the documents seized from the brokerage firm revealed that the diversion of huge amount of money into the city's real estate projects and the purchase of prime lands in the city's Vesu, Kadodara, Piplod, Althan, Adajan, Sosyo Circle and Ring Road.

As per industry estimates, several diamantaires have diverted at least Rs 30,000 crore worth of working capital loans borrowed from the foreign, private and national banks in the real estate and speculative buying of rough diamonds since 2010. Now, with the downturn in the real estate too and falling rough prices, big players are finding their investments stuck up.

A major chunk of these loans were borrowed through round-tripping through which a small tribe of diamond traders got cheap finance against export of same set of diamonds over and over again. They used the finance obtained from several high-street lenders to dress up past losses on their books, carry out speculative deals in rough diamonds and diverting substantial part in the real estate sector.

These loans were mostly borrowed for export finance at London Interbank Offered Rate (Libor) from the banks and that it works out 5.5-6% cheaper than minimum rupee loans extended by banks to corporates.

"Only the search and seizure operation on the real estate developers would reveal about the diamond company owners who have invested in the projects," said an I-T officer.