Loopholes in digital payments detected
*Student accounts used as financial channels
Mohinder Verma
JAMMU, Feb 20: A series of high-level investigations into banking compliance have uncovered financial irregularities in Jammu and Kashmir Bank, exposing operation of high-value accounts without linkage to Permanent Account Numbers (PAN), raising concerns over tax evasion, proxy banking networks and potential money laundering.
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According to sources, two detailed enquiry reports prepared during 2025 reveal systemic failures in Know Your Customer (KYC) compliance, weak internal monitoring mechanisms and extensive misuse of banking channels across multiple account schemes.
According to the investigation report dated February 14, 2025, a staggering 1.58 lakh bank accounts were found operating without PAN linkage despite many account holders actually possessing PAN cards.
These accounts collectively recorded credits amounting to nearly Rs 4.88 lakh crore between financial years 2021-22 and 2023-24, involving transactions of Rs 15 lakh or more annually, sources said. They added that 10,464 private non-PAN accounts alone handled credits worth Rs 9,649 crore during the period.
“Such funds not only escaped the tax net but might also have been utilized for other malpractices. Furthermore, discrepancies were identified in various schemes under which such accounts were being operated in violation of the norms/guidelines laid down by the Reserve Bank of India, signaling potential malpractices through a nexus between J&K Bank and individuals. The report was shared with other law-enforcement agencies, including the RBI, for further necessary action,” sources informed.
“Additionally, there is a disparity between income reported in Income Tax returns and credits reflected in bank accounts, suggesting individuals may be concealing their actual income through unlinked accounts”, sources said, adding that the enquiry pointed toward a steady rise in accounts opened or operated merely through Form-60 declarations, bypassing mandatory PAN verification requirements.
A second detailed analytical report dated September 11, 2025, examined 505 high-value bank accounts across ten categories of schemes for FY 2021-22 to FY 2024-25. All these accounts operated without PAN linkage, filed only Form-60 and recorded transactions exceeding Rs 50 lakh annually.
The probe revealed that total inflow and outflow amounts stood at Rs 2,281 crore and Rs 2,252 crore respectively, while the number of counterparties associated with the 505 account holders was 3,88,377 for inflow and 1,16,823 for outflow transactions.
“UPI-linked pooled accounts, though limited in number, handled the highest transaction volumes and inflow of funds”, sources said, adding that region-wise fund-flow analysis showed South Kashmir registering a net positive inflow of Rs 52.77 crore, largely originating from pooled digital accounts.
One of the most striking revelations was that non-linkage of PAN did not necessarily mean absence of PAN ownership. Out of 10,464 non-PAN accounts, 5,520 account holders actually possessed PAN cards, and only 1,230 individuals (22.3%) filed Income Tax Returns, whereas 4,290 account holders failed to file returns despite significant cash deposits and property dealings.
Investigators, according to sources, found that cash deposits in several cases exceeded declared income, pointing toward substantial under-reported or informal financial transactions.
Based on PAN-linkage analysis, 132 additional bank accounts were identified as being associated with 75 of the 505 identified account holders. Similarly, common email-ID analysis revealed 39 unique email addresses linked with 44 identified bank accounts. These same email IDs were also connected to an additional 99 counterparty bank accounts.
A total of 72 unique national IDs were mapped to 75 bank accounts from the 505 identified accounts, and these national IDs were also linked to 119 additional counterparty bank accounts, sources said. A web of direct and indirect linkages was noted among 96 bank accounts and 41 identified counterparties. There were 42,618 transactions between identified accounts and counterparties, averaging 1,040 transactions per counterparty.
Investigators identified 29 student accounts linked with 31 petrol filling stations. An amount of Rs 43.01 crore was transferred to 9,700 counterparties, while Rs 6,418 crore was received from 86,936 counterparties. Moreover, Rs 27.02 crore was transferred by 29 student saving accounts to 31 filling stations, indicating suspicious transactions between student saving accounts and fuel outlets.
A detailed examination of retail fuel outlets revealed a suspected modus operandi, sources said, disclosing that digital payments made by customers through the bank’s M-Pay platform were credited to employees’ personal accounts instead of official business accounts.
“Only a portion of daily collections was transferred to registered company accounts, and the remaining funds were diverted to unrelated third parties without invoices or accounting records”, they said, adding that payments made to oil companies did not match total fuel-sale collections and employee accounts were allegedly used to rotate funds and mask actual business revenue.
The enquiry further uncovered vulnerabilities arising from digital payment limitations, including limited integration of bank accounts with common UPI platforms, low credit-card penetration and heavy reliance on Cash-on-Delivery transactions in e-commerce.
“Courier delivery personnel effectively acted as temporary financial intermediaries, creating an informal parallel financial channel susceptible to tax evasion and untraceable fund movement,” sources added.
Key investigative findings include rapid rotation of funds across linked accounts, mirror transactions to conceal real ownership, proxy operations through student and scheme accounts, diversion of digital business receipts to personal accounts and transactions absent from Income Tax and GST disclosures.
Based on these findings, investigators recommended strengthening KYC compliance and internal controls, mandatory reporting of Form-60 accounts, periodic monitoring and reporting of high-value transactions, forwarding credit transactions exceeding Rs 50 lakh to respective jurisdictional Assessing Officers for action under the Income Tax Act, detailed scrutiny of non-PAN private bank accounts across schemes with cumulative credits of Rs 50 lakh or above, monitoring of UPI fund flows and establishment of a formal coordination mechanism with the National Payments Corporation of India.
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