CA Pratik Anand

The IT Department issued online intimations for verification of cash deposits during demonetization to nearly 18 lakh taxpayers of which about 9 lakh submitted response for verification of cash deposits during demonetization.

Now the question is what will be the next step after submission of response? What actions will the Income Tax deptt. take on the responses submitted and what will happen to those who have not submitted response for verification of such deposits?

The CBDT has issued detailed guidelines for the Assessing officers to be followed by them while verifying the responses and cash deposits during demonetization.

Ques: How does the Income Tax Department intend to carry out the verification of cash deposits during demonetization?

Ans: The CBDT in its guidelines has reiterated that no independent enquiry or third party verifications are required to be made by the Assessing Officer outside the online mechanism. Whatever information is necessary during verification, the same has to be collected through the person under verification using online platform only. Even telephonic queries are to be avoided. The person under verification is not required to attend the Income-tax office personally under any circumstance and at any stage.

Ques: What will happen to those who have still not submitted the online response for verification of cash deposits?

Ans: It is seen that many persons in the target segment have still not registered with e-filing portal. Further many registered persons who are under verification have not yet submitted online response.

So far, communication with the persons under verification has been made electronically. In cases where online response has not been submitted, AO shall generate a letter from the Verification portal to the person under verification for submission of online response on the e-filing portal and ensure its service to the concerned person.

Ques: In case a letter has been issued to the person concerned for verification of deposits but the person still does not respond, then what would be the course of action against such persons?

Ans: In case where online response has not been submitted even after service of letter, the Income tax profile of such PAN holders may be viewed to access information reported in earlier returns and under TDS/AIR/CIB. In case the cash deposit is not in line with the earlier returns or profile of the person under verification, necessary facts may be collected inter-alia by exercising the powers under section 133(6) with the approval of prescribed authority.

In appropriate cases depending upon the online response or otherwise, survey action u/s 133A can be considered. During survey, where there is suspicion of back dating or fictitious cash transactions, CCTV recording of the cash counter at relevant banks may also be checked, if necessary.

Ques: I have already submitted the online response for verification of cash deposits during demonetization. Can the Assessing Officer ask for more information after submission of online response?

Ans: As per the guidelines issued by the CBDT, the AOs can ask for additional information while analysing the responses to cash deposit notices. In case additional information is required, the AO will be able to send a request for additional information electronically. The person concerned will also be automatically informed about the request for additional information by email and SMS. The information request will be visible to the person under verification with a hyperlink for uploading information. All the additional documents (including supporting evidence) are required to be submitted online.

In case explanation of source of cash is found justified, the verification will be closed by the AO electronically without any physical interface with the person concerned.

Ques: A person has verified that the cash deposited is out of earlier income or savings. What would be the course of action of the AO for verification of such response?

Ans: As per the guidelines issued by the CBDT, the following course of action shall be taken by the AO:

1) For persons not having business income

In case of an individual (other than minors) not having any business income, no further verification is required to be made if total cash deposit is up to 2.5 lakh. In case of taxpayers above 70 years of age, the limit is Rs. 5 lakh per person. Amounts above this cut-off may require verification to ascertain whether the same is explained or not. The basis for verification can be income earned during past years and its source, filing of ROI and income shown therein, cash withdrawals made from accounts etc.

2) For persons having business income

  • In case of persons engaged in business or requirement to maintain books of accounts, no additional information is required to be submitted by the person under verification if total cash out of earlier income or savings is not more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17. However, if the AO has reason to believe that the closing cash balance as on 31st March 2016 has been increased by revising the return or backdating transactions in the books of account, further verification may be carried.
  • In case of persons engaged in business or required to maintain books of accounts, if total cash out of earlier income or savings is more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17, the AO needs to consider the remarks provided by the taxpayer and seek relevant information,
  • During verification, the AO may consider the information provided by the person under verification, income earned during past years, source of such income, filing of ROI and income shown therein, cash withdrawals made from accounts etc. before quantifying the undisclosed amount, if any.

Ques: A person has verified that the cash deposited is out of receipts exempt from tax. What would be the course of action of the AO for verification of such response?

Ans: If the cash is explained to be out of receipts exempt from tax, the same shall be verified from the earlier returns filed by the person and if the same is not in line with the earlier returns filed by the person under verification, the AO needs to consider the remarks provided by the person and seek relevant information.

Example, records of land-holding and other relevant evidences need to be verified in case of agricultural income.

Ques: If the cash is shown to be out of cash withdrawn from bank account. How will that be verified by the AO?

Ans: The AO shall consider the remarks provided by the person under verification and seek relevant information such as copy of bank statement/passbook.

