I-T finds bogus expenditure of Rs 1,000 cr during raids in Karnataka

The Income Tax Department on Tuesday said that they recently carried out a search and seizure operation at 16 different locations in a case involving some Cooperative Banks in Karnataka, which led to the recovery of valuable and incriminating documents, and the detection of Rs 1,000 crore bogus expenditure.

An I-T official said that these Cooperative Banks have been found to be engaged in routing of funds of various business entities of their customers, in a manner so as to abet them to evade their tax liabilities.

The search action has resulted in seizure of unaccounted cash of over Rs 3.3 crore and unaccounted gold jewellery worth over Rs 2 crore.

A large amount of incriminating evidence in the form of hard copy documents and soft copy data have been found and seized during the search action.

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.

"These business entities included contractors, real estate companies, etc. No KYC norms were followed while discounting such bearer cheques. The amounts after discounting were credited in the bank accounts of certain Cooperative Societies maintained with these Cooperative Banks," the official said.

The I-T department said that 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. In this modus operandi, Cooperative Societies have been used as a conduit.

"Using this modus operandi these business entities were also circumventing the provisions of the Income-Tax Act, which limits the allowable business expenditure incurred other than by account payee cheque. Bogus expenditure booked in this way by these beneficiary business entities could be to the tune of about Rs 1,000 crore," the official said.

During the search, it was also found that these Cooperative Banks allowed opening FDRs by 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 were given to certain persons.

During the search action it was learnt that the management of these Cooperative Banks have indulged in generating unaccounted money through their real estate and other businesses. This unaccounted money has been brought back in the books of account by multiple layering through these banks.

The bank funds were routed without following due diligence through various firms and entities owned by the management persons for their personal use.

Further investigation in the matter is on.