Income Tax Dept. Searches 394 Suspicious Entities, 36 Professionals Over Large Foreign Remittances

The Income Tax Department has launched a nationwide verification exercise after uncovering a network of suspicious entities allegedly involved in remitting substantial amounts of foreign exchange abroad. Search and verification action covered 394 entities and 36 professionals, including Chartered Accountants, with investigators examining the source, purpose and tax treatment of the overseas remittances.

According to the Income Tax Department, 117 of the entities under scrutiny were located in districts and states along India’s land borders and had remitted significant sums outside the country.

The exercise reportedly included searches at several business premises, including entities in Mumbai. Sources indicated that the premises covered businesses engaged in sectors such as software and engineering.

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Probe Originated From Investigation Into Fictitious Charitable Trusts

The wider network allegedly came to light during an investigation into a group of fictitious charitable trusts suspected of providing accommodation entries against bogus donations and contributions.

As investigators examined financial and transactional data connected with these trusts, they reportedly identified a number of entities making substantial foreign remittances despite having little apparent business activity or financial capacity.

Officials found instances where the entities concerned had either not filed income-tax returns or had filed returns declaring very small turnovers. The turnover disclosed in several cases allegedly appeared disproportionate to the large sums being remitted abroad.

Declared Businesses and Remittance Purposes Under Scrutiny

The investigation also raised questions about the genuineness of the businesses and addresses declared by several entities.

According to the Department, many of the entities were not found to be operating from their declared addresses, while information furnished to authorities allegedly did not accurately reflect their actual activities.

The stated purposes of the foreign remittances included payments for:

Freight and related services;
Import of software;
Consulting and professional services; and
Other overseas commercial transactions.

However, investigators are examining whether the explanations and documentation provided by the entities genuinely supported the stated purpose of these remittances.

36 Professionals, Including CAs, Come Under Scanner

A significant part of the investigation concerns the role of professionals who issued Form 15CB certificates in relation to the foreign remittances.

Form 15CB is a certificate issued by an accountant in specified cases involving payments or remittances to non-residents. It generally deals with the tax implications of the remittance and the applicable provisions under the Income-tax Act and relevant tax treaties.

The Department’s analysis reportedly revealed that a large number of Form 15CB certificates had been issued by a relatively small group of professionals. Investigators also found that the overseas funds were allegedly being received by a clustered group of entities.

This pattern has prompted authorities to examine whether adequate professional due diligence was undertaken before the certificates were issued.

Authorities Suspect Inadequate Due Diligence

Income Tax officials suspect that, in certain cases, Form 15CB certificates may have been issued without sufficient verification of the underlying transactions.

The investigation is focusing on whether professionals properly examined:

The books of account of the remitting entities;
Supporting invoices and agreements;
The nature and purpose of the remittance;
The taxability of the payment in India;
Relevant provisions of tax treaties, where applicable; and
Other documents necessary to establish the genuineness of the transaction.

The Department is now attempting to identify the persons controlling the suspected shell entities, trace the flow of funds and determine whether the overseas remittances represented genuine commercial transactions.

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