Agriculture as laundromat and five reasons why the income tax story does not wash

After almost ten months of silence, the government of India finally came forth with some (rather strange) answers. The answers related to the charge that agriculture was being used as a laundromat – for converting black money into white (

2017-02-02_FPJ-PW-Agri-laundromat-error-or-coverupThe laundering was not related to just a few thousand crore of rupees.  If one takes the figures for just two years 2011 and 2012, the agricultural income declared was in excess of  (hold your breath)  Rs.874 lakh crore.  The figure was at least five times the total GVA (Gross Value Added) for the two years combined. It also represented 66 times total direct taxes collected over those two years.

This matter might not have come to light had it not been for a PIL (pu8blic interest litigation) filed by a retired income tax officer before the Patna High Court.  The petition asked the court to direct the income tax authorities to release the names of the top 1,000 assessees who had declared huge agricultural incomes.  According to the petition, the total agricultural income filed exceeds Rs.2,000 lakh crore. Phew!!!

The income tax department came out with a set of figures which showed that in 2011 and 2012 alone, declarations had reached Rs.874 lakh crore.  At the same time, thanks to the PIL before Patna High Court, the CBDT – on 10 March 2016 — sent out a circular to all its officers to verify details  (LETTER F.NO.DGIT(S)/DIT(S)-3/AST/PIL MATTER/AGRICULTURAL INCOME/97/2015-16) A copy of this letter can be downloaded from (

Remember, demonetisation involved just Rs.15.4 lakh crore.  The total currency in circulation is under Rs.20 lakh crore.  And Rs.874 lakh crore was many times these levels.

Since agricultural incomes are totally tax free, they are a great conduit for laundering slush funds. Almost every politician uses this route to justify tax-free income.  But never have declarations reached the levels they did in 2011 and 2012, when P.C.Chidambaram was finance minister.

Curiously, nobody said anything about this sudden surge in agricultural incomes.  Not even the income tax department which is required to complete assessments in two years’ time to prevent further enquiries from becoming time-barred.

Finally, after more than a year’s silence, the income tax gave out its version to a national daily (  According to the report (it had no names, no designations, and quoted no clear authority), the income tax department had scrutinized 2,746 assessments (out of 8 lakh assessees) and had found data entry errors in 838 of them.

But the department’s version doesn’t wash.  There are several reasons to believe that the story given out is not the whole truth.

First, assessees who declare income of over Rs.10 lakh are required to file their returns electronically.  In that case, there can be no excuse for data entry errors.  The entries must have been made by the assessees themselves. They then swore to the accuracy of the entries. In that case, why have not cases been registered against such assessees for wrong declarations?

Second, income tax assessments get time-barred if serious issues are not flagged within the stipulated time frame of two years.  Does this mean that the income tax department saw nothing wrong in such returns — till March 2016?.

This leads us to the third problem. The amounts declared were so staggeringly large that any person familiar with numbers could have seen the abnormal increase in the number of digits.  Normally, income tax officers deal with individual returns which sport 7-9 digits.  In these cases the numbers swelled to over 10 digits, because the average agricultural income stood at over Rs.30 crore in 2011 and over Rs.83 crore in 2012. Surely, if an officer cannot see the difference between 7 digits and 9 digits, he is either incompetent or collusive.  This is more true of finance ministry officials who are trained to notice such discrepancies.

Fourth, there is no explanation why the finance ministry remained silent – right from 2011 to 2016.  The CEA did not report anything.  Nor did the CSO which compiles GDP data.  The returns had been filed.  The figures had been tabulated. Could it be that these figures were not passed on to other departments?  Nor were the inflated returns cancelled – in sheer contrast to the cancellation of the returns filed by an individual in Ahmedabad and another in Mumbai, post demonetisation ( Even the CBDT swung into action only action only after the case was filed before the Patna High Court.

Fifth, even after such reports began appearing in the media, such questions were not raised in Parliament.  Was it a convenient collusion of the powerful?  And why has the income tax department not formally cancelled all such declarations even now? Smells fishy all right!

As always, too many questions.  Too few answers.

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