From March 9 to 12, officials from the income tax department raided offices of Infra.Market, one of India’s fastest growing unicorns, and the residences of its Mumbai-based founders Souvik Sengupta and Aaditya Sharda.
The 72-hour search, spread across Thane, Bengaluru, Hyderabad and Noida, ultimately had little to write home about. Documents accessed by Moneycontrol related to the search showed that the department found no unaccounted cash or assets at any of the premises.
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It found Rs 2,000 in cash and jewellery worth Rs 1.2 lakh at the residence of Sengupta and cash and jewellery worth Rs 20 lakh each at Sharda’s residence. While it seized Rs 19 lakh in cash from the latter, Sharda is now in the process of filing an application to get it back, as this belonged to his family members.
Sources familiar with the development said the search was related to unpaid taxes and GST by some suppliers who worked with the startup and that the company has co-operated and provided complete information to officials.
Two people told Moneycontrol that several startups have received notices from the tax department over the last fortnight. “It is close to the end of the financial year and they probably think that they can mop up some revenue. Since these marketplaces work with many vendors, there is a chance that a few of them may not have been compliant,” one of them above said.
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A second person said the VC and the startup community is “perturbed” by the frequency and nature of these searches. “They (tax department) seem to be going after the smallest of brands- from cake to ice cream and now B2B marketplaces. These are minor GST mismatches, nothing more,” said the source.
“It was part of the income tax searches on many B2B (business to business) companies who have raised foreign funding and grown exponentially in the last couple of years,” one of the sources mentioned above said.
The department is also learned to have conducted similar searches on the offices and residences of another B2B unicorn, Zetwerk, within a day of its searches at Infra.Market.
While Zetwerk did not comment, Sengupta, in a statement to Moneycontrol, asserted that neither did it make fictitious purchases nor does it have any financial liability. “We saw a 5X growth year on year and grew to a business of Rs 7,000 crore in 24 months. Of this, GST wasn’t paid on Rs 70 crore, which amounts to 1 percent of purchases by 30-40 vendors. But the fact that GST wasn’t paid does not imply that these purchases were fictitious or did not happen,” he said.
Sengupta and Sharda founded Infra.Market in 2016 as a business-to-business (B2B) e-commerce firm, running a brand of construction material, concrete, and chemicals used in infrastructure projects.
The start-up ties up with contract manufacturers, gets them to utilise idle capacity, and manufacture products under its own brand, which it then sells to large infrastructure companies and retail outlets. It has an annualized revenue run rate of a billion dollars is one of the few profitable Indian unicorns- firms valued at over a billion dollars. Its investors include Tiger Global, Accel, and Nexus Venture Partners.
Moneycontrol had reported last November that the company was in talks to raise funds at a valuation of $4.5 billion, its third funding round within a year, at a valuation jump of more than 400 percent within a single year. While such an exponential rise in valuation isn’t unusual in a frothy market flush with liquidity, it appears to have raised the hackles of the taxman. The founders were asked about how their share price could rise so sharply in a short span of time.
“The business hasn’t been growing at a slow and steady pace but at a scorching rate in the last couple of years, which also coincided with COVID. Many of the small vendors shut down during this period,” Sengupta wrote to Moneycontrol.
“I was also asked how the value of my shares went from Rs 15,000 to Rs 2 lakh and if the share premium is irregular. But this is just a function of fundraising and valuation. We showed fundraising documents, conversations with investors, and WhatsApp conversations to prove otherwise,” he said.
The income tax department’s Foreign Asset Investment Unit led the search. “The department will now prepare an investigative report in 60-90 days. We were not allowed to operate for a couple of days but we are back now,” Sengupta said.
