Want to avoid being caught for stock manipulation? Avoid income tax issues.

While reading SEBI orders on stock market manipulation, a common thread struck me-that the initial information which kick started the investigation was from the Income Tax Department.

Since 1993, Section 138 of the Income Tax Act 1961 authorized the Assessing officer to share information with SEBI(http://law.incometaxindia.gov.in/DitTaxmann/incometaxacts/2007itact/cirsec138.htm) suo-motu. But it is only recently that visible results of this are arising.

1. Austral Coke- The IT Dept while conducting a search had found proof of bogus purchases, diversion of IPO funds and bogus sales. These offences while punishable under the IT Act 1961 itself, are graver offences under SEBI regulations. Hence, this information was passed to SEBI which passed an order in Sept 2009 which prohibited the company from raising funds
2. Sanjay Dangi- This operator had connived with promoters to jack up the share prices by 5-6 times before the issue of FCCB to institutional investors. He was caught because the IT Dept found documents in his office relating to this. SEBI then passed an order in Dec-10 prohibiting him and the concerned companies, from further capital issues.

There may be more orders but these are the 2 which come to mind. Considering that even mobsters are caught on 'tax evasion' charges, white collar criminals should be more careful