I am submitting below copy of a letter written by a Chartered Accountant to Mr. Arvind Kejriwal Chief Minister of Delhi .
This letter is widely shared on Facebook too in common interest and in support of effective step taken by our Prime Minister Mr. Narendra Modi to defeat the monsters of black money, fake money, corruption, terrorism, naxalism, extremism, drug smuggling, price rise specially in real estate, donation in educational institutes of higher education etc.
This letter in my view will clear many confusions of common men too who are having so many doubts on issue related to demonetisation of Rs.500 and Rs.1000 notes and introduction of new notes of denomination of Rs.2000 and Rs.500/.
THIS CHARTERED ACCOUNTANT SENT A MIND BLOWING OPEN LETTER TO KEJRIWAL ON CURRENCY DEMONETIZATION!
You must read it throughly and share with your friends too if you like it in the interest of the country.
November 12, 2016
To explain the probable Logic behind issuing New 2000 Rupee Note instead of 1000 Rupee Note.
Sir, I am a practising Chartered Accountant aged 28 in Surat and I was very hopeful that you would support the Notification for Demonetization of Currency and was very eager for your Reaction because your very entry into Politics was for supporting any small move to reduce Black money and Corruption and after all, this was indeed a very big and bold move….!
But after going through the Video released yesterday, my expectations from AAP as a Common men were shattered once again because I believed that a person of such stature and designation as you would spread positivity all around without any ifs and buts to make this Mega Clean-up Drive possible and rather help the common men in mitigating the problems rather than nagging about the same and hence I would like to bring to your knowledge the following Points.
Point 1
As you have stated in your Video that it took full 2 days for you to understand the various aspects of the Scheme and even after consultation with various Experts , you could not basically understand the Logic of why 2000 Rupee Notes were released instead of 1000 Rupee Note, I would like to make an attempt to tender my best possible logic ( Please enlighten me if I am wrong somewhere) as follows:
As you have stated in your Video that it took full 2 days for you to understand the various aspects of the Scheme and even after consultation with various Experts , you could not basically understand the Logic of why 2000 Rupee Notes were released instead of 1000 Rupee Note, I would like to make an attempt to tender my best possible logic ( Please enlighten me if I am wrong somewhere) as follows:
Sir, let us Simply take 2 Scenarios to understand the funda !
Scenario A : If as per your suggestion , Rs. 2000 Note are not issued but only New Rs. 1000 Notes are issued.
Lets say , for example Mr. X has Rs. 1,00,000/- black money in 100 Old Notes of Rs. 1000 each.
Mr. X divides those Rs. 1,00,000/- into 10 Equal Bundles, each comprising of 10 Old Notes of Rs. 1000 each and puts each Stack on a Table.
On Day 1 , in the morning Mr. X would deposit the first Bundle i.e. 10 Old Notes of Rs. 1000 valued at Rs. 10,000 into the bank and on same Day 1 in the Evening he would withdraw 10 New Notes of Rs. 1000 again valued at Rs. 10,000 and put it in the Locker in his house.
Now the real Game starts.
Now the real Game starts.
On Day 2 : Morning , Mr. X would deposit the second bundle of 10 Old Notes of Rs. 1000 valued at Rs. 10,000 kept on the Table. However in his books of accounts submitted to Income Tax Department, he will show that he has deposited the same 10 New Notes which was withdrawn on Day 1 : Evening ( which is actually still lying in the Locker of House )
On Day 2 : Evening , Mr. X would again withdraw 10 New Notes of Rs. 1000 valued at Rs. 10,000/- and keep the same in Locker . So at the end of Day 2, Mr. X has Rs. 80,000 on Table in Old Notes and Rs. 20,000/- in New Notes in Locker.
Now Day 3 will come in next week as limit of Rs. 20000 per week.
On Day 2 : Evening , Mr. X would again withdraw 10 New Notes of Rs. 1000 valued at Rs. 10,000/- and keep the same in Locker . So at the end of Day 2, Mr. X has Rs. 80,000 on Table in Old Notes and Rs. 20,000/- in New Notes in Locker.
Now Day 3 will come in next week as limit of Rs. 20000 per week.
The same exercise shall continue till Day 10 and by the end of Day 10, Mr. X shall have no Old Notes and Rs. 1,00,000 in 100 New 1000 Rupee Note in the Locker.
However, to the Income Tax Department, Mr. X has shown that he was having only Rs. 10,000/- as black money initially ( i.e. one bundle of 10 Notes of Rs. 1000 ) and he has rotated the same Rs. 10,000/- by depositing it into Bank account in the morning and withdrawing it in the evening and again redepositing the same on next day and so on.
