Following demonetisation, banks are required to impose charges on cash transactions exceeding certain limits. Additionally, the Reserve Bank of India (RBI) has mandated investigations into unusual cash transactions. This step was implemented due to numerous malpractices observed during the deposit of Rs. 500 and Rs. 1,000 notes within the demonetisation timeframe. The Finance Ministry has issued a circular that outlines the standard operating procedure for assessing officers tasked with handling these cases. Below are circumstances under which a verification warrant may be issued for your transactions.
Defining Suspicious Transactions
Suspicious transaction reports are filed by banks and other financial institutions in collaboration with the Financial Intelligence Unit of the government.
Typically, any series of cash transactions that are interconnected—each valued individually under Rs 10 lakh within a monthly period but summing to a total that exceeds Rs 10 lakh—are categorized as suspicious. Nonetheless, reporting entities can flag suspicious activities based on various other criteria.
How Banks Identify Potentially Suspicious Transactions
Value of Transactions: When transaction amounts are slightly below the reporting threshold, this can suggest an effort to evade reporting. Additionally, if transaction values are inconsistent with the client’s apparent financial status, this raises flags.
Multiple Accounts: Multiple accounts associated with the same introducer, account holder, or authorized signatory without a clear rationale could indicate suspicious activity. Unexplained transfers between multiple accounts are also a cause for concern.
Account Activity: Unusual account activity, especially in comparison to historical transaction patterns, may indicate suspicious behavior. An uptick in activity in accounts that have remained dormant could also be noteworthy.
Client Identity: Identification documents that fail to be verified in a reasonable timeframe or are based on falsified information. Accounts may be opened under names similar to those of established businesses.
Nature of Transactions: Transactions that are unjustified or too complex for their nature. Recurrent cash purchases of drafts or other negotiable instruments may be suspect. Transactions may also deviate from expected behaviors based on declared business activity.
Who May Attract Scrutiny?
Multiple scenarios could warrant scrutiny, including:
- Cash Deposits from Previous Income or Savings: Individuals depositing cash above Rs. 2.5 lakh and senior citizens depositing above Rs. 5 lakh may face additional scrutiny. Withdrawals within the threshold are usually excluded from inquiry, provided they originate from genuine savings.
- Cash from Tax-Exempt Receipts: Any excess cash from tax-exempt sources must align with previously filed income tax returns. Discrepancies may prompt the assessing officer to request further information.
- Withdrawn Cash: Suspicion may arise when cash deposits do not match the individual’s bank statements, even if the depositor claims it was withdrawn from their account. Officers may request bank statements to clarify any inconsistencies.
- Cash Received from Identifiable Persons: For cash received from individuals with PAN numbers, the assessing officer will not require the taxpayer to provide additional information; instead, they will reach out to the identifiable person’s assessing officer.
- Cash Received from Unidentified Individuals: For cash received from individuals without PANs, assessing officers will check whether the receipts align with the taxpayer’s average business practices, requesting documents such as monthly sales summaries for verification of business norms.
- Cash Disclosures under PMGKY: Transactions disclosed under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) can be cross-verified with disclosures made under the same initiative.
How Much Cash Can You Deposit Without Raising Suspicion?
An individual depositing cash above Rs. 2.5 lakh or a senior citizen depositing above Rs. 5 lakh may face scrutiny. Deposits within these limits that can be traced back to household savings or prior income will typically not draw attention.
The e-Verification Process
An online verification process has been established on the e-filing portal, which connects to the internal verification system of the income tax department. Key features include:
- Individuals under scrutiny can provide explanations through their e-filing portal accounts, eliminating the need to visit the income tax office.
- PAN holders can access details under the ‘Cash Transactions 2016’ section within the ‘Compliances’ area.
- Notifications via SMS and email will be sent to all individuals under scrutiny, prompting them to submit online responses.
- Registered users must keep their email addresses and mobile numbers current to facilitate communication from the department.
Individuals can refer to guides and FAQs on the IT department’s website for assistance with submissions.
Low-risk cases might be resolved centrally, while others will be assigned to assessing officers for further investigation.
Assessing officers will review all submissions and may request additional verification documents, which must be submitted online. If the provided documentation is satisfactory, the verification will be concluded online.
What to Do If You Encounter Issues
If you have inquiries during the process, consult the ‘Help’ section of the e-filing portal or check the FAQs for guidance. Additionally, a document titled ‘Cash Transactions 2016 User Guide’ may be referenced, along with the ‘User Guide on Verification of Cash Transactions on ITBA-AIMS module’ for further insights about the verification process followed by assessing officers.
Closure and Approval Process
Assessing officers have the authority to close a person’s records post-verification with appropriate permission from relevant authorities. For transactions under Rs. 10 lakh in tier-1 cities, the Additional/Joint CIT will be the relevant authority. In other locations, AOs will liaise with the Pr. CIT.
Non-compliance and Potential Penalties
In cases of non-compliance, assessing officers can review the ITS profile of PAN holders, utilize powers under Section 133(6) with necessary authority approval, execute survey actions under Section 133A, and more. Additionally, assessing officers may initiate penalty proceedings under sections 269SS or 269T of the Income Tax Act.