Polycab shares hit lower circuit as I-T department uncovers unaccounted cash of Rs 1,000 crore

Polycab shares hit lower circuit: Shares of Polycab India Limited, a manufacturer of wires, cables, and electrical items, hit lower circuit as the stock plunged 20 per cent to hit an intraday low of Rs 3,930.55 per share during early trade on Thursday. 

Notably, the stock has declined more than 24 per cent year-to-date (YTD), with the last five days alone witnessing a major erosion of 23 per cent of the stock's value.

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The massive drop followed the revelation by the Income Tax (I-T) department of "unaccounted cash sales" amounting to approximately Rs 1,000 crore, detected during a recent raid on the Polycab group.

The Central Board of Direct Taxes (CBDT) disclosed that the searches, conducted on December 22 last year, covered a total of 50 premises in various locations, including Mumbai, Pune, Aurangabad, Nashik in Maharashtra, Daman, Halol in Gujarat, and Delhi. 

Unaccounted cash exceeding Rs 4 crore was seized, and more than 25 bank lockers were restrained during the operation.

However, the CBDT did not explicitly name Polycab India Limited in its statement.

Meanwhile, Polycab India issued a clarification on January 10, dismissing reports of "tax evasion" as mere "rumors." 

The company stressed upon its commitment to compliance and transparency, asserting full cooperation with the Income Tax department officials during the search proceedings in December 2023. 

Notably, Polycab India stated that it had not received any communication from the Income Tax department regarding the outcome of the search.

According to the CBDT, the raids uncovered substantial evidence, including documents and digital data, exposing the "modus operandi of tax evasion" employed by the group, allegedly in collaboration with some authorised distributors. 

The preliminary analysis suggested various illicit activities, such as unaccounted cash sales, cash payments for unrecorded purchases, non-genuine transport, and sub-contracting expenses, aimed at suppressing taxable income.

The CBDT claimed that the flagship company within the Polycab group engaged in unaccounted cash sales amounting to approximately Rs 1,000 crore, which were not reflected in the official books of accounts. 

Additionally, unaccounted cash payments exceeding Rs 400 crore, made by a distributor on behalf of the company for raw material purchases, were discovered.

The statement further alleged the identification of "non-genuine" expenses, including sub-contracting expenses, purchases, and transport expenses, aggregating to around Rs 100 crore based on evidence seized from the company's premises. 

The search action also uncovered "unexplained" transactions facilitated by an authorised distributor issuing bills without actual supply of goods, resulting in inflated purchase accounts for certain parties, totalling about Rs 500 crore. This distributor exclusively sold products of the flagship company, according to the CBDT.