Political Economy

Large Individual Deposits in Ahmedabad District Cooperative Bank Remain Unexplained

A little over 200 ADCB customers likely contributed to the bulk of post-demonetisation deposits. Why doesn't the government tell us if they are being probed for misrepresenting their agricultural income?

The income tax (IT) department has generally accepted that one of the biggest conduits for laundering black money in India is to show it as income belonging to farmers.

Therefore, it is curious that the Centre is not probing the unusually large deposits collected by the Ahmedabad District Cooperative Bank (ADCB) in just five days after demonetisation by invoking the new benami transactions law which is meant for precisely this purpose.

The fact that Bharatiya Janata Party president Amit Shah is an active director on the bank’s board provides an even greater moral reason to investigate the larger deposits, which might have been made in the name of farmers.

After all, it was precisely because of this suspicion that the Reserve Bank of India (RBI) ordered, within a week of demonetisation being announced, that district cooperative banks could no longer accept or exchange the scrapped bank notes. 

When an RTI inquiry revealed ADCB’s total deposits in the five days after demonetisation (Rs 745 crore), the National Bank for Agriculture and Rural Development (NABARD) immediately came to the bank’s defence and put out data showing that most customers (98.6% of them) had deposited less than Rs 2.5 lakh.

What NABARD did not reveal is that perhaps the remaining 1.4% of depositors may have deposited over 60% of the total deposits of Rs 745 crore.

NABARD believes there is nothing alarming about ADCB’s deposits in the days after demonetisation because the average deposit per customer is Rs 46,795, which is lower than the per depositor average in Gujarat’s 18 district cooperative central banks.

But as we know, the average size of deposit may not present an accurate picture, in the same way the per capita income of a country does not tell us much about the real wealth of its top earners. For example, the top 1% of India’s population held 73% of the country’s wealth in 2017, according to Oxfam.

According to its own admission, only 1.60 lakh out of ADCB’s 16 lakh customers deposited scrapped notes of Rs 1,000 and Rs 500 in their respective accounts between November 9 and 14. Out of 1.6 lakh customers, as much as 98.66% deposited less than Rs 2.5 lakh.

That means only 230 ADCB customers deposited more than Rs 2.5 lakh in their accounts. If the overall average deposit was Rs 46,795, the average for the 98.66% who deposited less than Rs 2.5 lakh is likely less. If you take an average deposit size of Rs 10,000 for that 98.55%, it works out to less than Rs 200 crore.

This implies that that those 230 account holders contributed a bulk of the Rs 745 crore. It is these large deposits that need investigation.

It is surprising that the abnormally large deposit of scrapped notes in the ADCB has not raised the IT department's suspicion. Credit: Reuters 

It is surprising that the abnormally large deposit of scrapped notes in the ADCB has not raised the IT department’s suspicion. Credit: Reuters

Therefore, NABARD must also reveal the identity of the ADCB customers who made deposits of more than Rs 2.5 lakh in their accounts after demonetisation and provide this information to the the IT department. This will help in investigating whether farmers were used as a front by unscrupulous elements for hiding their black money.

Indeed, it is surprising that the abnormally large deposit of scrapped notes in the ADCB has not raised the IT department’s suspicion.      

In its statement, NABARD says all these accounts are KYC (know-your-customer)-compliant. Agreed, but what is the harm in revealing the identity of these handful of depositors when the RBI believes there is something fishy about such surges in bank deposits in the immediate aftermath of demonetisation?

These 200-plus individuals, with high denomination deposits running into crores, may have other non-agricultural sources of income too. This needs to be investigated.

As we all know, in India, agriculture income cannot be taxed and that is the reason those hoarding illegitimate wealth try to pass it off as agricultural income. So it is quite possible that some deposits of more than Rs 2.5 lakh made in those 230-odd ADCB accounts in the wake of are benami transactions, which needs to be probed by the IT department, the nodal agency for enforcing the Benami Transactions (Prohibition) Amendment Act, 2016.

Significantly, the IT department had initiated a nationwide operation to identify suspect bank accounts where huge cash deposits were made post demonetisation.

In the past, the NDA-II government itself has stated its intention at going after tax-evading ‘farmers’.

In March 2016, finance minister Arun Jaitley informed the Rajya Sabha that the government was going after tax evaders who were masking themselves as farmers. Jaitley said that the tax department was probing cases where evaders had passed off their unaccounted income as agricultural income.

Between 2007-08 and 2015-16, 321 people in the Bangalore region, 275 in Delhi, 239 in Kolkata, 212 in Mumbai, 192 in Pune, 181 in Chennai, 162 in Hyderabad, 157 in Thiruvananthapuram and 109 in Kochi declared agricultural income of at least R 1 crore, news agency PTI reported at the time, citing official data.

A total of 2,746 entities and individuals declared agricultural income of above Rs 1 crore in that period.

“There is no proposal to tax farmers’ agricultural income given the state our agricultural sector is in. But if someone misuses this provision and tries to pass off non-agricultural income as agricultural income, then we will probe that individual case,” Jaitley said.

He added, “There are many prominent people who have done this and against whom an investigation is being conducted. When the investigation concludes and some names come to the fore, please don’t call it political victimisation.”

Jaitley was responding to queries from Janata Dal (United) leader Sharad Yadav and Bahujan Samajwadi Party leader Mayawati. Both leaders pointed out that individuals were using the farm income route to mask black money.

Post demonetisation, the IT department had issued advertisements to warn people against depositing their unaccounted money in others’ accounts, saying action could be taken against them under the Benami Act.

The Benami Transactions (Prohibition) Amendment Act, 2016 came into effect from November. Benami property, as per the Act, includes movable or immovable property, tangible or intangible property, corporeal or incorporeal property.

The Act empowers provisional attachment and subsequent confiscation of benami properties. It also allows for prosecution of the beneficial owner, the benamidar, the abettor and the inducer to benami transactions, which may result in rigorous imprisonment up to seven years and fine up to 25% of fair market value of the property.