Cash deposit ocm-cases

For AY 2017-18
By K. M. SHAHI, ITO-9(2)(3),
Mumbai

DISCLAIMER
This presentation is aimed at serving Assessing
Officers as quick guidance note only. Reference
may please be made to relevant provisions of the
I.T. Act, 1961, SOPs issued on the subject and
other CBDT Instructions.

105 Billion Pieces =
Rs. 17,000 Billion
95 Billion Pieces
= Rs. 8200 Billion
EFFECT OF DEMONETIZATION

Rs. 410
Billion in
275
million
A/cs
Rs. 720 Billion in 300 million A/cs

Almost 7-fold increase in FY 2016-17 w.r.t. FY 2015-18

Almost 2-fold increase in November 2016

EFFECT OF DEMONETIZATION : DIRECT TAX
In March 2014, the number of Income Tax returns filed was 3.8
crores. In FY 2017-18, this figure has grown to 6.86 crores. In
the last two years, when the impact of demonetization and other
steps is analyzed, the Income Tax returns have increased by
19% and 25%.
The number of New Returns filed post demonetization have
increased in the past two years by 85.51 Lakhs and 1.07
crores.
The growth of Income Tax collections in the Pre-
demonetization two years was 6.6% and 9%. Post-
demonetization, the collections have increased by 15% and
18% in the next two years.

The GST was implemented from 1st July,
2017 i.e. Post demonetization.
In the very first year, the number of registered
assesses has increased by 72.5%.
The original 66.17 Lakh assesses has increased
to 114.17 Lakhs.
EFFECT OF DEMONETIZATION : GST

DEMONETIZATION: WHAT IS BIG DEAL?
WHEN cash is deposited in the Banks, the anonymity
about the owner of the cash disappears. The deposited
cash is identified with its owner giving rise to an inquiry,
whether the amount deposited is in consonance
with the depositor’s income.
Accordingly, post demonetization about 1.8 million
depositors have been identified for this enquiry.
Mere deposit of cash in a bank does not lead to a
presumption that it is Tax paid Money.

TAX IMPACT OF OCM CASES
In 35,000 shell companies (out of 2.24 Lakh companies
struck-off by RoC), over Rs. 17,000 Crore was deposited
during demonetization period and was later withdrawn.
In one particular account, which had a negative balance on
8TH November, deposited and withdrew Rs 2,484 crore post
demonetization.
Another company was found to have OPERATED as many as
2,134 accounts during demonetization.
The probe by the Serious Fraud Investigation Office (SFIO)
has also identified at least 54 persons who helped 559
beneficiaries with laundering the illicit cash, sources said.
Some of these companies/persons are now before us
for assessment. Hence this session.

TYPES OF “OCM” CASES
• RETURN FILED TO. 142(1) NOTICE3
• NEITHER IN CASS NOR 142(1) ISSUED*4
• CASES UNDER CASS1
• NON-COMPLIANCE TO. 142(1)2

• RE-OPEN?• SHOWCAUSE
• OCM SOPs
• ORDER U/S. 144
• 143(2)/142(1)
• SHOWCAUSE
• OCM SOPs
• 143(2)/142(1)
• SHOWCAUSE
• OCM SOPs
CASS
RETURN
FILED TO
142(1)
NO
SCRUTINY
NO
RETURN
TO 142(1)

Re-opening cases of Cash Deposit u/s 147
❑ Courts have held that simply presence of cash
deposits in a bank account does not amount to
escapement of income
❑ AO must compare information with ROI filed and
give finding
❑ If return not filed, it must be specifically noted in
reasons recorded.
• NEITHER IN CASS NOR 142(1) ISSUED*4

THE BACKGROUND BEHIND THE SCENE
❑ Verification of selected cases involving risk of tax
evasion consequent to malpractices* noticed post
demonetization.
❑ Cash transactions did not appear to be in line with
their profile available with the Income Tax Department.
❑ Initially online verification was taken up in AIMS
module of ITBA but without any conclusion.
*MALPRACTICES:
Impersonation (Jan Dhan A/c & Others), Petrol Pumps, Medical Stores, Shell
Companies, Jewellers, Banks etc.

