EXPLAINED: How Rs 2000 note

will curb black money - Gujarat

CA's open letter to Arvind Kejriwal
breaks internet - MUST READ
The letter explains 'How Rs 2000 note will curb black money'. This letter has gone massively
viral on internet.
The CA from Gujarat - Mehul Shah - in its open letter has explained the probable logic behind
issuing new Rs 2000 note instead of Rs 1000 note, according to India Arising website.
Here is the FULL TEXT of the CA's open letter to Arvind Kejriwal: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
Commonmen 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:
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.
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 weekaslimit 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.
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 !!!
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 Isnt it really a Master StrokebyMr. 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
isphychologicaly 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 theGovternment 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.
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 truethatinspite 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.
Infact 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
accountthroughDirectBenefit 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 TCS 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 theygavelast 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 peoplehavestated discounting their own hard earned cash.
BeinginIncome 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 issolvedfoolproof.
Which situation would be better ?
Scenario A:

A Labourer standing inqueue 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 ofTerrorrist 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 ATMse 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 dont 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
andeducatingCommonmen 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.
PS : Sir, Please share the same explanation to Rahul Gandhiji too as lately you both share the
same thoughts and statements and have same queries.

Wait for a miraculous amount of tax collection this year !!

I have mainly written this Letter mainly for my love for writing and my love for questioning and
understanding the concepts and in view of the freedom of speech and expression my country
offers and hope that no one is offended.