Banks’ SFT Reporting of Business Correspondents’ Cash Deposits Triggers Huge Tax Demands

Summary: The article highlights serious difficulties reportedly faced by rural women working as Business Correspondents (BCs) for public sector banks because large volumes of customer cash transactions routed through their personal bank accounts are reflected in income-tax reporting systems. The author describes two cases involving women earning annual commissions of approximately ₹1 lakh while handling substantial banking transactions on behalf of their respective banks. In the first case, a business correspondent received a reassessment order for Assessment Year 2017-18 raising a tax demand of approximately ₹4 crore, besides interest and penalties. Recovery proceedings reportedly resulted in the freezing of her bank accounts, although their combined balance was only ₹1.69 lakh. The author also raises concerns about electronic service of income-tax notices on individuals who lack digital literacy or practical access to email. In the second case, a business correspondent received summons from the Income Tax Department despite having declared comparatively modest income for Assessment Year 2025-26. The author states that customer cash transactions exceeding ₹3 crore were routed through her bank accounts in the course of her banking agency activities. The central concern is that cash deposits representing transactions undertaken for banks and their customers may be incorrectly perceived as the business correspondents’ unexplained income. The author urges public sector banks to review their account arrangements and Statement of Financial Transactions reporting practices, and suggests appropriate banking mechanisms to distinguish customers’ funds from the agents’ own income and assets.

Banks Blind Blunders in IT SFT Returns reporting Bank’s Customer’s CASH Transactions CHAOS to Business Correospondents

Introduction

Recently, 2 Business Correspondents (BCs) approached our firm. Each of them are serving 2 different Public Sector Banks (PSBs) as BCs for a paltry commission of about Rs 1,00,000/- per annum. Both are women in their middle age, 10^th Class studied, living in villages .

Case 1: Reassessment Demand of Approximately Rs. 4 Crore

The first woman received from the Faceless Assessing Officer (FAO) an Assessment Order (AO) u/s 147 read with S.144 of the Income Tax Act,1961 for the Assessment Year (A.Y) 2017-18, with a tax demand of about Rs. 4 Crore + penalties + Interest. The Branch Manager ( BM) also accompanied her with bank statements. In 2 days the Jurisdictional Assessing Officer sent a demand notice and after 2 weeks wrote to the BM of PSB to freeze ALL of her accounts in PSB towards recovery of outstanding demand. Next week the JAO called the BM to remit the available amounts in all of her accounts. She has 4 Fixed Deposits each below Rs.25,000/-;(granddaughter of 4 years old is the Nominee ) 1 Current Account and 2 Savings Bank (SB) Accounts and the Grand Total of all 7 accounts is Rs. 1,69,000/-ONLY.

Electronic Notices and Difficulties Faced by Rural Business Correspondents

Our study of the AO revealed that the Income Tax Department (ITD) observed that in spite of crores of rupees of cash deposits in both SB and Current Accounts, the Business correspondent has not filed any Return of Income (RoI) for the relevant AY 2017-18. The ITD sent Notices u/s 142(1), S.148A (b) and (d) , S.147 in electronic form. She is using feature phone and not aware of existence of any email Id for her , can’t open the email and do not understand English .The ITD in spite of our Chartered Accountants (CAs) representations, starting from JAOs, JCITs, CITs, Pr.CITs, CCITs, the Chairman of the Central Board of Direct Taxes (CBDT) to send initial Notices 142(1), S.148A (b) and (d) , S.147 also by Registered /Speed Post with acknowledgement due; all the UPSC-selected IRS Officials do not hear as they are academically, and as per extant law, right in sending e-notices as authorised by the Act, passed by the Visionary parliamentarians through threadbare discussions. They never know or want to know how many people, out of about 140 crore, are digitally literate, have access to digital gadgets and in the habit of regularly checking emails on an hourly, daily basis.

Case 2: Income Tax Summons and Customer Cash Deposits Exceeding Rs. 3 Crore

The second woman received Summons dt 08.09.2026 u/s 133(1) of the Income Tax Act, 1961, from Verification Unit, ITD of National Faceless Assessment Centre, Delhi, calling 1. To furnish the information called for as per Annexure 1 and 2, and for her attendance on 18.09.2026 also stating that the powers to summons u/s 131 as vested in a court order under the Code of Civil Procedure, 1908 ( 5 of 1908) further stated ‘any default on her part on this account may, inter alia, lead to penalty u/s 272A(1)© of the Act @ Rs. 10,000/-. She has filed her RoI in time for the AY 2025-26, duly declaring her income of Rs. 1,19,000/- from commission as a business correspondent of a PSB + interest from SB Ac of Rs 1,126/- . We inquired and came to know that she has salary income, received in cash, from the Village Development Committee of Rs. 60,000/ for the PY 2024-25 and she owns a self-occupied residential house, and these two items were omitted to be mentioned in the original RoI by a local accountant turned IT return filer. We prepared a Revised Statement of Total Income and the Total Income is below Rs 2,50,000/- and stated that the revised total income is exempt from IT up to Rs 7,00,000/ for the AY 2025-26. We submitted all information called for as per Annexure 1 of the summons. As a part of her relation as a business correspondet with the PSB, she received cash from the customers of that bank, paid out of that amount to the bank’s customers and remitted the balance into 2 of her SB Ac’s with the bank.The net cash remitted is more than 3 crore. If that is considered as unexplained cash credit she will be jeopardised.

Banks’ SFT Reporting of Business Correspondents’ Cash Transactions

Title of my paper is “Banks Blind Blunders in IT SFT Returns reporting Bank’s Customer’s CASH Transactions CHAOS to Business Correospondents.”

In Andhra Pradesh the total PSB’s engaged the services from more than 1,000 business correspondents . The transactions of cash being credited on a daily basis in the SB or CA of the business correspondents squarely belong to the PSB and or its customers .

Then the PSB’s ought have opened an escrow account or a suspense account to root those transactions BUT instead got the gullible ,rural based ,not that educated women to open Bank Accounts in their own names and Reporting in SFT Returns to the ITD those accounts of business correspondetns , exclusively , maintained for the purpose of that PSB is illogical resulting in CHAOS to the business correspondents.

Request to Public Sector Banks

We request the readers of this article to bring this anomaly to the Notice of Head Office IT Officials of PSBs in order to stop getting such Notices, Summons by the business correspondents , at least for the FY 2026-27 .

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CA Raghavendra Prasad Mandava, Managing Partner of Prasad Rao & Associates, Gudivada-521301