Investigation on Suspected Rs.25,000 Crore Benami Transactions in Insurance Sector: IT Dept.

The Income Tax Department has discovered a complex network of transactions totalling over Rs 25,000 crore, exposing more than 60 intermediate entities and hundreds of bank accounts in alleged Benami trades in the insurance industry.

The investigation, which focuses on extra commissions paid by insurers to their agents, has uncovered a mysterious connection between intermediary organizations functioning as ‘benamidars’ and the actual beneficiaries, the official agents.

The inquiry focuses not on the insurance firms themselves, but on these intermediary entities, which are accused of facilitating unlawful payments to agents that exceeded regulatory limitations.

The operation’s scope necessitated the involvement of multiple small intermediate firms, each handling only a percentage of the overall amount, disguising the trail.

According to the initial predictions by the Income Tax Department, the total amount of excess payments exceeds Rs.25,000 crore. The plan involves channelling the money via several businesses to hide their origins, making it difficult for investigators to figure out the complex web of transactions.

The investigation was launched following a detailed report presented by the I-T department’s investigation wing, which recommended additional inspection under the Benami Transactions (Prohibition) Act of 2016.

Last year, the government investigated several insurance businesses and intermediaries, revealing inconsistencies in tax payments. While insurers face larger tax liabilities due to disallowed deductions for additional commissions, intermediaries are being scrutinized for unexplained income.

Notices under the Benami Transactions (Prohibition) Amendment Act of 2016 have been sent to the agents concerned, who have yet to react. They have been instructed to provide transaction information, particularly about funds received from intermediate firms.

However, experts warn that proving Benami transactions places a substantial burden of proof on criminal enforcement agencies, considering the numerous factual and legal arguments that can be made by the relevant parties. The complexity of these transactions may make it difficult to determine genuine beneficial ownership of assets.

Despite increased scrutiny of the insurance business and its associates, no regulatory action has been taken against any insurance company to far. Benami laws allow for the provisional attachment of funds with insurance agents following a show cause notice.

Currently, the government is gathering information on transactions suspected of having Benami characteristics, with a focus on those that occurred before March 2023.

As investigations continue, the insurance industry finds itself in a legal quandary, dealing with claims of Benami transactions that might have far-reaching consequences for the industry’s regulatory framework and stakeholder accountability.