Demonetisation: Income Tax department begins final assessment of 87,000 suspicious deposit cases

The Income Tax Department has launched the final assessment of 87,000 cases in the country for making suspicious deposits post demonetisation, as the taxman has been authorised to exercise the 'best judgement' protocol, the CBDT has said. A standard operating procedure (SOP) was issued by the CBDT in this context on March 5 and it has asked the department to conclude this exercise by the end of the current financial year in March and "in any case" by June 30. The SOP states that while the taxman initially sent notices (under section 142(1) that pertains to inquiry before assessment) in 3 lakh cases, 87,000 out of these have "not filed their return of income" for assessment year 2017-18.

The Central Board of Direct Taxes (CBDT) that frames policy for the tax department has asked the assessing officers (AOs) to use the 'best judgement assessment' procedure as stipulated under section 144 of the I-T Act to finalise these cases. The section essentially reads: "If any person fails to comply with all the terms of notice issued under section 142(1), the AO after taking into account all relevant material which the AO has gathered shall after giving the assessee an opportunity of being heard, make the assessment of total income or loss to the best of his judgement..."

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The CBDT, on its part, assured the AOs that its technical and data mining arm will provide them with the addresses, bank accounts and transaction details of these 87,000 individuals and entities who have made "substantial cash deposits during the demonetisation period". 

These cases, officials said, are also known as those pertaining to suspicious deposits of huge amounts or amounts not in conformity with the transaction history of the entity, post the demonetisation decision announced by Prime Minister Narendra Modi on November 8, 2016.

The two high-value notes of Rs 1,000 and Rs 500 were demonetised as part of the decision.

The CBDT directive said that the AO should also make a "detailed analysis of past income tax returns, if available, to form an opinion regarding nature of transactions related to demonetisation" while framing the assessment of these entities. "On the basis of all material and evidence gathered by the AO, during the course of assessment proceedings, assessee would be duly provided with an opportunity to explain his/her case," the SOP said.

The CBDT has also asked the AOs to "suitably" invoke section 133(6) (power to call for information) of the law to gather additional information about persons, transactions and fund flow from the banks where the "suspected transactions" took place. "Such notices would be issued by the concerned AO after a careful appraisal of information at his disposal so that maximum possible additional information can be culled out," the SOP said.

The CBDT-issued SOP added that once the "ultimate beneficiary of a transaction has been established", the AO should forward this to his counterpart who has jurisdiction over the entity under scanner.

The SOP flagged a special case saying if "entry operators" or hawala-trade like instances are found then the jurisdictional AO should "tax the unaccounted commission receipts" and unearth the nexus to catch tax evaders.
The range heads of the department have been asked to "monitor" the framing of the final assessment order of these entities.