Operation Clean Money, the Indian government's new scheme launched for electronic verification of individuals who had made cash deposits of more than Rs 2.5 lakh in banks post demonetisation, was supposed to be a data analytics- and technology-driven process with minimal human intervention. But the standard operating procedure (SOP), to be followed by assessing officers for verification of those transactions, belies all such claims.
The government has maintained that the entire process will be accomplished through minimal human intervention, and technology will be the key to success in this operation. However, the SOP circulated among field officers calls for more human intervention than the government would have us believe. It also raises the question of whether the income tax department has enough wherewithal to complete the process within a specific time.
While the department used technology and data analytics to zero in on 18 lakh individuals whose cash transactions 'do not appear to be in line with their tax profiles', and also facilitated filing of information online by depositors, the next stage of the work requires assessing officers to analyse the explanations provided by the depositors and decide whether these are 'acceptable' or 'non-acceptable'.
But going by the SOP, this process will not only involve the discretion of the assessing officers, but also a fair amount of time.
Of the 18 lakh individuals picked up by the tax department and to whom letters were sent asking for explanation, over five lakh had responded till February 12. The last date for filing explanations was February 15. According to a senior official in the tax department who did not want to be named, they have received cases of only two lakh individuals so far for scrutiny of the details provided by them.
As per the instructions, the information relating to cash transactions and the response submitted by the person under verification can be accessed by an assessing officer and his/ her supervisory officers. The assessing officer is required to 'verify each information record individually and take a decision', whether the explanation provided is satisfactory or not.
If required, the assessing officer can send a request for more details within five days of receiving the information. The request will be sent to the PAN holder with a hyperlink for uploading further details.
In case a response is not satisfactory, the assessing officer will have to ascertain the (probable) undisclosed amount and escalate it back to the directorate of systems for further action. But that may require some doing. For instance, if a person runs a business or is required to maintain books of account and if the total cash transaction is more than the closing cash balance as on March 31, 2016, the tax officer, during the verification, has to look into the income earned over the past years, sources of such income, filing with the registrar of companies (RoC) and the income shown there, cash withdrawals made from accounts and so on, before quantifying the undisclosed amount.
If an individual picked up for scrutiny under Operation Clean Money does not respond to the queries posed by the department, tax officers can also conduct surveys and searches on such individuals, if required.
All these processes have to be completed according to a set of rules specified in the SOP, within a prescribed time limit, so that individuals under scrutiny can avail the benefits of Pradhan Mantri Garib Kalyan Yojana (PMGKY), which is closing on March 31, 2017.
PMGKY is an amnesty scheme under which one can disclose unaccounted cash and deposits, and avoid punishment by paying 50 per cent of the disclosed amount as tax, and depositing 25 per cent in an interest-free scheme for four years.
But it is already the second week of March and, as mentioned earlier, only two lakh cases have been referred to the assessing officers so far. Besides, an official from the Central Board of Direct Taxes (CBDT), who did not want to be quoted, also confirmed that no notices have been sent yet to any individual. Add to that the staff crunch that the tax department faces - 33 per cent to be precise.
Out of the sanctioned strength of 60,000 staff members, the working strength is only 42,000. Against the sanctioned strength of 1,575 joint commissioner-rank and additional commissioner-rank officials, the working strength is 1,059. The number of assistant and deputy commissioners is 1,915, against the sanctioned strength of 2,294, while the number of income tax officers is 5,200 against the sanctioned strength of 5,900. In addition, the routine flow of transaction data is so huge that the department is not able to handle it.
There is another technical issue that the department now faces. There is little congruence between the Income Tax Act and quite a few procedures mentioned in the SOP, which can lead to further delay in completing the process. For instance, as per the Income Tax Act, an assessee may not respond to a tax notice till he/ she files the return, and the last date of filing return is July 31.
Given the enormity of the task ahead for the assessing officers and the staff crunch that the department is facing, it is anybody's guess how smoothly the verification of large cash transactions under Operation Clean Money can be accomplished. Going by how things have moved so far - out of 18 lakh individuals, 4.84 lakh taxpayers had not registered with the e-filing portal till February 12 - the demonetisation drive may not bear the desired 'fruit' and kick black money out of the system.