Thus, Mr. X has paid tax only on initial Rs. 10,000 whereas he has managed to convert all his Black money of Rs. 1,00,000 into new Notes.
This Modus operandi is called Peak theory i.e. theory of rotation of same money which is accepted by most of the High Courts and Tribunals. Revenue is also helpless to catch Mr. X because the above scenario can also occur in genuine cases where you withdraw money from bank to purchase something and then when you think that no good deal is available, you may again deposit the same money into your bank account and are not required to pay tax again.
This Modus operandi is called Peak theory i.e. theory of rotation of same money which is accepted by most of the High Courts and Tribunals. Revenue is also helpless to catch Mr. X because the above scenario can also occur in genuine cases where you withdraw money from bank to purchase something and then when you think that no good deal is available, you may again deposit the same money into your bank account and are not required to pay tax again.
Scenario B : Watch what happens when PM issues New 2000 Rupee Note instead of 1000….!
Mr. X deposits first bundle of 10 Old Notes lying on Table in the Bank on Day 1 : Morning and then he withdraws 5 New Notes of Rs. 2000 on Day 1: Evening and keeps it in locker.
Now on Day 2 : Morning when he goes to deposit second bundle of 10 Old Notes of Rs. 1000 each and wrongly shows the Income Tax Department that he has redeposited the same money which was withdrawn on Day 1:Evening – Bingo !!!
Mr. X deposits first bundle of 10 Old Notes lying on Table in the Bank on Day 1 : Morning and then he withdraws 5 New Notes of Rs. 2000 on Day 1: Evening and keeps it in locker.
Now on Day 2 : Morning when he goes to deposit second bundle of 10 Old Notes of Rs. 1000 each and wrongly shows the Income Tax Department that he has redeposited the same money which was withdrawn on Day 1:Evening – Bingo !!!
He is caught red handed !! because the Bank slip on Day 2 submitted to bank shows deposition of 10 Notes of Rs. 1000 each whereas the Govt knows that Mr. X could never have withdrawn on Day 1 any note of Rs. 1000 because they were never Printed !!!!
Now Isn’t it really a Master Stroke by Mr. Narendra Modi, the beloved Prime Minister of our country ?!
Now Isn’t it really a Master Stroke by Mr. Narendra Modi, the beloved Prime Minister of our country ?!
Sir, you have stated in the Video that if Someone gives you the logic of issuing New notes of Rs. 2000 instead of Rs. 1000, you will Salute the PM and support him in his endeavour. I hope this explanations finds you in good health and I am waiting for the support in full sense.
Even if the above explanation is not completely true, we should rely on and respect the PM of our country who is elected through clear democratic majority.
Further, the fact that when someone is holding the new Rs. 2000 Rupee Note , he is phychologicaly getting a sense of freshness that the country is in the growth phase.
Messages are being circulated not to write anything on New Notes. Imagine if the Government would have never issued new higher denominations notes with inflation and growth we would still be dealing with Annas and Pavlis!!
Sir, the above example also gives you an explanation as to why the withdrawal limit is kept so low because the above modus operandi can still be done with Rs. 500 note however, the incentive would be less because Mr. X cannot withdraw more than Rs. 10000/- in a day and even if he withdraws Rs. 10,000/-, there is every possibility that Banks shall give Mr. X, 2000 Rupee note. So Mr. X cannot follow the above modus operandi.
And believe me Sir, each and every condition in the Notification is seen to take care of the problems likely to be faced by Citizens and at the same time making sure that such Sophisticated theories are not resorted to by Black money hoarders, but questioning everything in the name of Freedom of Expression may create Panic situations or bring out Loopholes and hamper the success of reforms.
Point 2
Sir, you have again criticised and stated in the Video that printing Rs. 2000 rupee note will help to increase Corruption because Stacking those Rs. 2000 Rupee Notes would require lesser Space as compared to Stacking Rs. 1000 Notes.
Sir, you have again criticised and stated in the Video that printing Rs. 2000 rupee note will help to increase Corruption because Stacking those Rs. 2000 Rupee Notes would require lesser Space as compared to Stacking Rs. 1000 Notes.
In this regard, I would like to ask that Sir, have you come across any case where the “Babus” have not taken any bribe and done work honestly because they had a small Bag which could not be fitted with Rs 1000 Notes ?!
