Today we shall be discussing about the Income Tax Department and Verification of Suspicious Bank Accounts. This article is very pertinent to Crypto Traders and Investors whose accounts could be tagged as Suspicious Bank Accounts and frozen.
RBI has made it mandatory for Banks to investigate unusual cash transactions. This is because a lot of malpractices have come to limelight. A circular was passed by the Finance Ministry describing the standard operating procedure, for assessing officers, to be followed while handling such cases. There are specific cases when a verification warrant may be issued for your transaction.
Who can be put under scrutiny
There can be many scenarios that call for scrutiny. Some of the scenarios are mentioned below:
Cash deposited from earlier income or savings
Cash from tax-exempt receipts:
Any excess cash out of receipts that are exempt from the tax should be in line with the income tax returns filed earlier by the same person. In a case where it is otherwise, the assessing officer may call for relevant information.
Cash withdrawn from a bank account
Cash deposits that don’t match the individual’s bank statements call for suspicion even if he says the money was withdrawn from the bank account. The assessing officer may seek a copy of the bank statement to explain the transfers, deposits and withdrawals out of the bank account.
Cash received from identifiable persons
In the case of cash received from identifiable persons (with PAN), the assessing officer will not call for further information from the taxpayer. Instead, the assessing officer will seek information from the assessing officer of such an identifiable such identifiable person. In the case of a gift, the assessing officer would verify whether the same is taxable in the hands of the recipient under section 56(2) of the income tax law.
Cash received or Transactions from unidentified people
In the case receipts from unidentifiable persons (without PAN), the assessing officer will verify whether the cash receipts are in line with the normal practices of the business of the taxpayer. If cash transactions are not in line with the normal practices of business, the assessing officer may ask you to submit documents, such as monthly sales summary and stock registers, for verification. In the case of other unidentifiable persons, the assessing officer will verify whether the cash transactions are in line with the normal business practices in accordance with the earlier return of income. The assessing officer may seek information such as monthly sales summary, relevant stock register entries, bank statement etc to pinpoint instances of backdating of sales or fictitious sales. To identify instances of backdating of sales, an AO may look into:
An abnormal increase in the percentage of cash sales
- Non-availability of stocks or attempts to inflate stocks.
- Transfer of bank accounts that are not used previously.
- The same process will be used for verification of donations and other cash receipts.
How does the e-verification process work
The online verification has been enabled on the e-filing portal which will be synchronised with the internal verification portal of the income tax department. The features of the portal are listed below:
People under scrutiny can submit explanations online through their login on the e-filing portal. They do not need to visit the income tax office. PAN holders can view this information using the ‘Cash Transactions 2016’ under the ‘Compliances’ section.
An SMS and email will be sent to all persons under scrutiny directing them to submit online responses on the e-filing portal. Such persons who are not registered should register immediately under ‘Register yourself’ link. Registered taxpayers must update their e-mail address and mobile number on the portal are accurate to receive communication from the department.
Individuals can check the guides and FAQs section of the IT department’s website to submit their responses.
Low-risk cases can be closed centrally, while the other cases will be assigned to AOs for verification.
AOs will view all submissions and ask to submit further verification proofs online. The supporting documents must be submitted online.
If the documents and proofs submitted online are satisfactory, the AO will close the verification online.
What to do if you are stuck in the process
If you have any sort of questions or queries during the process, you can find guidance by referring to the ‘Help’ section of the e-filing portal. You can also refer to the FAQs to find a solution for your queries. Alternatively, you can refer to a document titled ‘Cash Transactions 2016 User Guide’. You can also learn from the ‘User Guide on Verification of Cash Transactions on ITBA-AIMS module’, a guidelines document AOs abide by during verification.
Closure and Approval
Assessing officers have the liberty to close a person’s records after verification with due permission from the concerning authorities. The relevant authority for tier-1 cities is Additional/Joint CIT heading the range for transactions below Rs.10 lakh. For other cities, the AO needs to refer to the Pr. CIT.
Non-compliance and Penalty
In the case of non-compliance, the AO can view the ITS profile of the PAN holders, exercise powers under Section 133(6) with the approval of the prescribing authority, survey action under Section 133A, and more. On the other hand, the AO can consider initiating penal proceedings under section 269SS or 269T of the Act.