Government Cracks Down On Jewellers Who Made Unaccounted Deposits During Demonetisation

The government has detected that many jewellers made high cash deposits, which they failed to justify, after India invalidated high-value currency notes in 2016.

That comes after the Income Tax Department scrutinised the high-value cash deposits made by a few jewellers during demonetisation, according to a government official.

With the use of data analytics, the department found that certain jewellers had made exorbitantly high cash deposits during the period after demonetisation compared with the year before, the official cited earlier said on the condition of anonymity. Such jewellers, according to the official, had made high-value bank deposits compared with the income disclosed in their tax returns.

Modus Operandi

One jeweller, the official said, with an annual income of Rs 1.16 lakh deposited cash to the extent of Rs 4.13 crore three days after the government announced on Nov. 8, 2016, that Rs 500 and Rs 1,000 currency notes would cease to exist as legal tender.

The practice was to show these huge deposits as sale proceeds or loans or cash received as an advance from unknown customers for purchases made a month before the announcement, the official said. These jewellers showed unaccounted cash as proceeds of purchase made from unregistered dealers who bought gold or silver on credit. However, following scrutiny, these jewellers couldn’t furnish complete bills for such purchases, the official said.

In a few other cases it was found that the jewellers had shown advances from unknown customers in cash below Rs 20,000 each and deposited the same in their bank accounts. This amount was returned later to the same customer, and part-payments were made after depositing cash in bank. A substantial amount of such creditors was outstanding till the year-end.

In assessment of income tax cases, involving deposit of huge cash during demonetisation period, thousands of taxpayers—a large number of them being jewellers—have been facing significant tax demand as they aren’t able to explain the cash deposited, due the to volume of their normal business, said Shailesh Kumar, a partner at Nangia & Co LLP.

The entire amount of such “unexplained” cash deposits will be taxed at an increased tax rate of 60 percent, plus surcharge of 25 percent and education cess of 4 percent, along with a penalty of 10 percent will be imposed on them, Kumar said. Taxpayers, however, have a statutory remedy of filing an appeal against such tax demands, but their chances of success will depend on the strength of each case and documentation available with the taxpayer. In the absence of such documentation, it’s likely that tax authorities will recover the tax and penalty demand raised on taxpayers in such cases, he said.

In March 2019, the Income Tax Department had issued guidelines to its assessing officers to scrutinise the financials of 87,000 persons who made high-value deposits of over Rs 2 lakh during demonetisation.