Or have you come across any Businessman who has declared unaccounted money solely because there was no space to keep those Rs. 1000 Notes !!
Point 3
As stated in the Video by you, it is true that inspite of PM efforts, there shall be dubious commission agents and unaccounted Investment in gold through jewellers, but as far as I remember when the jewellers were on strike for 45 days when our PM levied excise duty on gold in month of April 2016, it was you who supported their strike. It shows that whenever some changes are suggested to regulate a particular Market, AAP opposes them and then now you nag that the Gold market is unregulated.
As stated in the Video by you, it is true that inspite of PM efforts, there shall be dubious commission agents and unaccounted Investment in gold through jewellers, but as far as I remember when the jewellers were on strike for 45 days when our PM levied excise duty on gold in month of April 2016, it was you who supported their strike. It shows that whenever some changes are suggested to regulate a particular Market, AAP opposes them and then now you nag that the Gold market is unregulated.
In fact I believe that the PM had a full blue print for the development of our country right from Day 1 of his being elected if I recall my last 3 years as a Professional.
- Firstly they asked for all the bank account number in your Return of Income
- Then they linked your PAN with Aadhar
- They linked all the subsidies, pension and other benefits directly to your bank account through Direct Benefit Transfer Scheme.
- Then they gave opportunity to all the common men to open an account with bank through Jan Dhan Yojna
- They entered into revised treaty with most of the countries in which unaccounted money goes through HAWALA e.g. Mauritius and thus the route of Black Money coming from Mauritius which everyone knew is stopped.
- They passed few strict laws to overcome the evil of black money such as Benami Transaction Act and Foreign Black Money Act
- They levied Excise duty on Gold.
- They also made TDS compulsory for Cash transactions above 2 lakhs.
- They withdrew lakhs of pending income tax and service tax litigations where Common men had won at Appeal level and Department had gone further.
- They also entered into information exchange agreement with such countries.
- Then they gave last opportunity to all black money hoarders through Income Declaration Scheme, 2016
- Now they have a Scheme for Dispute Resolution Panel again to reduce Litigation till December 2016.
Now the masterstroke, that they have banned Rs. 500 & Rs. 1000 denominations.
Not only the destination of this whole process is commendable but even the journey or the chronology of these events is interesting which explains the ultimate destination and who knows , may be the journey is still not over and the ultimate destination may still be the Swiss Account holders!!
Point 4
Further, you have stated in your Video that penalty would be levied at the rate of 200%. The said statement has created a panic and people have stated discounting their own hard earned cash.
Further, you have stated in your Video that penalty would be levied at the rate of 200%. The said statement has created a panic and people have stated discounting their own hard earned cash.
Being in Income tax Department in the past , you ought to know that as per the present Income Tax Act,1961 penalty is never levied on Cash deposits but on “concealed income”.
Hence when the common men is depositing Cash in hand which is duly accounted or out of his past savings and even out of unaccounted current years income whose return is yet to be filed, there shall not be any penalty if there is no mismatch between returned income and assessed income.
Even the Government Officials in their statement used the words “underreporting” or “mismatch”. To understand the definition of “underreporting”, Sir please refer Section 270A of the Income Tax Act or go through the following article:
No penalty on high denominations notes deposited into bank if such amount is declared in return of income by paying appropriate tax.
Instead you could have encouraged the citizens to pay appropriate Tax.
Point 5
Nowhere in the Video have you stated anything relating to Fake currency or Counterfeit Notes because you know that the issue of Existing Fake Currency is solved foolproof.
Nowhere in the Video have you stated anything relating to Fake currency or Counterfeit Notes because you know that the issue of Existing Fake Currency is solved foolproof.
Which situation would be better ?
Scenario A:
A Labourer standing in queue to exchange Notes from bank for a Short term.
Scenario B :
A Labourer working hard whole day to get a Fake Note at the end of the day?!
The issue of Terrorist Funding is also tackled but you chose to remain silent on the same.
You have stated that Modiji should have infused Rs 100 Note from before and it would have been you only to have said in this video that “Arre ATM se do din pehle se hi Sirf Rs. 100 ki Note bahar aa rahi thi toh sab ko pata tha , yek koi Secret nahi tha”
Conclusion.
Now Sir, if I am to believe that you really don’t understand these simple concepts even after consulting with Experts for 2 days as already described by you, I am deeply saddened because the common men believe that you are an IITian and have spent considerable time in Income Tax Department also.
