IT Dept detects gross irregularities, funds diversion after raids on Bengaluru credit coop societies

The Income Tax Department has allegedly found ”gross irregularities” and the involvement of the promoters in ”siphoning off” public funds after it raided four Bengaluru-based credit cooperative societies (CCSs) early this month, according to the CBDT.

The searches launched on December 2 led to the seizure of over Rs 4 crore in cash and ”undisclosed investment in immovable properties aggregating to about Rs 130 crore in the name of the chairman/promoters of these CCSs, entities controlled by them and few benami persons.” A statement issued on Tuesday by the Central Board of Direct Taxes (CBDT) said the raids found ”gross irregularities in the operations of these CCS and involvement of their promoters in siphoning-off funds of depositors for personal use.” ”The promoters of these CCS took advantage of the relaxed KYC (know your customer) norms while operating the CCS and several accounts have been opened without obtaining PAN (permanent account number). ”The promoters have misused these institutions for their personal benefit. The investigations have also revealed systemic distortion of the legal framework by these CCS,” the policy-making body for the tax department said.

It said some more ”unfair practices” and tricks for tax evasion were detected during the searches against the unidentified CCSs.

One CCS has been facilitating its clients to book ”bogus expense” by returning the amount in cash, which had been received by cheque from its clients, it said. ”The said CCS has also enabled laundering of unaccounted money by accepting cash deposits from its clients and returning the proceeds to them through RTGS. The said CCS has also been found to be engaged in providing short term loan at very high rates of interest to some of non-members of CCS. Needless to mention that the CCS does not have requisite approval for carrying out the business of lending,” the CBDT claimed.

Certain instances of issuing ”fake” fixed deposit (FD) certificates by another CCS to its clients in exchange for certain commissions collected in cash have also been found, the statement said. Such FD certificates, it said, were used as collateral by its clients for obtaining loans from financial institutions/commercial banks. The promoters of another CCS, the CBDT said, have indulged in ”diverting” the deposits made by genuine members by extending large loan amounts to the entities controlled by them or to their associates. ”Also, more than 100 benami accounts in the names of employees and others have been detected and such accounts have been placed under restraint,” it said. One of the clients of a CCS, who is engaged in the business of buying old gold from customers, has been found to be indulging in ”suppression” of sales leading to escapement of income to the tune of Rs 20 crore in these transactions, the CBDT said describing the alleged illegal acts of these cooperative sector institutions. ”The books of account relating to such undisclosed transactions have been discovered by the search team in a secretly maintained web-based server,” it said.