By Gyan Pathak
Many high profile economic offences surfaced during Modi’s rule, and actions were taken mostly against his political opponents, the latest victim being Sharad Pawar of Maharashtra, the state undergoing elections. However, nothing is being done against his political supporters, or the departments that are in neck deep in financial irregularities. It’s certainly a matter of great concern, because it smacks political victimization of critics of the present political establishment ruling the country.
Let us take examples from the recent CAG report on Direct Tax Administration in the country. The report says that there have been persistent and pervasive irregularities in respect of corporation tax and income tax assessments cases over the years. Recurrence of such irregularities, despite being pointed out repeatedly in the earlier Audit Reports points to structural weaknesses on the part of Department as well as the absence of appropriate institutional mechanisms to address this. Such irregularities were particularly noticeable in the assessment charges in Maharashtra and Delhi.
The incidence of error were found in 0.20 lakh cases during the financial year 2017-18, which is 6.45 per cent of all the cases. In the preceding year also the errors were 7.2 per cent. CAG had included 472 high value cases reported to the Ministry of Finance. However, it received replies in respect of only 325 cases as on March 31, 2019. Out of them CAG found the almost seven percent of the replies were not acceptable.
In the last three years, the Income Tax Department (ITD) recovered Rs 1,076.06 crore from demands raised to rectify the errors in assessments that we had pointed out, says the report. There are 52,417 cases involving revenue effect of Rs 1.13 lakh crore pointed out in audit which are remaining unsettled as of March 31, 2018 for want of replies from the ITD. During FY 2017-18, 2,739 cases with tax effect of Rs 2,735.17 crore became time-barred for initiating any remedial action.
As regards to the Corporation Tax, CAG has pointed out 340 high value cases pertaining to corporation tax with tax effect of Rs 4,866.66 crore. In Income Tax matters, CAG has pointed out 132 high value cases of income tax with tax effect of Rs 331.06 crore.
Assessments relating to Agricultural income reveal that CAG audited 6,778 cases and found that in 1,527 scrutiny assessments cases (22.5 per cent), claim of exemption on account of agricultural income was allowed without adequate documentation and verification of supporting documents. It was noticed that out of 1,527 cases where documentation and verification by Assessing Officer was inadequate, land records were not available in 716 cases (10.6 per cent) and proof of agricultural income and expenditure such as ledger account, bills, invoices etc. were not available in 1,270 cases (18.7 per cent).
As such, it was not possible to determine whether the system in place was robust enough to ensure that assessees were being allowed exemption for agricultural income, only after adequate examination in the process of assessment. While allowance of exemption of agricultural income claims based on inadequate verification or incomplete documentation has been pointed out in respect of selected sample of scrutiny assessments, ITD needs to re-examine not only the remaining scrutiny cases, but also all cases where income has been allowed as agricultural income above a certain threshold, say Rs 10 lakh or more, to ensure that exemption has been allowed only to eligible assessees, and is based on appropriate documents and their verification.
CAG observed that out of 3,133 cases checked in audit across nine states, in 48 cases there was a mismatch between the exemptions allowed in the assessment order vis-à-vis that reflected in the ITD database. The agricultural income in the ITD database continued to reflect the agricultural income as returned by the assessees or depicted irrelevant figures in cases where agricultural income allowed was different from that claimed by the assessee.
DGIT(Systems) had sought status reports regarding data entry errors while filling up the return in respect of 2,746 cases, where returned agricultural income was more than rupees one crore. Only 26 out of 136 Commissionerates provided the information in respect of 327 cases. Even in this small sample, data entry errors were seen in 11 per cent of the cases. Errors in the database imply a dual risk: of loss of tax on one hand, and of harassment of tax payer on the other hand. Existence of such data entry errors would render the AST data unreliable. Reasons for such persistent data entry errors is a matter of inquiry.
Audit also noticed non-compliance to provisions of the Act, such as, incorrect exemption granted for income derived from agricultural land, incorrect allowance of exemption for partial agricultural income, excess allowance of replantation expenditure/due to adoption of incorrect export turnover and exemption granted to non-agricultural income on account of sale of fish, sale of goat, sale of dry grapes, sale of milk etc.
In a follow-up test check of Exemptions to Charitable Trusts and Institutions during FY 2017-18, Audit noticed instances of irregularities such as (i) diversion of income/property by trusts to related group trusts/institutions as application of income; (ii) exemptions to assessees whose activities were not ‘charitable’ in nature; (iii) allowance of expenditure and accumulation where exemption was denied; (iv) lack of monitoring the investment of accumulated money by the trusts in the forms or modes other than those specified in the Act; (v) exemptions granted to trust on application of funds given to foreign universities; (vi) exemption to assessee where voluntary contribution including foreign currency donation was considered as corpus fund without specific direction of donor; (vii) non-cancellation of registration where activities of the Trust and Institutions are not in accordance with the provisions of the Act; and (viii) Failure of the Assessment Information System to levy surcharge.
CAG also observed that there was an absence of effort by the ITD in cross linking material transactions with related parties to ensure the correctness/ genuineness during the assessment of related companies in a group. The ITD lacks a system of information sharing amongst its various charges leading to assessments of group companies getting completed in standalone manner thereby missing sight of important issues which have bearing on determination of taxable income.(IPA Service)