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Made large cash deposits? Brace for tough scrutiny

LiveMint logoLiveMint 22-02-2017 Remya Nair

New Delhi: If you have made large cash deposits in the aftermath of demonetisation, you should brace for tougher scrutiny from the tax department and keep documents like bank statements, passbooks, land records and sales records handy. The tax department will soon ask you to furnish these documents to support your claims of these large cash deposits being made either from income exempt from tax like agricultural income or cash received from unidentifiable persons in the case of businesses or cash withdrawn from own bank accounts.

Following the large cash deposits in bank accounts, the tax department started Operation Clean Money to scrutinize the source of all cash deposits to check if they were from legally declared income. The tax department has data on 10.9 million accounts where deposits ranging from Rs2 lakh to Rs80 lakh were made in the period between 10 November and 30 December. Around 148,00 accounts were also identified wherein deposits of more than Rs80 lakh were made. Of this, it has sent notices to 1.8 million taxpayers who have made cash deposits of more than Rs5 lakh that are not in line with their income tax returns.

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The detailed standard operating procedure released by the Central Board of Direct Taxes (CBDT) lays down guidelines for the assessing officers to verify the source of the cash deposits claimed by the taxpayer as part of Operation Clean Money.

For instance, if a business attributes the cash deposits to cash received from unidentifiable persons, then the assessing officer has been directed to check if the transactions are in line with the normal cash flow of the business. The officer can seek information like monthly sales summary with break-up of cash and credit sales, stock registers and bank statements to look for back-dating of cash sales or fictitious sales.

Assessing officers have been asked to look out for abnormal jump in cash sales in the November-December period, especially to non-identifiable persons. Further, more than one deposit in the bank accounts towards the end of the demonetisation period, non-availability of stock or inflated stocks by bringing in fictitious purchases or bank transfers to other accounts or entities that are not in line with the previous transaction patterns will be scrutinized.

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In case the deposits are attributed to cash withdrawn from bank accounts, the taxman may scrutinize the pattern of withdrawals and how close they were to the announcement of the cancellation of the legal tender of Rs500 and Rs1,000 banknotes by Prime Minister Narendra Modi on 8 November.

In case the deposits have been classified as agricultural income, the assessing officer will seek the land records to check if the income declared is in line with the land holdings.

“The sheer volume of work involved will overload the system. Also, it is not feasible to seek all the details from the taxpayers online,” said B.M. Singh, former chairman of CBDT.

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