Case Study: How Shell Companies Were Used in a Real Layering Scheme

An intermediate case study on one of the most widely used layering schemes in Indian history: the penny stock bogus long term capital gains (LTCG) scheme. Before 2018, gains on listed shares held for over a year and sold on an exchange after paying STT were fully tax free under section 10(38) of the Income Tax Act. Entry operators turned that rule into a laundering machine. They took control of tiny listed companies on BSE, parked beneficiaries in them cheaply through preferential allotments and off-market deals, ramped the share price with circular and synchronised trades between their own shell companies, and then used those same shells to buy the beneficiaries out at the inflated price, funded with the beneficiaries' own unaccounted cash routed in through layers of bank accounts. You follow the scheme from the first cash handover to the final tax-free credit, then watch it unravel through the Income Tax Department's Kolkata investigation, SEBI's interim orders and trading pattern analysis, the 2017 suspected shell company list, and the courts, where additions under section 68 were upheld on the test of human probabilities. The course closes with the red flags banks, brokers and auditors could have caught, the rule changes that followed, and a one-page reconstruction of the whole scheme. Built from public SEBI orders, court rulings and official statements; illustrative figures are labelled as such.