For the uninitiated among us (and I am one) it seems there’s this concept called “Jama Kharchi”, which is about converting black money to white. Jama-kharchi , of “accomodating entry” companies which basically make two kind of entities meet:
- One that wants to reduce its profits (and thus, taxes) by showing purchase entries
- Two, that that wants to shore up sales because they will get higher credit
The Jama-kharchi companies will “accomodate” accounting entries that help both these companies and charge a 2% to 4% commission to be the go-betweeen.
Let’s say a company A wants to reduce profits but still wants to have the cash. It buys something from a Jama Kharchi company B, and that company (through conduits into other companies or directly) gives an unsecured loan, or buys shares of Company A. That way the company still has the money and managed to reduce its sales.