I-T Dept cracks down on fraudulent claims of deductions, conducts searches across states

New Delhi: The Income Tax Department on Monday conducted a "large-scale" verification operation across 150 locations in the country as part of a tax evasion probe against individuals and entities facilitating fraudulent claims of deductions and exemptions in Income Tax Returns (ITRs).

Official sources told PTI that the department undertook searches and surveys at multiple office and house locations in various states during the operation that came about after analysing financial data received from third-party sources, ground-level intelligence, and advanced artificial intelligence tools.

These findings were further substantiated by recent search and seizure operations conducted by the department in Maharashtra, Tamil Nadu, Delhi, Gujarat, Punjab, and Madhya Pradesh, where evidence of fraudulent claims was found to have been used by various groups and entities, the Central Board of Direct Taxes (CBDT) said in a statement.

"Investigations have uncovered organised rackets operated by certain ITR preparers and intermediaries, who have been filing returns claiming fictitious deductions and exemptions.

"These fraudulent filings involve the abuse of beneficial provisions, with some even submitting false TDS (tax deducted at source) returns to claim excessive refunds," it said.

The analysis, the Board said, reveals "rampant misuse" of deductions available under sections 10(13A) (exemption under house rent allowance), 80GGC (contribution made to political parties), 80E (deduction for interest on education loan), 80D (deductions related to medical insurance), 80EE (deduction for interest on home loan), 80EEB (deduction for electric vehicle), 80G and 80GGA (contributions made to charitable or research organisations), and 80DDB (deduction for treatment of critical illness like cancer, etc.).

"Exemptions have been claimed without valid justification. Employees of MNCs, PSUs, government bodies, academic institutions, and entrepreneurs are among those implicated," the policy-making body for the I-T Department said.

It was found that taxpayers are often lured into these fraudulent schemes with promises of "inflated" refunds in return for a commission, the CBDT said.

The Board said the tax department follows the guiding principle of 'Trust Taxpayers First', and it has always emphasized voluntary compliance and it has carried out extensive outreach efforts over the last few years by sending SMS and email advisories, nudging suspected taxpayers to revise their returns and pay the correct tax.

"As a result, approximately 40,000 taxpayers have updated their returns in the last four months, voluntarily withdrawing false claims amounting to Rs 1,045 crore. However, many remain non-compliant, possibly under the influence of the masterminds behind these evasion rackets," it said.

The CBDT said that despite a fully e-enabled tax administration system, ineffective communication remained a "significant" hurdle in assisting taxpayers as it was observed that such ITR preparers often create temporary email IDs solely for filing bulk returns, which are later abandoned, resulting in official notices going unread.

It said the tax department was "now poised to take stern action against continued fraudulent claims, including penalties and prosecution wherever applicable".

"The ongoing verification exercise across 150 premises is expected to yield crucial evidence, including digital records, that will aid in dismantling the networks behind these schemes and ensure accountability under the law," it said.

The CBDT said that taxpayers are advised to file correct particulars of their income and communication coordinates and not be influenced by advice from unauthorised agents or intermediaries promising undue refunds.