I-T Dept probes Rs 10-bn tax refund fraud by govt and PSU employees

I-T wing identifies over 18,000 revised returns, claiming false refunds in Mumbai, Bengaluru

With less than a month left for revising income-tax (I-T) returns for 2016-17, the I-T department has unearthed a giant fraud in multiple cities, where government employees allegedly claimed huge tax refunds forging documents, inflating expenses and not revealing complete information.

In Mumbai alone, around 17,000 revised returns have been filed claiming refunds. Similarly, in Bengaluru, the I-T department has found over 1,000 returns filed with inflated claims on account of payments towards home loans.

Since the I-T department is still investigating the matter, the loss to the department could not be ascertained, but it could go up to over Rs 10 billion, sources said.

They added most of these refunds were being claimed by employees working for the government or in public sector undertakings (PSUs). 

“These assessees’ original returns were already processed by the centralised processing centre of the I-T department. But they filed revised returns, claiming refunds with supporting documents,” said an I-T official.

A red flag was raised when the tax department noticed a pattern over three years. “The rate of revised tax returns filing has seen a significant rise in the last three years. We have identified these assessees from our data mining system. We were able to find how people claimed refunds by furnishing forged documents,” said a senior I-T official privy to the development.

“Assessees can file revised or deferred returns for the previous two financial years. For instance, a taxpayer can revise returns for 2015-16 and 2016-17 till March 31, 2018,” explained a tax assessment officer. 

Explaining the modus operandi, an I-T official said some of these assessees showed no income in their original tax returns under the head ‘income from house property’, but claimed losses in revised returns. 

Under Section 24 of the I-T Act, home loan interest is allowed as a deduction. In the absence of income from house property, it becomes a loss from house property, leading to a refund. I-T officers claim the tax evasion takes place by inflating expenses, not revealing complete information and forging documents.

Since most of these revised returns were being filed by government and PSU employees, the tax department had shared the information with the Central Bureau of Investigation to examine whether the people under scrutiny had unaccounted wealth and also to probe potential connivance of some of the tax sleuths and chartered accountants. 

Tax officials said that in case of revised returns, the system automatically generates a message that draws the attention of the person processing the refunds and also assessing officers who approve the refunds. The I-T department had till February 10 issued refunds to the tune of Rs 1.42 trillion. Over 41.9 million I-T returns were processed and refunds were issued to 16.2 million taxpayers till February 10.

Typically, the I-T department gives priority to small taxpayers who claim refunds below Rs 50,000. Official data suggest of all the refunds issued so far in this fiscal year, 90 per cent were to small taxpayers and the salaried class.