Here a raid, there a raid, everywhere a raid: Indian taxmen after demonetisation

Caught in bundles.
Caught in bundles.
Image: Reuters/Mukesh Gupta
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It’s the season of income tax raids in Asia’s third-largest economy.

Since Indian prime minister Narendra Modi announced the historic demonetisation, India’s income tax (IT) department has seized cash worth Rs120 crore ($17 million) until Dec. 06 during raids across the country. It has identified Rs1,500 crore ($222 million) of unaccounted income, Sushil Chandra, chairman of the central board of direct taxes (CBDT), the policy-making body of the tax department, told India Today last week. On Dec. 09 and 10, the tax department conducted some of the biggest raids ever in the country.

Chandra said that within a month, CBDT had sent notices to some 2,000 bank account holders to check on irregular activity.

The Nov. 08 demonetisation, if successful, could be a watershed moment in India’s economic history. Its main aim was to crackdown on illegal wealth, or black money, in the economy. Its execution has, however, only befuddled Indians who are now struggling to get their old, and now-illegal, notes exchanged.

Some Rs11.85 lakh crore worth of funds have been deposited in banks since demonetisation was announced, the Reserve Bank of India (RBI) said on Dec. 07.

For income tax officials, there couldn’t be a more busy time. The government has sought details of those depositing big amounts ahead of the Dec. 30 deadline. Any deposit of over Rs50,000 in the Jan Dhan accounts—opened under Modi’s flagship financial inclusion program—Rs2,50,000 in savings bank accounts and Rs12,50,000 in current accounts will be probed. This massive exercise would increase the workload of India’s taxmen by at least 12.5 times, The Indian Express reported on Dec. 11.

There’s also a growing fear among Indians that the government’s dicta could mean trouble for innocent tax payers, too. “Enforcement is naturally an important component of any tax administration. But India has experimented with a ‘raid raj’ before and it’s led only to corruption, harassment of ordinary citizens and the targeting of political enemies….There’s already enough fear of such raids becoming common again that the government felt the need to step in to quell some of the anxiety,” Mihir Sharma, a columnist with Bloomberg, wrote on Dec. 04.

Here’s a quick wrap of some of the biggest raids in the last few weeks in India, according to regions:

North India

In Delhi, while probing the Chandni Chowk branch of Axis Bank on Dec. 09, officials found 44 fake accounts created to park funds. Some Rs100 crore worth of old notes were collectively deposited in these accounts. A few days earlier, in November, the police arrested two persons with Rs3.5 crore in new currency notes on them while exiting the Kashmere Gate branch of the same Bank.

The country’s enforcement directorate (ED) on Dec. 04 arrested two other Axis Bank managers in Delhi and seized gold bars weighing 3 kg from them.

An ED probe is now underway to scrutinise bank officials involved in such rackets. Axis Bank is co-ordinating with investigating agencies in this task, the bank said in a statement.

Meanwhile, a lawyer’s office in south Delhi was raided on Dec. 09 and currency notes (a mix of old and new) of over Rs8 crore were found on the premise by IT officials.

In Lucknow, Uttar Pradesh (UP), officials searched the offices of Santosh Yadav, a politician of the ruling Samajwadi Party, on Dec. 09, The Times of India reported. Yadav is a member of the UP legislative council. However, there are no reports on how much money, if at all, was seized during this raid.

South India

On Dec. 10, taxmen found “28 kg of bullion, about 4 kg of gold and jewellery, Rs 5.7 crore of Rs2,000 currency notes and Rs90 lakh in old Rs 100 and Rs 20 notes” in unaccounted money at a hawala dealer’s homes in Karnataka’s Chitradurga and Hubballi districts. A hawala dealer engages in informal transfer of cash. The money was stashed away in a secret chamber in the bathroom of the dealer.

A week before that, officials in Karnataka had found Rs4.7 crore in new currency from the residence of a state government engineer and a government contractor. “The new notes and bullion are learnt to have been obtained by exchange of demonetised notes by payment of commission of an engineer and a contractor,” a CBDT statement said.

Last month, taxmen had also raided the office of Galli Janardhana Reddy, a Karnataka politician belonging to Modi’s Bharatiya Janata Party (BJP). Just days after demonetisation, Reddy had hosted a lavish wedding for his daughter, reportedly spending a staggering Rs500 crore.

In neighbouring Tamil Nadu, officials have seized some Rs100 crore over the past week during searches on the residential and official premises of various businessmen. Of this, some Rs70 crore were in new notes. The officials also found 100 kilograms of gold.

East India

Seizures in eastern India have been fewer.

The biggest haul so far has been in Kolkata where a former BJP politician, along with five others, was caught with Rs33 lakh, mostly in new currency. Taxmen also caught a doctor with Rs10 lakh in new notes.

Meanwhile, immediately after demonetisation, a private jet stashed with cash flew down to Dimapur in the insurgency-hit Nagaland from the western Indian state of Haryana. The police managed to trace the cash to the son-in-law of a lawmaker from Nagaland.

“The money, seized by the CISF, was handed over to officials of the income tax department. They handed it over to the claimant, Naga businessman Anato Zhimomi, after he produced an I-T exemption certificate,” L L Doungel, the Nagaland police chief said. Zhimomi is the son-in-law of Neiphiu Rio, a lawmaker from the state. Rio reportedly had the clearance from the Income tax department for the transfer of cash.

Meanwhile it was reported that the government had sought to placate the National Socialist Council of Nagaland (Isak-Muivah), an insurgent group it is currently holding peace talks with, by “moving trunkloads of the new Rs2,000 and Rs500 currency notes worth Rs 122 crore to two Manipur districts… dominated by the NSCN-IM.”

West India

Raids are underway at the most unlikeliest of places in Mumbai, India’s financial capital: a chawl—one of the hundreds of creaky buildings dotting the cityscape, offering cheap and basic accommodation to its lower-middle class—in the central suburb of Ghatkopar, The Indian Express newspaper reported on Dec. 09.

The occupants of Maulana Chawl’s 700 tenements were allegedly charging a commission from a resident of a neighbouring building for the use of their bank accounts to deposit unaccounted money. The said person’s premises were raided by IT officials who found more than Rs30,00,000 in new notes.

The Mumbai police have also detained seven persons, including a bullion trader, in the suburb of Dadar who were allegedly exchanging old cash. These people were in possession of Rs75 lakh in new currency notes. The IT department has now taken over the case. The police said that various such exchange schemes are on offer right now, with old notes (typically unaccounted for cash) are being exchanged with new ones for a 15% cut.

In Gujarat, Mahesh Shah, a builder who has declared Rs13,860 crore worth of undisclosed income under the government’s income declaration scheme (that ended Sept. 30was raided by tax officials on Nov. 28, 29 and Dec. 01. He had failed to pay tax on the declared income. On Dec. 03, Shah said during an interview to a local channel that the money that he’d disclosed wasn’t his and belonged to some politicians, businessmen, and builders. He said “it was his mistake to make disclosure of other people’s black money but also said was his compulsion.”

An income tax official has told The Times of India newspaper that Shah could be sentenced to three years in jail for lying in the income declaration scheme.