BENGALURU: The Income Tax department, which had conducted a search and seizure operation related to cooperative banks in the state recently, has found that cooperative societies were used as a conduit to enable business entities to book bogus expenses, which could be to the tune of about Rs 1,000 crore.
The Ministry of Finance, in a statement on Tuesday, said the IT raids at 16 premises belonging to cooperative banks in Karnataka on March 31 had revealed that the 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 taxmen had seized incriminating evidence in the form of documents and soft copy data 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 to the bank accounts of certain cooperative societies maintained with these cooperative 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 release stated.
It added that 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. Further, by using this modus operandi these business entities were also circumventing the provisions of the Income-Tax Act, 1961, 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 release added.
It was also found that these 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 have been given to certain persons/customers. It was also unearthed that the management of these banks has indulged in generating unaccounted money through their real estate and other businesses. This unaccounted money has been brought back into the books of account, by multiple layering, through these banks. Further, the bank funds were routed through various firms and entities owned by the management persons, for their personal use.”
Unaccounted cash of over Rs 3.3 crore and unaccounted gold jewellery worth over Rs 2 crore were seized during the raids. Further investigations are in progress.