The Income Tax Department on Tuesday launched a nationwide field verification exercise targeting entities and fictitious charitable trusts suspected of sending large amounts of money abroad.

The exercise also covers entities in some districts along India’s land borders. Officials told PTI that the alleged illegal transactions involve a few crores of rupees and were routed to about a dozen foreign jurisdictions.

The Central Board of Direct Taxes (CBDT) said the exercise, launched on August 18, focuses on shell entities, the people behind them and professionals who issued Form 15CB certificates for the foreign remittances.

The ongoing verification covers around 394 entities, including 117 located in states along India’s land borders, as well as 36 professionals, the CBDT said.

The CBDT is the policy-making body of the Income Tax Department.

Probe follows intelligence on suspicious transactions

According to the CBDT, the broad contours of the suspicious foreign remittances were discussed at a high-level border security meeting in West Bengal in July.

Tax officials were subsequently asked to examine the entire backward and forward linkages of the transactions, officials said.

The latest exercise follows a country-wide search operation conducted earlier, which uncovered a network of entities allegedly involved in remitting funds abroad.

The searches had targeted a group of fictitious charitable trusts accused of providing accommodation, or hawala, entries against bogus donations and contributions, the CBDT said.

Entities reported low turnover despite large transfers

Preliminary ground verification found that the entities making the foreign remittances were either non-filers or had filed income tax returns showing very small turnovers, according to the department.

The CBDT said there was “no apparent correlation” between the reported turnover of these entities and the large amounts of money being sent abroad.

The stated purposes of the remittances also did not appear to match the financial profile of the entities. These purposes included payments for freight, software imports and consulting services, the department said.

Further intelligence developed by the Income Tax Department suggested that the entities were not actually operating from their declared addresses.

Focus on Form 15CB certificates

Data analysis also showed that a large number of Form 15CB certificates had been issued by a relatively small group of professionals, the CBDT said.

The department also found that the money sent abroad was received by a “clustered” group of entities.

Form 15CB is a certificate in which an accountant certifying a foreign remittance is required to verify its taxability with reference to the taxpayer’s books of account and other relevant documents.

The findings have raised concerns within the department about whether adequate due diligence was carried out before the certificates were issued, the CBDT said.

CBDT stresses accountants' due diligence

The CBDT said accountants issuing certificates in Form 15CB and Form 146 must exercise due care, diligence and professional judgement.

They should properly examine the underlying transactions and relevant facts before certifying foreign remittances, it said.

The department stressed that such certifications play an important role in maintaining trust in the tax system.