Contrary to the same, If I am to believe that you already know the benefits of demonetization which I first learnt in Standard 8 when subject of economics was introduced to me and the concept of Peak Theory which is described by me above and which I learnt with my very limited experience while pursuing my profession of Chartered Accountancy ,
then I am more saddened and feel AAP Party as more dangerous because I believe that above any religion, politics or reservations in any caste or creed, it will always be education which shall uplift the common men and it is the common men who have elevated you to a position where you are looked by millions as their Idol and it is your duty to educate them and spread knowledge and not keep them in ignorance to preserve your vote bank.
I am grateful to all my Teachers who have selflessly shared their knowledge and some fellow members of CA fraternity who are playing an active role in creating awareness and educating Common men about the positive consequences of Demonetization true to the Jewel crowned to the profession as “Partner in Nation Building” and I would therefore like to advise the citizens not to sell the notes at discounted prices or deposit the cash into bank accounts of other benami persons in fear of penalty.
Further, do not claim any bogus expenses or bogus loss to gain more trouble.
Do not manipulate accounts by creating bogus cash on hand.
Be sporty and pay tax honestly to buy peace of building capital.
Jai Hind.
Regards,
CA Mehul Shah Surat mehul@raseshca.com
I Finally salute CA Mehul Shah for her effort to clear confusion of many people . Thanks a lot.
dkj
dkj
2-November-2016 21:00 IST
Government agencies are closely monitoring receipt of fake currency notes in Banks and Post Office;
Special watch is being kept receipt of fake notes in the States bordering our neighbouring countries.
Special watch is being kept receipt of fake notes in the States bordering our neighbouring countries.
One of the primary objectives of cancellation of legal tender character of old series of Rs.500/- and Rs.1000/- notes was to check the menace of terror financing through counterfeit currency notes. The receipt of counterfeits/fake currency notes in Banks and Post Offices are, therefore, being monitored very closely. RBI has been advised by Ministry of Finance to set up a Special Cell to monitor the receipt of fake currency notes and inform such instances to the Economic Offences Wing of the State Police, Intelligence/Enforcement Agencies of the Central Government and also to the Ministry of Finance. A special watch is being kept on receipt of such fake notes in the States bordering our neighbouring countries. The Law Enforcement Agencies have also been advised to maintain close vigil over possible movement of fake currencies and take prompt action as and when such cases are detected by them as well as by RBI and Banks.
12-November-2016 20:42 IST
Availability of cash with Bank branches and Post Offices
Ministry of Finance has reviewed and taken stock of the cash availability and issuance to members of public today. Reserve Bank of India (RBI), Indian Banks Association (IBA) and a few major banks participated in the review meeting.
A total of over 7 crore transactions have taken place from 9th November upto mid-day of 12th November (i.e. in the last two and a half days) for deposit, exchange of old notes and withdrawal from ATM and over the counter. Old notes of.Rs.500 and 1000 denominations amounting to about Rs. 2 lakh crores have been deposited to banks.
Out of 2 lakh ATMs, about 1.2 lakh are operational. Presently only Rs.100/- notes are being disbursed from the ATMs. Recalibration (requires both software and hardware changes) of ATMs is going on, which will be completed by end of this month/ early December. Other denominations will then be disbursed by ATMs.
There is sufficient cash available with RBI and Banks. They were advised step up the supply of cash to the public.
The availability of cash and issuance of cash to bank branches and Post Offices on a daily basis is being constantly monitored and necessary rebalancing being done for more efficient allocation of banknotes of requisite denominations between different areas. To cater to the requirement of rural areas, Banks were advised to supply notes of smaller denominations (Rs. 100 and less) as well as Rs. 10 coins.
A total of over 7 crore transactions have taken place from 9th November upto mid-day of 12th November (i.e. in the last two and a half days) for deposit, exchange of old notes and withdrawal from ATM and over the counter. Old notes of.Rs.500 and 1000 denominations amounting to about Rs. 2 lakh crores have been deposited to banks.
Out of 2 lakh ATMs, about 1.2 lakh are operational. Presently only Rs.100/- notes are being disbursed from the ATMs. Recalibration (requires both software and hardware changes) of ATMs is going on, which will be completed by end of this month/ early December. Other denominations will then be disbursed by ATMs.
There is sufficient cash available with RBI and Banks. They were advised step up the supply of cash to the public.
The availability of cash and issuance of cash to bank branches and Post Offices on a daily basis is being constantly monitored and necessary rebalancing being done for more efficient allocation of banknotes of requisite denominations between different areas. To cater to the requirement of rural areas, Banks were advised to supply notes of smaller denominations (Rs. 100 and less) as well as Rs. 10 coins.
