Aruze Corp., Japan's largest manufacturer and seller of "pachisuro," a cross between pachinko and a slot machine, has been accused by tax authorities of concealing about 4 billion yen in income between fiscal 1996 and fiscal 1998, industry sources said Thursday.

The Tokyo Regional Taxation Bureau has imposed a penalty tax of about 1.7 billion yen on the company, which is based in Koto Ward, Tokyo, the sources said.

Aruze, whose stocks are traded over the counter, allegedly hid the income by faking transactions with its affiliate in the United States, the sources said.

Aruze President Kazuo Okada owns all of the shares in the Las Vegas, Nevada-based affiliate, which produces game machines such as slot machines for casinos using parts supplied by Aruze.

Aruze reported that its affiliate built pachisuro machines and exported them to Japan. However, the tax authorities concluded the transactions were bogus and that payments to the affiliate were taxable donations from Aruze, the sources said.

The affiliate was suffering from high debt at the time but has since returned to profitability, the sources said.

Aruze, established in 1979, holds a nearly 50 percent share of the market for pachisuro machines and went public on the over-the-counter market in September 1998.

Okada was Japan's top taxpayer for 1999, paying about 2.5 billion yen. Aruze officials said they are considering appealing the imposition of penalty taxes.

The Fair Trade Commission searched Aruze on suspicion of violating the Antimonopoly Law in February and issued a warning to the company on Wednesday.