Taxman to scrutinise loan deposits under Operation Clean Money

I-T dept may initiate penal action and impose an equivalent penalty

The Income Tax department may initiate penal action and impose an equivalent penalty in select cases of loan amount deposits of Rs 20,000 or more as part of the 'Operation Clean Money' to check stash post demonetisation.

The Central Board of Direct Taxes (CBDT), the policy-making body of the I-Tax department, on Tuesday issued specific instructions to the Assessing Officers (AOs) to undertake step-by-step verification of about 18 lakh people that it sent messages to, as part of the exercise.

"In case, the transaction being loan received/repaid in cash above the permissible threshold comes to notice, the AO may consider initiation of penal proceedings under the relevant provisions separately," the instructions said quoting Sections 269SS and 269T of the I-T Act that define these instances.

A senior official, however, clarified that ascertaining if a deposit made or received, post demonetisation on November 8 last year, qualifies to be a loan transaction under these sections will only be established after following due procedures of contacting the taxpayer and receiving details on the instance over the online medium.

"Only such cases where it is established that the amount deposited in a bank account is a case of loan received/repaid under the relevant sections will be dealt separately. Such transactions will be determined after proper due diligence so that any instance of tax evasion is checked and the taxpayer is not harassed," the official said.

The official added there are certain exceptions to these cash-based loan transfers like that under the agricultural income category and others.

Explaining the provision, former I-T commissioner and tax lawyer Sudesh Garg told PTI: "The purpose of these sections is to prevent avenues of misuse by businesses to introduce cash in the books to explain away the cash shortage etc. These provisions were never primarily intended to penalise bonafide known business transactions which do arise on account of non-business personal requirements."

"Strictly speaking, these sections do not distinguish between business and non-business situation. On account of demonetisation, situations where the cash availability became documented on account of deposits in bank accounts increased manifold.

"On one hand strict application of these sections will prevent a potential excuse of the depositor, on the other hand some innocent genuine transactions may also get penalised," Garg said.

While Section 269SS provides that no person shall take from any person any loan or deposit if the amount of such loan or deposit is Rs 20,000 or more, except through account (a/c) payee cheque or a/c payee demand draft or through online transfer through a bank account, Section 269T stipulates that any loan or deposit shall not be repaid if the amount of loan or deposit is Rs 20,000 or more except through a/c payee cheque or a/c payee demand draft or through online transfer through a bank account.

A contravention of these provisions mandate that a penalty equivalent to the amount of such loan or deposit made, may be levied by the taxman.

The CBDT had yesterday asked the taxman to ensure no "threat, warning or show cause" notice is issued to taxpayers contacted by it under this operation.

"It should be ensured that the communications made online with the persons under verification should be in very polite language without containing any element of threat or warning. No show cause of any kind should be given," it had stated.

The department had sent SMSes and emails to 18 lakh people who made suspicious deposits of over Rs five lakh during the 50-day demonetisation period as part of this operation while close to six lakh people have replied on the e-filing portal and acknowledged making such deposits by February 15.

This exercise has been termed 'Operation Clean Money' by the CBDT.