Bank statement/passbook may be verified to confirm the name of the account holder. The date and amount of cash withdrawals and cash deposits in the bank account may be matched to verify whether claim that the cash deposited is out of cash withdrawn out of bank account is correct.

Ques: I have confirmed that the cash deposited was received from identifiable person with PAN. What would be the course of action in this case to verify such claim?

Ans: If a person has confirmed that the cash deposited was received from an    identifiable person with PAN then the following action may be taken:

  • No additional information is required to be submitted by the person under verification as the information will be pushed to the AO of the identifiable persons (with PAN) and he may issue a notice U/s 133(6) of the IT Act’1961 to such person asking to confirm the transaction.
  • In case the identifiable person (with PAN) does not confirm the transaction, the response will be referred back for further verification.
  • In case of a gift, it may be seen whether the same is taxable in the hands of the recipient under section 56(2) of the Act.

Ques: What happens if the cash is received from identifiable persons (without PAN)?

Ans: The AO may verify if the cash receipts are in line with the normal practices of concerned business as mentioned in the earlier returns of Income after considering the remarks provided by the taxpayer, nature of business and earlier history.

Ques: What would be the course of action if it is confirmed that cash deposited was received from un-identifiable person?

Ans: The AO may verify if the cash transactions or its quantum are not in line with the normal practices of concerned business as mentioned in the earlier returns of income.

During verification, the AO may seek relevant information e.g. monthly sales summary (with breakup of cash sales and credit sales), relevant stock register entries, bank statement to identify cases with preliminary suspicion of back-dating of cash sales or fictitious sales.

Some indicators for suspicion of back dating of cash sales or fictitious sales could be:

  • Abnormal jump in the cash sales during the period Nov to Dec 2016 as compared to earlier periods.
  • Abnormal jump in percentage of cash sales to unidentifiable persons as compared to earlier history.
  • More than  one  deposit  of  specified  bank  notes  in  the  bank  account  late  in  the demonetization period.
  • Non-availability of stock or attempts to inflate stock by introducing fictitious purchases.
  • Transfer of deposited cash to another account/entity  which  is not  in line with earlier history.

In case of receipt of cash on account of donation, indicators similar to above may be kept in mind.

Ques: What if the person confirms that the cash is disclosed or to be disclosed under PMGKY?

Ans: In case the taxpayer mentions that the Cash Disclosed/to be disclosed under PMGKY, the same may be verified.

If the process of disclosure is informed to be pending, verification  can be kept pending till the evidence is furnished.

The verification should be closed on the basis of evidence of disclosure made under PMGKY.

Ques: Is there any time-limit under which the said online verification of cash deposits is to be completed by the IT Deptt?

Ans: As per the guidelines issued by the CBDT, It shall be necessary to complete the process of online verification as quickly as possible so that the option to avail the benefits under the Prime-Minister Garib Kalyan Yojana, 2016 (‘PMGKY’) can be exercised by the persons under verification by the prescribed date.

(The author is the founder of youronlinefilings.com an online platform for filing income tax returns, company incorporation, accounting/bookkeeping, audits, Fema related compliances etc. He can be contacted at: contact@youronlinefilings.com or capratikanand@gmail.com or Mobile: +91-9953199493)

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8 responses to “What will happen after submission of response to notices on cash deposits during demonetization”

  1. ramesh says:

    Sir, Really worth information.

  2. Bhuvi Garg says:

    Very nicely detailed everything Prateek ji. Thanks for sharing the desired info.

  3. ram babu says:

    Sir, you did not say, if the data provided online is satisfactory to AO, then will he send any communication like Assessment Order.

  4. B.N.Agrawal, says:

    CERTIFIED COPY ABSTRACT OF BOARD RESOLUTION

    This is to certify that the following resolution was passed at the Board meeting of M/s. Shree Shyamji Agro Private Limited, held on dt.13.02.2017 at its registered office at Bargarh.

    “ Resolved that application be made for migration of registration numbers to GST.

    Further resolved that Sri Jagdish Prasad Agrawala,Chairman of the company is hereby authorized to sign and do the needful for the purpose of migration to GST.”

    Congrats.

  5. B.N.Agrawal, says:

    Congrats for the beautiful write up.

  6. Udayan says:

    Sir,
    Thanks for your informative and to the point article.

  7. Parva Joshi says:

    Dear Sir,
    Thank you for your detailed article regarding this topic.
    The details provided by you is very helpful for everyone..
    Thanks a lot.

  8. chnchal soni says:

    good morning sir
    thanks for information

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