New Delhi, July 30 (IANS) Frustrated at the Income Tax Department’s inability to put in place a robust tax collection system that ensures transparency and improves compliance, the Comptroller and Auditor General of India has told the government to consider placing the reins of tax administration onto an independent governmental body.
In its report on direct tax (for the year 2017-18) tabled in Parliament on Tuesday, the official auditor said that system for direct taxes needs to be designed in such a way that it should ensure zero or minimal physical interface between the assessee and the tax officers.
“Government may consider the IT System for direct taxes being placed at arms length from CBDT, with an independent governmental body or organization,” the CAG report said.
The auditor’s suggestion came in wake of widescale irregularities found in the functioning of the Income Tax Department that saw income being clubbed as agricultural income without proper verification of records and charitable institutions getting exemption even though there was no case of any charity in their functioning.
“CBDT may examine whether the instances of ‘mistakes’ noticed are errors of omission or commission and if these are errors of commission, then ITD should ensure necessary action as per law,” the CAG said.
Even as the government is struggling to maintain desired growth in direct tax collections and putting the blame of sluggish economic condition for a pickup in collections, the CAG report has punctured a deep hole into the government efforts to rein in tax evaders.
The official auditor targeted the tax officials for their lackadaisical approach to improve tax compliance suggesting that the department allowed exemption for agricultural income without verification of supporting documents such as the land records, proof of agricultural receipts and expenses and cross examination of documentary evidence where available.
It has asked the Income Tax Department re-examine scrutiny cases, where income has been allowed as agricultural cases for a threshold of Rs 10 lakh and above to ensure that exemption has been allowed only to eligible assessees, and is based on appropriate documents and their verification.
The CAG scrutiny has also found large irregularities in cases of exemptions given to charitable trusts and institutions during FY 2017-18. The audit noticed instances of irregularities such as diversion of income/property by trusts to related group trusts and institutions as application of income, exemptions to assessees whose activities were not “charitable” in nature.
Such irregularities were also seen in cases where exemptions granted to trusts on application of funds given to foreign universities, exemption to assesses where voluntary contribution including foreign currency donations was considered as corpus fund without specific direction of donor, non-cancellation of registration where activities of the trust and institutions are not in accordance with the provisions of the Act, and failure of the Assessment Information System to levy surcharge.
In yet another instance of procedural lapses, the CAG report has pointed out that the Income Tax Department did not cross link material transactions with related parties to ensure the correctness during the assessment of related companies in a group and lacked a system of information sharing amongst its various charges, leading to assessments of group companies getting completed in standalone manner.
“While the Ministry has initiated action in respect of cases pointed out by Audit, it may be noted that these are only a few illustrative cases. In the entire universe of all assessments, including non-scrutiny assessments, there is every likelihood of such errors, of omission or commission, in many more cases.
“The CBDT not only needs to revisit its assessments, but also put in place a fool proof IT System and internal control mechanism to eradicate, so-called ‘errors’,” the report said.
In the last three years, the IT Department recovered Rs 1,076.06 crore from demands raised to rectify the errors in assessments that were pointed by the CAG. There are 52,417 cases involving revenue effect of Rs 1.13 lakh crore pointed out in audit which are remaining unsettled as of 31 March 2018 for want of replies from the Department.
During FY 2017-18, 2,739 cases with tax effect of Rs 2,735.17 crore became time-barred for initiating any remedial action.
Direct taxes receipts of government in FY18 was 6.0 per cent of the GDP. Share of direct taxes in Gross Tax Revenue increased to 52.2 per cent in FY18 from 49.5 per cent in FY17. The uncollected demand in FY 2017-18 of Rs 11.1 lakh crore of which 98.2 per cent would be difficult to recover, the CAG said. The report includes 472 high value cases having tax effect of Rs 5,197.72 crore.