INSTRUCTIONS ISSUED
1 Cash Transaction 2016 : Frequently Asked [35] Questions
2 Guideline dated 14.11.2017 for Online Verification of Cash Deposits
from 9th NOV to 30th DEC 2016 [20 Page Technical Procedure]
3 Instruction No.03/2017 Dated: 21.02.2017 [Online Verification]
4 Instruction No.04/2017 Dated: 03.03.2017 [Verification u/s. 133(6)]
6 Instruction issued on 24.11.2017 [Verification & Assessment related]
7 Instruction issued on 05.03.2019 [Insight Profile View]
8 Insight Instruction no.10 dated 15.03.2019 [Verification & Assessment]
9 Internal Guidance Note issued on 13.06.2019 [Approach Note]
10 Verification Check List Issued on 09.08.2019 [CHECK LIST]
5 Instruction issued on 15.11.2017 [Issue Notice u/s. 142(1)]

INSTRUCTIONS ISSUED - I
❑ Cash transactions 2016 User guide and Frequently
asked questions (FAQs) available in ITBA AIMS module.
❑ SOP dated 21.02.2017 vide instruction no.3 of 2017 on
online verification.
❑ Instruction No.4 of 2017 dated 03.03.2017 on issue of
notice U/s 133(6).
❑ SOP dated 15.11.2017 for issue of notice U/s 142(1) in
select cases of substantial cash deposits.
❑ Letter dated 24.11.2017 on important issues to be
considered while framing scrutiny assessments.

INSTRUCTIONS ISSUED – II
❑ SOP dated 05.03.2019 for cases in which notice U/s
142(1) has not been complied.
❑ CBDT letter dated 26.07.2019 extending the time limit to
30.09.2019 for completion of assessment in OCM cases
❑ Internal guidance note dated 13.06.2019 for verification
of cash deposits and framing assessments.
❑ Verification Check List Issued on 09.08.2019

TECHNICAL / PROCEDURAL ISSUES
❑ Notices U/s 142(1) are generated only through ITBA module.
❑ The evidence of service of notice electronically as well as
through postal authorities/personal service is available on record.
❑ In case of affixture, the detailed report of the ITI and direction of
the AO to make affixture is properly reflected in the order sheet of
ITBA module.
❑ Due care shall be taken to capture the information in ITBA
module on the cases of fictitious/non-existent addresses.

TECHNICAL / PROCEDURAL ISSUES
Acquiring jurisdiction to assess the case:
Proper service of notice u/s 142(1) by any of the following
modes……
 By e-mail or
 By speed post or
 By PROPER Affixture at last known address
Notice u/s 142(1) along with proof of valid
service should be on file before passing
order u/s 144

TECHNICAL / PROCEDURAL ISSUES Cont’d….
❑ Date of service of notice U/s 142(1) upon the addressee
has to be captured invariably in ITBA module.
❑ Ensure that all cases of non-compliant142(1) cases are
reflected in the work list.
❑ In case of belated return beyond the time mentioned in
the notice U/s 142(1), please ensure to issue a letter to
assessee that such belated return is not accepted.

Q: How to revive a case which has disappeared from the
Work-List in case of belated return not accepted by the
Assessing Officer?
Ans: ITBA portal → ITR processing →RRR →View RRR
entries →Enter PAN & A.Y and click SEARCH → select the
RETURN and click view/proceed to DATA ENTRY → in part
“General” – mark the RETURN as INVALID →Go to AIMS
Non-filers/Stop filers list →the respective case appears in the
list → Click on “Initiate proceedings U/s 144”.

Q: How to revive a case wherein no Return of Income is filed
in response to Notice u/s. 142(1) of the I.T. Act, 1961?
Ans: ITBA portal → ITR processing →MENU →List of NON
FILER / STOP FILER → Select NON-FILER (*) → Enter PAN
& A.Y and then Click SEARCH → select the CASE and Click
on “Initiate proceedings U/s 144”.

