Round 2 of DeMo Crackdown

After targeting individuals who made large cash deposits in banks during or after demonetisation, the income-tax department is now going after businesses that deposited lots of cash in corporate accounts in the second round of demonetisation tax notices.

Since Monday last week, the department has been sending notices to entrepreneurs, including some prominent jewellers, diamond traders, textile merchants and real estate developers, who have deposited money in their corporate bank accounts. This round of tax notices is focused on “big fish“. Anyone who may have deposited unexplained cash in bank accounts after demonetisation has received notices. The tax notices were-sent through emails of the taxpayers.The number of tax notices sent since last week could be in lakhs.

At the time of deposits, most companies had claimed it was cash on hand from their business activities. The main source cited was from sale proceeds. Along with the notices, the tax department has sent bank statements of such transactions and asked these businesses to disclose details of the source of income through a questionnaire consisting four questions.

Tax department is seeking the information of the customers to whom the cash sales are made. Assessees are asked to give the bifurcation of the customers as to whether they are identified or unidentified and as to whether they hold PAN number or not.

The first set of demonetisation tax notices was sent to individuals around January this year. About 5,000 tax notices were sent to those who had deposited Rs.1 crore or more in their bank accounts. While the second wave of tax notices has begun, the tax department is continuing with those who were sent notices in January.

Many jewellers, real estate developers, and diamond and textile traders had deposited huge money, claiming this was cash on hand.Tax sleuths suspect that some of these companies and individuals may have passed off black money as cash on hand.

Many jewellers are also under the scrutiny of tax sleuths. Many jewellers are said to have split up one invoice into multiple ones as PAN details of buyers aren't needed if a sale is below Rs.2 lakhs. The government has identified around 18 lakh bank accounts where more than Rs. 2 lakh cash deposits were made after demonetisation was announced.

The second round of notices were sent after the government's data analytics software raised red flags.
So, if a corporate account never had more than Rs.40 lakh at any time in the last two years, but suddenly saw a deposit of  Rs.5 crore in December 2016, that's a red flag. Scope of big data analysis would increase after fresh data of tax returns is received in coming month.

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