Income Tax Department Detects Rs 1,000 Crore Bogus Expenditure After Raids On Co-op Banks

The Income Tax Department has detected 'bogus' expenditure and alleged financial irregularities worth Rs 1,000 crore after it raided some cooperative banks in poll-bound Karnataka sometime ago, the CBDT said Tuesday.

The searches at 16 premises of these banks were launched on March 31 as the department suspected they were be 'engaged in the routing of funds of various business entities of their customers in a manner so as to abet them to evade their tax liabilities.'

The CBDT said in a statement that cash worth more than Rs 3.3 crore and jewellery worth Rs 2 crore were seized during the searches.

The Central Board of Direct Taxes (CBDT) is the administrative body for the Income Tax Department.

"The seized evidence revealed that these cooperative banks were involved in rampantly discounting bearer cheques issued by various business entities in the name of various fictitious, non-existing entities," the CBDT said.

These business entities included contractors, real estate companies, etc., and no KYC norms were followed while discounting such bearer cheques, it alleged.

The tax department found that the amounts after discounting were credited to the bank accounts of certain cooperative societies maintained with these 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 a large number of cheques was to mask the real source of the cash withdrawal and to enable the business entities to book bogus expenses," it said.

In this modus operandi, the department said, cooperative societies have been used as a 'conduit'. These business entities were also 'circumventing' the provisions of the Income Tax Act, which limit the allowable business expenditures incurred other than by account payee cheque, it said.

"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.

The taxman also found that these banks allowed the opening of FDRs 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 or customers," it said.

The CBDT said that the management of these cooperative banks indulged in generating 'unaccounted' money through their real estate and other businesses.

"This unaccounted money has been brought back into 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," it said.

Karnataka will vote for its 224-member assembly on May 10, and the counting of votes will be taken up on May 13.