Top sources in the I-T department told The Financial Express that the involvement of Pentafour was discovered during the course of search and seizure operations of the Delhi-based SRG Infotec over three months ago.

The company is also being probed for insider trading in its shares and manipulation of financial accounts. Pentafour Software's share price has seen a dramatic rise in the last few months and is currently trading around Rs 730. Its financial performance has also shown a sharp growth in net profit to Rs 71 crore in the first six months ended September 1999 against Rs 43 crore in the corresponding six months of the previous year. Turnover rose to Rs 317 crore from Rs 214 crore. Further investigations are on.

Top executives of the company have been questioned by the I-T officials, sources said. The I-T department believes that Pentafour indulged in artificial sale and purchase entries with SRG Infotec running into crores of rupees. The company's association with some other information technology companies is also being probed to see whether it had indulged in similar artificial transactions with these companies in addition to SRG Infotec.

I-T officials said that they are also keeping a watch on a few other infotech companies which it believes are involved in giving an artificial boost to its balance sheet by buying and selling turnovers.

In SRG's case, the department unearthed documents and collected specific information indicating largescale artificial sales and purchases, manipulation of financial accounts and insider-trading in shares. The I-T department found that a single person was doing the work of share broker, transfer agent and investor for various companies.

Unaccounted cash of more than Rs 40 lakh and shares worth Rs 3.30 crore were also seized. The office premises of the company and the lockers of its promoters and associates were sealed by the I-T department.

Documents seized from the company premises and promoters and associates in Delhi and Mumbai indicated manipulation of the accounts of the company by claiming higher turnover and net worth, sources said.

SRG's fortunes have also seen a dramatic rise this year. Turnover in the third quarter ended April stood at Rs 55.66 crore compared to Rs 9.84 crore in the corresponding quarter of previous year. Net profit skyrocketed to Rs 7.79 crore during the quarter from a mere Rs 55 lakh in February-April quarter of 1998.

Sources said seized papers establish that artificial sales and purchases in a limited company are being shown to increase the turnover and an attempt is being made to mislead the public about the real worth of the company. The artificial sales are mostly of software.