CAG finds anomalies in tax assessment in sports and amusement sectors

Government auditor CAG has found discrepancies in tax assessments of several players in the entertainment, sports and amusement sectors that led to revenue loss of Rs 2,267.82 crore.

The CAG has made the made these observations in its performance audit report that covered assessment of entities engaged in key sub-sectors of entertainment sector, including television, radio, music, event management, films, animation and visual effects, broadcasting, sports and amusement.

The audit report, which covered the scrutiny assessments completed by the Income Tax Department from 2013-14 to 2016-17 period, was tabled in the Parliament on Monday.

Out of total of 13,031 assessments made in the period by the I-T Department, the Comptroller and Auditor General (CAG) said it checked 6,516 assessment records (about 50 per cent) with assessed income of Rs 47,979.44 crore.

"CAG noticed 726 instances (approximately 11 per cent of the audited sample) concerning systemic and compliance issues involving tax effect of Rs 2,267.82 crore, thus causing loss of revenue to the Government," the report said.

Despite specific film circles/ wards created to assess all the assessees of film and television industry in dedicated units, the report said sufficient efforts were not made by the I-T Department to assess them in the designated circles/ wards.

"Verification of the expenses as claimed by the Indian film production houses on account of production cost payment made to the foreign line producers was not being done during assessment proceedings," the report said.

The CAG also noted that there was no uniformity in taxation procedures with respect to franchisee fee as paid by Indian Premier League (IPL) franchisees to Board of Control for Cricket in India (BCCI).

The auditor has asked the I-T Department to strengthen the existing mechanism for sharing and cross-verification of needful information within the Department to ensure quality assessments.

It also asked the Central Board of Direct Taxes to ensure that the provisions/ conditions laid down in the Income Tax Act with respect to allowances of deductions/ expenses/ set off and carry forward of losses/ minimum alternative tax are duly complied with by the Assessing Officers.

The CAG said that appellate authorities are treating IPL franchisee fee in a different manner.

Citing examples, the apex auditor said some franchisee companies claimed the fee as revenue expenditure while some others claimed the amount as depreciation.

"... the higher appellate authorities have adopted different views in this respect where Income Tax Appellate Tribunal (ITAT) Mumbai had treated the instalment of franchisee fee as revenue in nature and ITAT Bangalore in the case of GMRSPL (GMR Sports Pvt Ltd) had ordered to capitalise the entire bid amount (instead of annual instalments actually paid) and allowed depreciation at the rate of 25 per cent thereon," the report said.

Further, the report said the same expense had been treated differently at different appellate levels and as such the issue was litigated due to absence of specific provision in the Income Tax Act to deal with such expenses.