Cash Deposit Verification Guidelines

Cash Deposit Verification Guidelines given by CBDT to Assessing Officers[Instruction No. 3/2017 dated 21-02-2017]:

1. In case of an individual (other than minors) not having any business income, no further verification is required to be made if total cash deposit is up to Rs. 2.5 lakh.

2.  In case of taxpayers above 70 years of age, the limit is Rs. 5.0 lakh per person.

3. In non business cases,  where the person under verification has filed return of Income, a reasonable quantum can be considered as explained while quantifying the undisclosed amount, if any

4. In case of persons engaged in business or requirement to maintain books of accounts, no additional information is required to be submitted by the person under verification if total cash out of earlier income or savings (sum of responses for all cash transactions) is not more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17

5. However, if the AO has reason to believe that the closing cash balance as on 31st March 2016 has been increased by revising the return or backdating transactions in the books of account, further verification may be carried out.

6. For cash received from identifiable persons without PAN, The AO needs to verify if the cash receipts are not in line with the normal practices of concerned business as mentioned in the earlier returns of Income after considering the remarks provided by the taxpayer, nature of business and earlier history before seeking additional information.

7. For Cash received from Unidentifiable persons, normal practice of business to be verified

8. AO may seek relevant information e.g. monthly sales summary (with breakup of cash sales and credit sales), relevant stock register entries, bank statement etc. to identify cases with preliminary suspicion of back-dating of cash sales or fictitious sales

9. Some indicators for suspicion of back dating of cash sales or fictitious sales could be :

i) Abnormal jump in the cash sales during the period Nov to Dec 2016 as compared to earlier history.
ii) Abnormal jump in percentage of cash sales to unidentifiable persons as compared to earlier history.
iii) More than one deposit of specified bank notes in the bank account late in the demonetization period
iv) Non-availability of stock or attempts to inflate stock by introducing fictitious purchases.
v) Transfer of deposited cash to another account/entity which is not in line with earlier history.

10. In cases where online response has not been submitted, AO shall generate a letter from the Verification portal on ITBA to the person under verification for submission of online response  on the e-filing portal and ensure its service. This process should be completed within 7 days of availability of information on the portal.

11. The person under verification is not required to attend the Income-tax office personally under any circumstance and at any stage during the verification exercise.

12. The Assessing Officer will also be able to send a request for additional information, if required.

13. No independent enquiry or third party verifications are required to be made by the Assessing Officer outside the online portal. Whatever information is necessary during verification, the same has to be collected through the person under verification using online platform only

14.  Even telephonic queries are to be avoided.

15. It should be ensured that the communications made online with the persons under verification should be in very polite language without containing any element of threat or warning. No show cause of any kind should be given.

16. In cases of non compliance to cash verification window,  if the cash deposit is not in line with the earlier return or information profile of the person under verification, necessary facts may be collected inter-alia by exercising the powers under section 133(6) with the approval of prescribed authority.

17. In appropriate cases depending upon the online response or otherwise, survey action u/s. 133A can be considered. During survey, where there is suspicion of back dating or fictitious cash transactions, CCTV recording of the cash counter at relevant banks may also be checked, if necessary. Reference can also be sent to the Investigation wing in appropriate cases.