Income Tax dept has failed to unearth black money despite information: CAG

The dept had info on suspicious dealers who issued false bills without delivery of goods

The Income Tax Department (ITD) failed to unearth black money generated by several Maharashtra based firms despite getting clues on suspects who raised only bogus bills resulting in tax evasion of over Rs 10,640 crore, according to official auditor CAG.

Around 2,059 dealers issued invoices involving tax evasion of more than Rs 10,640 crore including maximum VAT of 12.5 per cent in Maharashtra, CAG said in its report presented in Parliament last week.

In 2008-09, Maharashtra Sales Tax Department (MSTD) in a disclosure to Bombay High Court informed about its probe on 1,555 hawala operators involving 39,488 beneficiary dealers who had passed on input tax credit of Rs 1,333 crore in the previous three fiscals.

They used to claim and obtain input tax credit against declaration of fake tax invoices without actual transactions.

The MSTD started putting out names of entities involved in such practises on its website from November 2011.

Examining records of 2009-10 to 2013-14, the Comptroller and Auditor General of India (CAG) said 35 cases had PANs in the bogus purchases list of MSTD.

Such assessees in the state either did not file return or filed with meager income/nil income or stopped filing return in later years, CAG added.

"ITD took up the cases for scrutiny only those cases where income was reported. ITD did not take any action to examine the veracity of the facts reported therein nor did they fully follow the information provided by their own investigation wing," the CAG report said.

The fundamental reason for generation of black money is to evade payment of taxes by reducing profits, CAG emphasised.

"Bogus bills may be prepared to show inflated expenses in the the books. Such a practise also involves hawala operators who operate shell entities for accepting cheques for payments claimed as expense in exchange of cash after charging some commission and give rise to black money in the market."

The information received by the department is not complete and it used the information "selectively".

The department had information on suspicious dealers who issued false bills without delivery of goods, but failed to effectively use the tools at its disposal that could deal with non-reporting of unaccounted income and generation of black money.

Many assessees go scot free without any action from the department, CAG further said.

"The department did not even scrutinise all the assessees featuring in list of MSTD indulging in giving accommodation entries for bogus purchases. The information regarding bogus purchases were not passed on to AOs who were assessing the beneficiaries when the entry providers were assessed.