I-T Department report blows lid off dodgy dealings.

It is no secret that the Income Tax Department keeps a watch on Bollywood producers, distributors, and actors, but a recent report has detailed how exactly people behind the glitzy world of the silver screen avoid taxes with dodgy dealings through hawala and hot-money routes.

The first-of-its-kind I-T analysis establishes major evasion practices such as suppression of receipts from movies, using ancillary sources, inflation of expenses and a huge amount of out-of-books payments/receipts, all a “well-established practice rampant in Bombay film industry.”

Past cases



The income tax analysis is based on past cases, existing audit books and several assessment orders passed under section 14A.

It documents how violation of Section 44AA (mandatory maintaining of books of accounts), section 44AB (mandatory audits of books), and section 285-B (statements of payments made over Rs 50,000 by the producers) has become rampant.

The IT Act, 1961 provides for different sections and rules to impose tax on revenue sources of the industry. Sections 44AA, 44AB, and 285-B, Rules 9A and 9B for producers and distributors respectively, and the TDS provisions of Sections 192, 194 C and 194 J are also to be used when making payments to/for actors, directors, editors, special effects experts, logistics contractors, and recording and dubbing studios, among others.

The report finds significant funding from hawala and hot-money routes, portending a grave threat to tax mobilisation, and even to general law and order.

“The movie industry is operating in a volatile environment that is threatening its traditional sources of revenue,” the report says. “It is highly exposed to the black economy and poses myriad challenges to the tax administration.”

In 2011, a leaked cable released by Wikileaks had spoken of the film industry’s underworld connections, and that “it welcomed funds from gangsters and politicians looking for ways to launder their ill-gotten gains, known in India as ‘black money’”. In 2012, a sting operation by news website Cobrapost had caught leading producers and directors allegedly admitting on camera how the industry is being used to convert “black” money into “white”.

Further verification and investigation by The Hindu into these dodgy tax practices stood validated from the personal account of scores of technicians, line producers, distributors, confirming the practices as commonplace on film sets.

Leaked WikiLeaks cable revealed Bollywood’s underworld links

A recent report of the Income Tax department on Mumbai’s film industry finds significant funding from hawala and hot-money routes, portending a grave threat to tax mobilisation, and even to general law and order.

“The movie industry is operating in a volatile environment that is threatening its traditional sources of revenue,” the report says. “It is highly exposed to the black economy and poses myriad challenges to the tax administration.”

In 2011, a >leaked cable released by WikiLeaks had spoken of the film industry’s underworld connections, and that “it welcomed funds from gangsters and politicians looking for ways to launder their ill-gotten gains, known in India as ‘black money.’”

In 2012, a sting operation by news website Cobrapost had caught leading producers and directors allegedly admitting on camera how the industry is being used to convert “black” money into “white”.

Further verification and investigation by The Hindu into these dodgy tax practices stood validated from the personal account of technicians, line producers, distributors, confirming the practices as commonplace.

According to the report’s findings, a film is produced and supplied through a complex channel of studios, distributors, exhibitors and artists, organised around star value and fame. The process of accumulating ill-gotten funds starts with production. The producer lines up ad hoc unaccounted funds in the guise of loans under bogus names. All the bogus credits and hawala entries are offset by ‘bogus debits and factious expenses [report].’

“The core issue is really of financing: unless a ‘star’ signs the film, banks stay away from funding. Funding in an ad hoc manner, from property dealers and other business sources, leaves clear room for grey transactions carried out of books,” says Jagdish, a sought-after production assistant.

Jagdish has worked in 50 TV soaps and over a dozen films including Zid, a film that was produced by director Anubhav Sinha, who was caught in the Cobrapost sting allegedly agreeing to launder money.

“The black-to-white ratio in medium-budget films not financed by banks but by multiple, small financier ranges is 60:40, even much higher in some cases,” says Jagdish.

In this context, the legend surrounding the Kumar Sanu produced film Utthaan is unique. The entire movie was allegedly made using only cash. “At the end of each day,” a production assistant says, “a vehicle filled with bags of cash would be delivered to not only workers and technicians, but also senior artists.”

A senior filmmaker says: “In my previous film [a sex thriller], we paid our DOP (director of photography) nearly Rs. 25 lakh in cash to avoid dual taxation issues as he lived in the United States.”

Some major production houses have registered their companies overseas, thereby arousing suspicion among taxmen. The Hindu is not naming a few production houses documented in the report for their overseas funding as the report does not provide solid data, and this publication was unable to independently verify these allegations.

The movie industry is highly exposed to black economy and poses myriad challenges to the tax administration.