IT Department Recommends Guidelines for Verifying any Suspicious Bank Accounts – IMC Group
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IT Department Recommends Guidelines for Verifying any Suspicious Bank Accounts

IT Department Recommends Guidelines for Verifying any Suspicious Bank Accounts

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After demonetisation, the banks have been told to levy charges on any cash transactions going over a specific limit. Additionally, RBI has made it compulsory to scrutinise cash transactions which are unusual as several malpractices were observed when people did cash deposits of Rs.500 and Rs.1,000 notes during demonetisation.

Recently, the Finance Ministry passed a circular explaining the standard operating procedure (SOP) for evaluation of officers, while handling such cases. There are specific scenarios in which a verification warrant could be released for your transaction:

1. Who can be scrutinised?

A scrutiny can happen in many scenarios. Some of them are mentioned below:

Cash deposited from previous income or savings

  • People who deposit cash over Rs.2.5 lakh or senior citizens depositing cash over Rs.5 lakh could come under a scrutiny. Any amount that is within the stated limit would not be scrutinised as long as that the money is from cash withdrawals, household savings, previous income, etc.
  • In case of individuals who do not have business income or deposits over the specified limits would be authenticated by the assessing officers (AO). Enterprises whose books of accounts reflect total savings that are above the closing cash balance as of 31 March 2016 (AY 2016-17) would surely be scrutinised.
  • Bank accounts that are doubted of being exploited for money laundering or evading tax or entry operations in shell companies would have to go through a complete investigation.

Cash out of tax-exempt receipts

Any additional cash from tax-exempt receipts should be matching with the IT returns filed previously by the same individual. If otherwise, then the AO could call for applicable information.

Cash withdrawn from any bank account

Cash deposits which are not matching the person’s bank statements become suspicious even if he or she says that the money has been withdrawn from the bank account. The AO might ask for the bank statement copy to justify the cash deposits done and withdrawals taken from the bank account.

Cash taken from identifiable persons

When cash is received from recognizable individuals (with PAN card), the AO would not call for any further information. Rather, the AO would ask for information from the AO of such recognizable individual. In the scenario of a gift, the AO usually verifies if the same is taxable by the recipient as per section 56(2) of the IT law.

Cash received from unidentifiable individuals

In scenario of receipts from unidentified individuals (without PAN card), the AO would do a verification to find if the cash receipts are in compliance with the usual practices of the taxpayer’s business. In case the cash transactions are not in compliance with the usual practices of business, the AO may ask you to give documents like monthly sales summary, stock registers, etc. for verification. But for unidentifiable individuals, the AO would surely verify if the cash transactions are in compliance with the usual business practices as per the previous return of income.

The AO might even ask for information like monthly sales summary, applicable stock register entries, some bank statements etc. to identify examples of backdating of sales or any fabricated sales. To find any such examples, an AO may scrutinise:

  • Any abnormal rise in the cash sales in the period of November-December 2016 or previous periods.
  • Multiple deposits made in demonetised currency in end of December 2016.
  • Non-availability of their stocks or efforts to inflate stocks.
  • Transfer of any bank accounts that were not used earlier.
  • The same process would be carried out for verifying donations and any such cash receipts.

Cash disclosed under PMGKY

If the taxpayer makes some cash known under Pradhan Mantri Garib Kalyan Yojana (PMGKY), the alleged cash transactions could be confirmed with disclosures made under PMGKY.

2. The e-verification process

The online verification is available on the e-filing portal which is usually matched with the internal verification portal of the IT department. Following are the portal’s features:

  • Individuals under scrutiny don’t need to visit the IT office and are allowed to submit explanations online using their login on the e-filing portal. PAN-card holders can easily view this information by going on the ‘Cash Transactions 2016’ in the ‘Compliances’ section.
  • An SMS and email is sent to all individuals under scrutiny guiding them to fill in their online responses on the e-filing portal. If anyone is not registered, then they must register immediately using the ‘Register yourself’ link. However, the registered taxpayers needs to update their mobile number and e-mail address on the portal to get communication from the department.
  • People can refer to the guides and FAQs on the IT department’s website for submitting their responses.
  • Low-risk cases could be closed centrally, but other cases are assigned to AOs for confirmation.
  • AOs view all submissions and then ask to submit verification proofs online.
  • In case the documents submitted are okay, then the AO closes the verification online.

3. What to do if you have any queries in the process?

If you have any sort of queries or challenge during the process, you can look for guidance in the ‘Help’ section of the portal. You could also refer to the FAQs and seek solutions for your questions. You could also read ‘Cash Transactions 2016 User Guide’ or ‘User Guide on Verification of Cash Transactions on ITBA-AIMS module’, which is a guidelines document that AOs refer to during verification.

4. Closure and approval process

AOs can close an individual’s records after verifying and getting due permission from the relevant authorities.

5. Non-compliance and penalty

If there is non-compliance, then the AO checks the ITS profile of the PAN-card holders and uses powers as per Section 133(6) with the approval of the relevant authority, survey action as per Section 133A, and more. However, the AO can also initiate penal process as per section 269SS or 269T of the Act.

Author bio information

Piyush Bhandari

Mr. Piyush Bhandari is a fellow member of ICAI (Indian Institute of Chartered Accountants of India) since 2003 and masters in Commerce. He has worked with the corporate finance division of the Sanmar Group – a leading business conglomerate in India, for over 3 years. He was also awarded the ‘Young Managers Award’ by Madras Management Association in 2005.He has wide experience in Assurance & Advisory, International Taxation, Corporate Finance and Strategic Planning. With over a decade of experience, he spearheads the Cross Border Advisory and International Taxation vertical.

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