The Income Tax Department’s recent Search operations carried out against some cooperative banks, in Karnataka, have revealed the routing of funds of their customers’ business entities to help them evade their tax liabilities. Sixteen premises in all were covered in the search operations, informs the press release issued by PIB without naming the co-op entities involved.
“Bogus expenditure booked in this way by these beneficiary business entities, could be to the tune of about Rs 1,000 crore,” the CBDT said.
A large amount of incriminating evidence in the form of hard copy documents and soft copy data have been found and seized during the search action. The seized evidence also revealed that these banks were involved in discounting bearer cheques issued by various business entities, in the name of fictitious non-existing entities.
These business entities included contractors, real estate companies, etc. No KYC norms were followed while discounting such bearer cheques. The amounts after discounting were credited in the bank accounts of certain Cooperative Societies maintained with these Cooperative Banks. It was also detected that some Cooperative Societies subsequently withdrew funds in cash from their accounts and returned the cash to business entities.
The purpose of such discounting of large number of cheques was to mask the real source of the cash withdrawal, and to enable the business entities to book bogus expenses. This modus operandi, involves Cooperative Societies being used as a conduit.
Incidentally, using this modus operandi these business entities were also circumventing the provisions of the Income-tax Act, 1961, which limits the allowable business expenditure incurred other than by account payee cheque. Bogus expenditure booked in this way by these beneficiary business entities, could be to the tune of about Rs 1,000 crore.
Investigations have also found that these Cooperative Banks allowed opening FDRs by using cash deposits without adequate due diligence, and subsequently sanctioned loans using the same as collateral.
Evidence seized during the search revealed that unaccounted cash loans of over Rs 15 crore have been given to certain persons/customers.
It was also unearthed during the search action that the management of these Cooperative banks have indulged in generating unaccounted money through their real estate & other businesses. This unaccounted money, has been brought back in the books of account, by multiple layering, through these banks. Further, the bank funds were routed, without following due diligence, through various firms and entities owned by the management persons, for their personal use.
During the search unaccounted cash of over Rs 3.3 crore and unaccounted gold jewellery worth over Rs 2 crore were seized. Further investigations are in progress, says the release.