The Income Tax Department has identified several “suspicious” firms with little business activity that remitted large amounts of foreign exchange over the last three years. The department has now launched a nationwide verification exercise into suspicious foreign remittances.
Data analysis and ground intelligence showed significant overseas remittances by entities with little or no reported business activity, the Central Board of Direct Taxes (CBDT) said.
“A nationwide network of entities engaged in remitting funds abroad was uncovered during a search operation conducted on a group of fictitious charitable trusts involved in providing accommodation entries against bogus donations/contributions,” the CBDT said.
Preliminary ground verification revealed that the entities making these remittances were either non-filers or were filing income-tax returns showing very small turnovers. These entities were not operating from the addresses they declared.
“The turnovers had no apparent correlation with the large amounts of money being remitted abroad. They also did not appear to match the stated purpose of the remittances, such as payment for freight, import of software, or import of consulting services,” the CBDT said.
Further data analysis also revealed that a large number of Form 15CB certificates were issued by a relatively small group of professionals. The remitted funds were also received by a clustered group of entities, the CBDT said in a release.
Form 15CB, read with Rule 37BB of the Income-tax Rules, 1962, requires the accountant certifying a foreign remittance to verify its taxability with reference to the books of account and other relevant documents. “However, the findings raise concerns about whether adequate due diligence was carried out by the Accountants before issuing these certificates,” the CBDT said.
The nationwide verification exercise, launched on Tuesday, will verify these foreign remittances, focusing on shell entities, the persons behind them, and the professionals who have issued Form 15CB certificates.
The exercise has covered approximately 394 entities, including those located in districts along the country’s land borders and remitting significant amounts of money abroad.
“The Department emphasises that Accountants issuing certificates in Form15CB/Form 146 are expected to exercise due care, diligence and professional judgment. They should properly examine the underlying transactions and relevant facts before certifying the remittances, as these certifications play an important role in maintaining trust in the system. Further investigations are currently underway,” the CBDT said.