K’taka: I-T dept detects Rs 1k cr bogus expenditure after raids on co-op banks

New Delhi: 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 them 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 CBDT said in a statement that cash of more than Rs 3.3 crore and jewellery worth Rs 2 crore was seized during the searches.

The Central Board of Direct Taxes (CBDT) is the administrative body for the I-T department. “The seized evidences 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 in 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 large number of cheques was to mask the real source of the cash withdrawal, and to enable the business entities to book bogus expenses7,” 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 limits the allowable business expenditure 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.