Sunday, October 7, 2012

Diamond firms divert cash into realty

SURAT: Income tax department is learnt to have collected documentary evidence about diversion of crores of rupees by owners of diamond companies in the world's biggest diamond cutting and polishing centre in the city to realty sector. This was unearthed during I-T's search and seizure operation on a brokerage firm dealing in realty business on Friday.

I-T's investigation wing had swung into action following a report published in TOI dated September 7, 2012, highlighting the diversion of at least Rs 30,000 crore of working capital loans borrowed by the diamond companies from foreign, private and national banks into realty estate sector in Surat, Ahmedabad, Bharuch, Mumbai etc.
Sources said that range III of I-T department had conducted a search and seizure operation at the offices of a brokerage firm dealing in realty at two spots in the city namely Annapurna Market on Ring Road and Rahul Raj Mall in Piplod.
The I-T sleuths had seized computers, documents and bank details of the brokerage firm. The department found that many diamond company owners had diverted huge amount of money into luxurious real estate projects coming up across the city, mainly in areas like Vesu, Pal, Piplod, City Light etc.
Official sources said I-T department has issued summons to about 15 leading real estate developers associated with the brokerage firm.
"The documents pertaining to dealings by diamond companies into the real estate through the brokerage firms are being scrutinized. In the preliminary investigation, it is believed that crores of rupees have been diverted into city's real estate," a senior I-T officer said.
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 per cent cheaper than minimum rupee loans extended by banks to corporates.

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