Income Tax Department conducts searches in Credit Cooperative Societies and their affiliates

Income Tax Department conducts searches in Credit Cooperative Societies and their affiliates On 02.12.2021, the Income Tax Department conducted search and seizure operations on four Bangalore-based Credit Cooperative Societies (CCS) and their affiliates. These search efforts have shown serious anomalies in the operations of these CCS, as well as the involvement of their promoters in syphoning off depositor cash for personal use. While operating the CCS, the promoters took advantage of the reduced KYC standards, and multiple accounts were established without getting a PAN. The promoters have abused these institutions for their own gain. These CCS have also been found to have a systemic manipulation of the legal framework, according to the investigations. Apart from the general anomalies observed in their operation, the following unfair practises and modes of tax evasion were observed throughout the course of these CCS's search operations:

i. One such CCS has been assisting its clients in booking fictitious expenses by repaying the funds obtained by cheque from its clients in cash. The aforementioned CCS has also made it possible for unaccounted money to be laundered by receiving cash deposits from its clients and returning the proceeds to them via RTGS. The aforementioned CCS was also discovered to be issuing short-term loans at extremely high interest rates to some non-members of the CCS. It goes without saying that the CCS lacks the necessary approval to conduct lending operations.

ii. There have also been reports of another CCS distributing bogus Fixed Deposit (FD) certificates to its clients in exchange for a cash commission. Clients have used such FD certificates as collateral to acquire loans from financial institutions/commercial banks.

iii. The promoters of one of the CCS have diverted legitimate members' deposits by issuing substantial loan amounts to entities owned by them or their accomplices. Furthermore, more than 100 benami accounts in the names of employees and others have been discovered, and such accounts have been frozen.

iv. One of a CCS's clients, who is in the business of buying old gold from consumers, was discovered to be engaging in suppression of sales, resulting in an income loss of Rs. 20 crore in these transactions. The search team located the books of account for such hidden transactions on a surreptitiously maintained web-based server.

Furthermore, hidden investments in immovable properties totaling approximately Rs. 130 crore in the names of the CCSs' chairman/promoters, entities controlled by them, and a few benami people have been uncovered. The search effort resulted in the seizure of more than Rs. 4 crore in unaccounted cash. More research is being conducted.