A fraudulent network of agents facilitating income tax returns with incorrect deductions and exemption claims has been caught by the Income Tax Department. These agents helped taxpayers illegally lower
their tax liabilities and secure refunds that were unlawful.
In a statement, the Income Tax Department said that these fraudulent networks operated in a pan-India structure and were created by certain intermediaries. Their agents filed returns with inflated or fabricated deductions and charged a commission for it. Many of these illegitimate refunds were linked with donations made to Registered Unrecognised Political Parties (RUPPs) and certain charity institutions.
Tax Authorities Clamp Down On Such Networks
Sandeep Bhalla, Partner, Dhruva Advisors, explained how the Income Tax Department tracks such fake claims to catch the offenders and scrutinise these networks. Bhalla said the tax authorities deploy sophisticated data and AI-based profiling tools to catch abnormal deduction patterns and wrong claims issued by intermediaries. Third-party data sources are used to thoroughly verify such claims. These sources include banking records, trust filings, AIS/Form 26AS information, financial transactions and PAN-linked database.
“Where discrepancies are detected, follow-up enforcement actions — including searches and surveys under Sections 132 and 133A of the Income Tax Act — are undertaken to gather incriminating evidence of bogus donation receipts, hawala or routed funds, and fictitious CSR expenditure,” Bhalla told Economic Times.
“Recent CBDT advisories reflect a clear policy intent to curb artificial tax planning and deter bogus claims through an integrated approach combining advanced data analytics, third-party verification, and stringent penal measures.”
“Against this backdrop, the manner of detection, the consequences for offenders, and the resultant impact on credit and commercial standing assume critical relevance for industry stakeholders.”
Penalty
Bogus deduction claims are liable to be rejected outright by the Income Tax Department. It could result in tax demands with applicable interest charges and a penalty of up to 200 per cent of the tax amount on grounds of misreporting sums and refunds under Section 270A of the Income Tax Act.
“Where incriminating material unearthed during searches or other enforcement actions evidences the routing back of funds, the Department may treat such amounts as unexplained money under Section 69A of the Income ax Act, taxable at an effective rate of up to 78 per cent (with additional penalty of 10 per cent under Section 271AAC),” Bhalla said.
“In serious cases involving wilful tax evasion, the Department may initiate reassessment proceedings and criminal prosecution, which may include imprisonment.”
