CAG flays tax authorities over error in assessment of income, taxes

The Comptroller and Auditor General of India (CAG) has rapped direct tax authorities for irregularities in assessments of personal income and corporation taxes over the years. 

In a report on direct taxes for 2018-19 tabled in Parliament on Tuesday, the auditor suggested that the government consider the information technology system for direct taxes being placed at arms length from CBDT, with an independent governmental body or organisation. 

CAG found irregularities in 340 high-value cases pertaining to corporation taxes with the tax effect of Rs 4,866 crore. 

There were arithmetical errors in computation of income and tax, mistakes in levy of interest, irregularities in allowing depreciation, capital losses, incorrect allowance of business expenditure, etc, it said. 

Similarly, CAG audited 6,778 cases and found that in 1,527 scrutiny assessments (22.5 per cent), claim of exemption on account of agricultural income was allowed without adequate documentation and verification of supporting documents. 

“We noticed that of 1,527 cases where documentation and verification by the 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),” it said. 

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. 

CAG suggested that the Income Tax department needs to re-examine 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. 

Similarly, CAG observed that 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 Income Tax department’s database. The agricultural income in the 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, CAG pointed out.