11-November-2016 19:14 IST
Government extends existing exemptions with rergard to cancellation of the legal tender character of the existing series of high denomination bank notes of Rs.500 and Rs.1,000 denominations until the expiry of 14th November, 2016, with certain modifications / additions to the existing exemptions; Governments reassures that there is enough cash with RBI and Supply of cash to Bank branches and ATMs are being stepped up gradually.
While cancelling the legal tender character of the existing series of high denomination bank notes of Rs.500 and Rs.1,000 denominations w.e.f. the expiry of the 8th November, 2016, exemptions were allowed for certain transactions for the first 72 hours with a view to minimizing inconvenience to the public. Subsequently, based on feedback received from various quarters, certain more transactions were included for exemption.
The Government has been closely monitoring the implementation of the decision. Considering various representations received from different quarters in the matter, it has now been decided that the existing exemptions may be extended until the expiry of 14th November, 2016, with the following modifications / additions to the existing exemptions:
(i) Payment for court fees will be included in the exemptions.
(ii) The ID proof of customers will be required for transactions in consumer cooperative stores.
(iii) Payments towards utility bills will be restricted to only individuals / households for arrears and / or current bills. No advance payments will be allowed.
(iv) Payments in toll-plazas of the State and National Highways will be deleted from exemptions, considering that the Ministry of Road Transport and Highways is separately issuing instructions in this regard.
There is enough cash with RBI. Supply of cash to Bank branches and ATMs are being stepped up gradually.
11-November-2016 20:29 IST
The Chairman and Vice-Chairman, SIT on Black Money & Former Judges of the Supreme Court of India, Justice MB Shah and Justice Arijit Pasayat in a jointly written letter to the Union Finance Minister, Shri Arun Jaitley: The Government has taken a bold step to demonetize Rs. 500 and Rs.1,000 notes.
The Chairman, SIT on Black Money & Former Judge of the Supreme Court of India, Justice MB Shah and Former Judge of the Supreme Court of India &Vice- Chairman, SIT on Black Money, Justice ArijitPasayat has stated that the Government has taken a bold step by demonetizing Rs.500 and Rs.1,000 notes. In a jointly written letter to the Union Finance Minister, Shri Arun Jaitley, both the Former Judges of the Supreme Court of India have further stated that while it is a step in the right direction, a few steps would need to be taken to not only ensure that people holding black money in cash are not able to convert it into white but also to ensure that after a few months, a similar situation where the unscrupulous people are again able to store their illicit income in form of cash, does not arise.
Both the Former Judges of the Supreme Court of India in their letter have recommended that the following steps be taken to ensure the above:
(i) Instructions be issued to banks to report to CBDT or FIU, the transactions which fall in the following category:
· Large cash deposits are made in any account above a particular threshold. The threshold need not be made public or it shall encourage people who deposit black money to do so below the threshold prescribed. All such deposits be analyzed in reference to known sources of income of the person and heavy penalty and prosecution should follow in case the deposit is beyond the known sources of income of the person.
· People holding black money may also use poorer people to convert their money into white by parking the money in their bank accounts. Instructions also need to be passed on to banks to report any deposits not commensurate with the average transactions in those accounts. Wide publicity needs to be given the in case such cases are detected action shall be taken against both, the person holding black money as well as the facilitator.
(ii) As per media reports, a large number of people are reported to have bought jewellery in cash on the day demonetization was announced. Cash deposits made by jewelers should be correlated with their sales and PAN number of the buyers of jewellery. The same should then be analyzed against known sources of income of PAN holders and action taken accordingly.
(iii) Putting a limit of cash holding and cash transaction: Both the Former Judges of the Supreme Court of India have also mentioned in their jointly written letter that the cleansing which is achieved through this demonetization measure is likely to be short lived in case systemic steps are not taken to ensure that people do not start hoarding black money in cash again. They have also mentioned in their letter that the SIT in its previous reports has recommended putting a limit on cash transactions and also having an upper threshold on cash holding. This has been referred to in a previous letter dated 7th November, 2016 too. They reiterated that both these recommendations, if implemented, shall go a long way in ensuring that cash is not used as a medium of storing black money in the future. The recommendation relating to putting a limit on cash holding is specially important in this regard since with the introduction of Rs. 2,000 notes, it shall be even more easier to store large amounts of money in cash. If no limit to cash holding is imposed, we may lose the benefits of demonetization quite soon.
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