1) Bank Statements for the period 01.04.2015 to 31.03.2018
2) Closing Bank Balance as on Date [For recovery purposes-281B]
3) KYC Documents [Look for PAN/Aadhar/Passport details]
4) Total Cash Deposit in FY 2015-16 and FY 2016-17.
5) Total Cash Deposit from 01.04.2015 to 08.11.2015.
9) Details of Assets pledged with Bank for OD/CC/Loan accounts.
10) Copies of the Cash Scrolls for the period 09.11.2016 to 31.12.2016.
11) Copies of Cheques debited immediately after Cash deposits.
12) Account No. of payee to whom cheques were debited, if available.
ISSUE OF NOTICE U/S. 133(6) TO BANKS (WHAT TO ASK?)

1) Explain and substantiate the “nature and source” of Cash Deposit
during demonetization period from 09.11.2016 to 31.12.2016.
2) Explain and substantiate the reason for huge cash in hand in FY
2016-17 till 08/11/2016.
3) All Bank Statements for the period 01.04.2015 to 31.03.2018
4) Cash Book, Sale, Purchase & Stock Register for AY 2016-17 & 2017-18.
5) Month-wise Cash Sales & Cash Deposits for April to October and up to
8th November for FY 2015-16 and FY 2016-17.
6) Copy of VAT Return (Original & Revised, if any) for AY 2016-17 & AY
2017-18, with reason for revision.
7) Copies of the Cash deposit slips for the period 09.11.2016 to
31.12.2016.
8) Explain the reason for small cash deposit/withdrawal despite huge cash
in hand in AY 2017-18.
9) Account No. of payee to whom cheques were debited, if available.
NOTICE U/S. 142(1) (WHAT TO ASK?)

❑ Information regarding updated address, bank accounts
shall be placed on file.
❑ Other personal details of Directors like PAN, Passport,
contact No., Email & Aadhar should also be placed on file.
❑ In the cases of non compliance to notice U/s 142(1), best
judgment assessment shall be made U/s 144 of the IT Act.
❑ For A.Y.2017-18, as per the CBDT letter, such best
judgment assessments are to be completed by 30.09.2019.

Examine the Material Available:
a. Previous Returns (if any)
b. Reply if any, filed in the AIMS module during online
verification.
c. Investigation folders if any, received from Investigation
Wing/ I & CI.
d. Information gathered U/s 133(6)/131 during online
verification period.
e. Information gathered subsequent to issue of notice U/s
142(1) through 133(6)/131 of the I.T. Act, 1961 from Banks/
Third Parties.

❖ Range head shall mandatorily issue directions U/s
144A of the IT Act in 142(1) non-compliant cases (no Return
filed cases) .
❖ Assessing Officers to make available lists of such cases
where best judgment assessment proceedings are in
progress.
❖ Unless directions prejudicial to the assessee are given,
assessee need not to be given opportunity of being heard i.e.
as long as the directions on lines of enquiry envisaged in
the case are given.

❑ All enquiries caused in locating the assessee, addresses
shall be captured in ITBA.
❑ Show-cause notice shall invariably be issued after
gathering all the information.
❑ To check 3600 Profile on ITBA and keep the information
on record.
❑ To check 3600 Profile on Insight Portal and keep the
information on record.
❑ Information to other AOs must be passed on through
ITBA module only.

Penalty and other provisions:
a. Specific section for addition MUST be mentioned. [Audit?]
b. For additions made U/s.68 to 69D, tax [@60%] is to be
levied U/s. 115BBE and penalty is to be initiated u/s.
271AAC [@10%].
c. In case of cash loans explained as source, provisions of
section 269SS/269T to be referred and reference shall be
made to Range Head preferably before completion of the
assessment.
d. In case of cash sale of jewellery/ bullion/goods/ services in
cash provisions of section 206C(1D) to be examined.
e. For other additions penalty U/s. 270A is to be initiated.

❑ Replies filed during the course of Assessment shall be
compared with the replies furnished during online
verification.
❑ Discrepancies if any, shall be highlighted to the assessee
seeking clarification/ reconciliation and accordingly a
conclusion could be arrived at.
❑ Where online verification was marked as NOT
ACCEPTABLE, AOs have to carefully analyze the specific
comments therein with the information furnished in the
present proceedings.

