The Income Tax department recently conducted raids on several cooperative banks in Karnataka, leading to the discovery of financial irregularities and bogus expenditure amounting to Rs 1,000 crore.
On March 31, the IT department searched 16 premises of these banks due to suspicions that they were involved in routing funds of various business entities of their customers to evade tax liabilities.
During the search, cash amounting to more than Rs 3.3 crore and jewellery worth Rs 2 crore were seized.
According to the Central Board of Direct Taxes (CBDT), "the seized evidences revealed that these Cooperative Banks were involved in rampantly discounting bearer cheques issued by various business entities, in the name of various fictitious non-existing entities."
"These business entities included contractors, real estate companies, etc," it noted.
This was done without following KYC norms, and the amounts after discounting were credited to bank accounts of certain cooperative societies maintained by these banks. The cooperative societies then withdrew funds in cash and returned them to the business entities in question.
"This was done to mask the source of the cash withdrawal and enable these business entities to book bogus expenses," it said.
The department stated that these cooperative societies were used as a "conduit" in this modus operandi, and the beneficiary business entities could have booked bogus expenditure to the tune of around Rs 1,000 crore.
The IT department also discovered that these banks allowed the opening of fixed deposit accounts using cash deposits without adequate due diligence and subsequently sanctioned loans using these deposits as collateral.
The department seized evidence indicating that unaccounted cash loans amounting to over Rs 15 crore were given to certain persons/customers.
The CBDT claimed that the management of these cooperative banks generated unaccounted money through their real estate and other businesses, which was brought back into the books of account through multiple layering via these banks.
Furthermore, the bank funds were routed, without following due diligence, through various firms and entities owned by management persons for their personal use.
Karnataka is set to vote for its 224-member assembly on May 10, with vote counting scheduled for May 13.
