How taxmen nabbed black money hoarders who tried to beat the note ban

Relatives' accounts, meddling with accounting software and shell cos used to hide unaccounted cash

Two major civil contractors of Bengaluru, who undertake state government civil contract works from irrigation and other departments, were alleged to have engaged in massive inflation of expenses and investment of unaccounted income in the purchase of immovable properties.

Discreet enquiries by the Income Tax (I-T) department revealed that they were helping in the conversion of unaccounted cash in the old Rs 500 and 1,000 notes held by other persons after the note ban on November 8.

A search by the department revealed that money was transferred to related entities through the banking system and subsequently received back in cash. In one premise, bank passbooks of 34 persons were found. The group also paid nearly Rs 1.3 crore in old notes to their labour on November 8 and booked it as labour expenses. The search led to the seizure of Rs 4 crore in cash and valuables and admission of Rs 167 crore as undisclosed income.

The Bengaluru case was not an isolated one. The I-T department has listed over a dozen such cases, which are illustrative of various methods used by people to stash unaccounted cash during the note ban period. The department has revealed these cases in a detailed status report posted on the Cleanmoney.in portal. These are instances where the department unearthed such cases through targeted enforcement actions.

"Search actions were conducted on nearly 900 groups in which undisclosed income of Rs 16,398 crore was admitted. Assets valued at Rs 900 crore (including Rs 636 crore in cash) were seized. Survey actions were conducted in 8,239 cases, in which undisclosed income of Rs 6,746 crore was detected. More than 400 cases were referred to ED/CBI and 56 persons were arrested," the department said in the report.

Here are some of the key methods and examples:

1) Unexplained cash deposits by bullion traders and jewellers

The first impulse to convert black money held in cash was visible in the bullion and jewellery market. Large scale conversion of unaccounted cash was done by jewellers and bullion traders through following methods: Backdating of sales, splitting of sale bills to avoid PAN reporting norms, providing entries through bogus sales, layering transactions to hide the identity of the ultimate beneficiary, and acceptance of advances in cash against future sales.

2) Unexplained cash deposits by traders

Several actions on traders were conducted post the announcement of the demonetisation scheme by the government. These actions revealed that the unaccounted cash found in their possession was mostly part of their unaccounted incomes, which they were forced to deposit in bank accounts or were seized by various agencies during the demonetisation period. These were sought to be passed off as cash sales.

Delhi-Based bitumen trader

In the case of a bitumen and jewellery trader, cash worth Rs 150 crore was deposited in the bank accounts post November 8. These deposits were sought to be explained as cash sales by making backdated entries in Tally software, with all entries of local cash sales of exactly the same amount of Rs 1,99,500. He also accepted cash in old notes and facilitated the purchase of gold during the note ban. Two major parties, to which gold was shown to be sold, were in Jaipur. On spot verification, no entity was found at the given addresses. The total sale to these parties was around Rs 135 crore. When confronted with evidence from Jaipur, a major partner of the firm revised his statement and admitted that he had accepted cash in old notes from various parties, which he had deposited in his accounts and had, in turn, supplied gold bars to them. He also provided names and mobile numbers of the parties to whom he had sold gold. He admitted that he made daily entries of cash received and gold bars given on paper slips, which were destroyed the same day. The names and mobile numbers were verified from the contacts of the mobile of the searched person. During the search proceedings, the person admitted Rs 18 crore as his undisclosed income.

3) Cash deposits through shell companies

Shell companies and associated entry operators came into sharp focus due to their actions in helping entities convert unaccounted cash into legal tenders.

Kolkata-based entry operator

The case was identified for search action on the basis of data on entry operators. A search revealed that after November 8, the entry operator had provided entries of Rs 103 crore to more than 120 beneficiaries, most of which were Delhi based. Entries were provided through 198 bank accounts linked to shell companies through RTGS and cheques. The department has prepared the cash trail of Rs 103 crore for further action.

Shell company at Delhi

Investigations were initiated on the basis of information from the police following the interception of a vehicle carrying cash of Rs 3.7 crore in old currency.

The carrier confessed to having deposited nearly 35 crore of cash in old denomination notes in the bank since November 11. The bank accounts were opened in the name of paper companies. Cash was collected from various parties and deposited in the bank account of one such fake company. Subsequently, it was transferred through RTGS from one company to another company's bank account and, after three-four layerings, it was finally deposited in the account of the original owner. All these accounts were operated by a single person.

This was done with the active involvement of the branch manager and operation manager in lieu of commission at the rate of one per cent on the sums deposited.

The Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) are also taking action in this case on a reference made by the I-T department.

4) Abuse of exemptions provided for Northeastern states

The tribals of five Northeastern states – Tripura, Manipur, Mizoram, Nagaland and Arunachal Pradesh – are exempted from tax under Section 10 (26) of the Income Tax Act, 1961. Instances were found where the exemption was abused to deposit unaccounted cash.

Dimapur case

Information regarding transport of large quantity of cash in a private plane to Dimapur airport was received by the department. The cash was dropped at Dimapur and the parties flew back by aircraft to Delhi, where they were intercepted by the Air Intelligence Unit, Delhi. During subsequent questioning, the person belonging to Nagaland stated on oath that after the announcement of demonetisation, he had an arrangement with his friend to transport cash from Delhi to Dimapur. The understanding reached was that he would receive the cash in Dimapur, deposit the same in his bank account in Dimapur and return it via RTGS or in cash at a later date. The beneficiary, in this case, has admitted that Rs 8.5 crore was transported from Hisar to Dimapur on two occasions. He has admitted it to be his undisclosed income.

5) Unexplained cash deposits in the name of employees

Various instances were found where unexplained cash was deposited in the accounts of employees to avoid detection and reporting.

Amritsar-based company

During a survey, it was found that the entity had deposited Rs 2.5 crore in about 700 accounts of his employees. The AGM Finance of the company admitted under oath to having deposited Rs 2.1 crore of old currency in 780 bank accounts of the workers of the Factory without their consent or knowledge. The cash so deposited was later withdrawn from the bank using the withdrawal slips already in custody of HR staff of the company. The actual bank account holders were not aware that their accounts were being used for depositing the company's cash. The case has been referred to the ED and the initiating officer under the Benami Act.

Chennai-based trust

A search operation was conducted on two trusts in Chennai based on intelligence that chairman of the trusts had been distributing unaccounted money in old notes to their employees for purpose of conversion to new currency.

Investigations revealed that the trusts had planned to convert Rs 8.18 crore of unaccounted income held in cash through its 650 employees by depositing cash in the employees' bank accounts in sums less than Rs 50,000. During interrogation, the chairman admitted that the unaccounted cash belonging to the trusts was kept in the lockers, which was distributed to the employees after the announcement banning the old Rs 500 and Rs 1,000 notes was made, in order to convert them into new currencies. The money represented unaccounted anonymous donations to the trust.

6) Professionals: Hyderabad-based doctor

The doctor was found to have deposited more than Rs 11 crore in old notes after November 8 in three bank accounts. During questioning, he could not provide any document to substantiate the source of the deposits, which was later admitted as undisclosed income. Prohibitory orders were initially placed on the bank accounts, which were later lifted and a sum of Rs 7.50 crore was seized.

7) Cooperatives: Cooperative bank at Alwar

A survey was conducted in the case based on a reference by the police on the seizure of cash of more than Rs 1.3 crore from a vehicle carrying three directors of the bank. On investigations, it was found that the bank was used for conversion of personal unaccounted cash of Rs 2 crore by the chairman and his family. New currency notes were brought from the chest of SBI and SBBJ in the name of the cooperative bank and replaced illegally.