Quiz-Time
Assessment of Cash Deposits
What is the first question that you will ask the
assessee?
ANS: NARRATION of all entries in the Books Of Account.
Reason:
It binds the assessee and he cannot thereafter change
his stand to take another justification for “nature and
source” of the Cash Deposits.

EXAMINATION OF CASH SALES:
➢ Cash sales not proved are to be treated as
unexplained sum credited and to be brought to tax u/s.
68 r.w.s. 115BBE of the I.T. Act, 1961.
If the assessee is having business income, Bank Account
constitutes his books of account and addition should preferably be
made u/s 68 of the I.T. Act, 1961.
➢ However, Assessing Officer should also give a
detailed finding on bogus purchases and /or non-
reliability of stock shown by assessee.

➢ Central Excise/VAT Returns must be
examined.
➢ In case of revised VAT Return, Sales shown
in original VAT return should be ascertained and
compared with revised Sales figures.
➢ Large deviation in Sales in revised VAT
Return may be indicative of suspicious Cash
Sales.

➢ In case the assessee claims the cash deposits
out of receipts from debtors, examine –
▪ whether debtors were outstanding in the P.Y. or created
during the year under consideration ?
▪ Current Year debtors are to be thoroughly examined.
▪ In suitable cases, examine the debtors as Assessee’s
witness.
▪ Invoke 40A(3) of the I.T. Act, 1961 properly

REJECTION OF BOOKS OF ACCOUNT:
➢ After examining the Books of Account, if the
A.O. is not satisfied with the correctness or
completeness of the Books, provisions of Sec.
145(3) may be invoked and best judgment
assessment u/s. 144 may be done.
➢ The rejection of Books must be on reasonable
basis and not cryptic.

Unexplained Money, etc.
Sec.69A. Where in any financial year, the assessee is
found to be the owner of any money, bullion, jewellery
or other valuable article…
If the assessee is not having business income, bank
account does not constitute his books of account and
addition should not be made u/s 68.
Addition in such cases should be made u/s 69A r.w.s.
115BBE of the I.T. Act, 1961
This is also applicable where assessee is not
maintaining books of account

PEAK CREDIT ?
CIT Vs D.K. Garg [2017] 84 taxmann.com 257
(Delhi)
Hon’ble Delhi High Court has held that where
assessee, an accommodation entry provider, was
unable to explain all sources of deposits and
corresponding payments, he would not be
entitled to benefit of peak credit.

Quiz-Time
OCM CASES :
Order u/s. 144(1)(a) ?
Or u/s. 144(1)(b) ?
Or u/s. 144(1)(c) ?
As far as possible, a proper show cause
must be served before passing order u/s
144 of the I.T. Act, 1961.

Name of the Assessee XXXXXXX XXXXXXX PVT. LTD.
Address of the Assessee XXX, 2nd Floor, ZZZZ Complex,
New Link Road, Andheri (W)
Mumbai – 400 053
Email ID abcdefg@gmail.com
Contact Details 1234567890 / 022 - 12345678
PAN ABCDE 1111 F
Status Domestic Company
Date of Incorporation 23/07/2014
Directors details as available from records 1. XXXX xxxx XXXXXX (DIN- 12345678)
Passport No. :
Aadhar :
PAN :
1. XXXX XXXXXXXX XXXX (DIN - 87654321)
Passport No. :
Aadhar :
PAN :
Nature of Business/ Heads of Income
Status as per RoC Strike Off
Any Other Remarks
CAPTURE FOLLOWING DETAILS, IN THE CHECKLIST/ ORDER

Quiz-Time
Q.: The Verification Checklist in respect of the Cash
Deposit cases must be properly filled in all cases and –
(A) Placed in the Assessment File
(B) Uploaded on the ITBA System in suitable format
(C) Forwarded to Range Head/Pr.CIT
(D) (A) and (B) above.

…….for being such a wonderful audience
→ K. M. SHAHI, ITO-9(2)(3),
Mumbai

Cash deposit ocm-cases

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