Brief on Internal Guidance Note for verification of Cash Deposits

In terms of earlier circulars of Central Board of Direct Tax (‘CBDT’), on 13th June, 2019 CBDT had issued Internal Guidance Note for assistance of AOs for verification of cash deposits and framing of assessments in demonetisation related cases.

AOs approach for verification of cash deposit in non-business cases are briefly reproduced herewith:

  • When the source of cash deposit is claimed as Saving

The withdrawals/deposits vis a vis cash in hand may be carefully examined regarding the necessity of withdrawals for day to day expenditure although having huge cash in hand.

  • When the source of cash deposit is claimed as Loan received

The purpose of loan may be ascertained along with documentary evidence for the utilisation for the same purpose for which the loan was taken. The applicability of provisions of section 269SS/269T may also be examined.

  • When the source of cash deposit is claimed as repayment of loan given

The source of the amount given as loan may be examined. The applicability of provisions of section 269SS/269T may also be examined.

  • When the source of cash deposit is claimed as Gift

All the criteria of availability of cash may be carefully examined in the hands of the donor and if required a report may be sent to the Assessing Officer of donor for further verification and necessary action.

  • When the source of cash deposit is claimed as Exempt Income

Such exempt income was received in cash or not may also be kept in consideration while analysing the genuineness of the claim of the assessee.

  • When the source of cash is from an agreement to sell land

The copies of registered deed from the authorities may be obtained to analyse and correlate the dates of transaction with the date of stamp paper.

  • When the source of income is claimed as forfeit of advance for property

The AO may obtain the copy of the agreement to sale and examine the conditions specified for forfeiture of the advance and fulfilment of such conditions to forfeit the amount.

  • When the source of income is claimed as services provided in cash

The AO may check for the cash receipts in past years and compare the cash receipts with the receipts in service tax return both for the current assessment year and previous year.

For business cases, the following things may be kept in consideration:

  1. Analysis of Bank Account
  2. Analysis of cash receipt trend
  3. Analysis of Stock Register

(Link : https://drive.google.com/open?id=1ddgrtzX6HNw08eoiA5kuqUDJ1ryPuX76)