No response for suspicious deposits may invite tax department at your doorstep

The Income-Tax department had identified around 18 lakh taxpayers in its first phase who had made cash deposits during demonetization. These taxpayers were required to submit online response till 15th February 2017.

Now, the tax department has initiated verification of such accounts. It has issued the following Standard Operating Procedure for verification of cash transactions of taxpayers.

• Wherein online response has not been submitted the tax authorities may initiate survey. During survey, tax dept. can check CCTV recording at cash counters of banks where there is suspicion of back dating transaction or fictitious cash transactions. 
• In case cash loans or deposits above Rs 20,000 come to the notice of AO then penalty proceedings can be initiated. 
• In case of individuals, not having any business income, no verification shall be made by Assessing Officer ('AO') if the cash deposits do not exceed Rs 2,50,000. In case of taxpayers above 70 years of age, the threshold limit shall be Rs 5,00,000. The source of such deposits can be either household savings or savings from the past. 
• In case of individuals having cash deposits above the aforesaid threshold, the Assessing Officer may quantify the undisclosed income, if any, on the basis of following factors: 
• Income earned during the past years; 
• Source of such income; 
• Filing of return of income; 
• Cash withdrawal made from accounts. 
• In case of taxpayers engaged in any business no further verification is necessary if total cash deposited is not more than closing cash balance shown in return of income as on March 31, 2016. AO shall carry out further verification if closing cash balance in return of income has been increased by revising the return or due to backdated transactions in books of account. 
• No further verification shall be carried out by AO if the cash deposits have been disclosed in the IDS 2016. 
• AO may carry out verification even in those cases wherein cash deposits were made below the threshold limit of Rs 2,50,000 or Rs 5,00,000 if he has any information or if he is suspicious that a particular bank account has been misused for money laundering, tax evasion, etc. 
• AO shall make verification on basis of following factors in case taxpayer claims that cash deposits were made out of cash withdrawal from bank account: 
• Bank statement may be verified to confirm the name of account holder; 
• The date and amount of cash withdrawal and cash deposits may be matched; 
• The AO should take a balanced view for analyzing the time gap in withdrawal and deposit of cash. 
• Following may be treated as indicators for backdated recording of cash sales or fictitious sales: 
• Abnormal jump in the cash sales during the period November to December, 2016. 
• Abnormal jump in percentage of cash sales to unidentifiable persons 
• More than one deposit of old bank notes in the bank account late in demonetization period, 
• Attempt to inflate stock by introducing fictitious purchases, 
• If AO requires any additional information with respect to response submitted on cash transaction then taxpayers can be contacted only through electronic mode, i.e., by email or SMS. Any additional information which is required to be submitted by person should be asked through online mode by providing a hyperlink in the email. Tax payers are required to upload documents on given hyperlink.