A) Post demonetisation cash deposit
The demonetisation was announced as a surprise on the night of November 8, 2016. Time was given up to December 31, 2016 to convert old currency notes of ₹ 500/- and ₹ 1000/-. During this period many unscrupulous people have taken advantage. Therefore, the CBDT’s internal note to the Senior Revenue officers highlighted taxpayers trying to build an explanation for cash deposits in their bank accounts post demonetisation by manipulating books of account and by filing revised/belated income tax returns. CBDT stated that based upon risk-assessment criteria, many of such cases have been selected for scrutiny and lists down seven instances which might indicate that assessee had filed revised or belated return merely as a cover-up to explain the cash deposits in bank accounts. CBDT listed down strategies for the assessing officers to be kept in consideration during verification and framing of assessments. CBDT also added that “manipulations made fictitiously merely to build an explanation for cash deposits in bank account(s), the revised return itself becomes questionable and therefore, the transactions disclosed in it which are over and above the original return are liable to be taxed under anti- abuse provisions of the Act.”
CBDT accordingly had listed down 7 red-flags which might indicate that assessee had filed revised or belated return merely as a cover-up to explain the cash deposits in bank accounts.
In cases related to substantial cash deposits during the demonetisation period, vide letter dated November 15, 2017 the Board had issued a Standard Operating Procedure (SOP) for issuance of notice under section 142(1) of the Act, for filing it returns of income pertaining to assessment year 2017-18. In pursuance to which notice under section 142(1) was issued in around 3 lakh cases. Now, it has been reported that in around 87,000 cases out of these cases assessee concerned have not filed their return of income in response to the notice issued under section 142(1) of the Act.
Therefore, the CBDT has issued a standard operating procedure (SOP) on March 5, 2019 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, 2019 by authorising the Assessing Officer to exercise the ‘Best judgment assessment under section 144 of the Act, as 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 judgment…”
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”.
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 demonetization” 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 CBDT 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 CBDT also stated 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.
Thus, this would help the Department/Revenue to bring new 87,000 cases in tax net. However the instructions of the Chairman of the Board dated February 26, 2019 has to be kept in mind that though maximising the revenue collection, is the immediate priority, the same has to be done “without any harassment or high handedness”
B) The Banning of Unregulated Deposits Scheme Ordinance, 2019
Acceptance of deposits by unincorporated bodies was always prohibited under Chapter IIIC of the RBI Act, 1934. In 2015, the Banning of Unregulated Deposits Schemes and Protection of Depositors’ Interests Bill, 2015 was introduced along with Report of the Inter-Ministerial Group (IMG) for identifying gaps in the existing regulatory framework for deposit-taking activities and to suggest administrative/ legislative measures including formulation of a new law to cover all relevant aspects of ‘deposit-taking’.
Now, it has turned into a reality with the President promulgating the Banning of Unregulated Deposit Schemes Ordinance, 2019 w.e.f. February 21, 2019 (hereinafter referred to as ‘BUDS Ordinance’).
The BUDS Ordinance has been enforced against need to regulate raising of money from public and ensuring that the same is allowed in a responsible, accountable and transparent manner and addressing the violations swiftly. Currently, several regulators monitor acceptance of public deposits, viz., RBI, NHB, Companies Act, etc. With the BUDS Ordinance in force, no person can accept deposits unless the same are either excluded from the meaning of deposits or fall under Regulated Deposit Scheme.
Exclusion from the meaning of a Deposit
In case of companies, the exclusions from the meaning of deposit shall comprise of those provided under Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014.
In case of non-banking financial company registered under the Reserve Bank of India Act, 1934, the expression “deposit” shall have the same meaning as is assigned to it in clause (bb) of section 45-I of the said Act.
While it is not specifically provided, exclusions provided by various regulators under respective guidelines, viz., by the RBI under Master Directions for Acceptance of Public Deposits (Reserve Bank) Directions, 2013 and by NHB under Housing Finance Companies (NHB) Directions, 2010 from the meaning of public deposit will hold good for respective entities.
However, in case of partnership firms, LLPs, proprietorship concerns, trusts, individuals or group of individuals, co-operative societies there is no definition of deposit or a specific exclusion list provided under any law. Accordingly, the definition and the exclusion list provided under the BUDS Ordinance will be applicable.
While it does not cover personal loans, amounts taken for personal use, BUDS Ordinance will surely have a huge impact on the manner of fund raising by unregulated entities. The punishment for any kind of offence is so serious that one would definitely want to avoid the same. This will definitely affect the huge network of informal/unorganised lending prevalent in the country. While this will result in protection of investors who get duped, it will also cause a lot of difficulty to the businesses that rely on such kind of funding.
H. N. Motiwalla