CAG’s Performance Audit Report 2018 – Key Takeaways

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  • By Taxmann
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  • Last Updated on 10 November, 2022

Article 151 of the Constitution of India has mandated the Comptroller and Auditor General of India (CAG) to conduct Performance Audit and submit its Report to the Hon’ble President of India. Accordingly, a Report titled ‘Assessment of Assessees in Real Estate Sector’ (Report No. 23 of 2018) has been tabled in the Parliament on 12th February, 2019.

Key objectives of the Audit to ascertain whether:

  • All the developers and other constituents of the real estate sector are in the tax net.
  • All resources available with Assessing Officers such as Annual Information Returns, surveys and searches & seizures reports have been effectively utilized to widen the tax base.
  • The existing systems and controls are adequate to promote tax law compliance.
  • The intended benefits of allowing deductions under section 80-IB (10) reached the eligible persons.

Performance Audit Report – Its Key Findings:

For its latest Audit, the CAG has covered duly completed Scrutiny Assessments pertaining to the financial years 2013-14 to 2016-17. During the said period, the Income Tax Department has completed the assessment of 78,647 cases with assessed income of Rs.1,76,990 crores in 5,001 assessment charges falling under 357 Principal Commissioners of Income Tax or Commissioners of Income Tax. Out of total of 78,647 assessments, the CAG has verified 17,155 assessments which stand at 22 per cent with assessed income of Rs.1,02,106 crores. The CAG audit also found that 1,183 mistakes having a ‘tax effect’ of Rs.6,093.71 crores or incurred loss to the exchequer.

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Other Key findings are as follows:

1. Non-availability of PAN Details – 

Audit has noticed that several companies are still outside the tax net such as the total number of companies registered under 12 State Registrar of Companies (RoCs) were 54,578 but out of them only 2,908 companies PAN details were with respective RoCs.

2. Non-filing of Tax Returns

Audit has verified a total of 923 cases spread in ten States where ninety cases involving money of Rs.391.40 crores did not file their annual income returns.

3. Non-PAN Transactions – 

In the State of Maharashtra, there were total 5,38,999 property transactions worth Rs.2,94,805 crores carried. Out of these, there were 75,405 transactions worth of Rs.15,460 crores were carried out without quoting the concerned parties PANs.

4. Poor record of ‘Surveys’ on real estate sector – 

The Income Tax Department has conducted hardly 160 Surveys in 15 States, though helped to make additions worth of Rs.1,103.13 lakh crores.

5. Assessing Officers failure to book unexplained expenditure under section 69C – 

The Audit has taken 28 cases in Maharashtra and 12 cases in Delhi to assess. Where it has found that AOs disallowed the expenditures on account of unexplained expenditures worth of Rs.544.13 crore but failed to bring them under section 69C.

6. Non-compliance of Section 194-IA – 

The Audit has found that certain systemic issues which rendered the objectives of section 194-IA ineffective, for e.g. if both the parties agreed to not to report their PANs, then there is no mechanism to ensure its compliance.

7. Poor Quality of Assessments – 

The Audit has found a large number of irregularities, computational errors, non-levy / short levy of interest, errors in the computation of total income under the heads of business/house, admission of incorrect claims of expenditure/exemptions, etc.

8. Irregularities in allowing deduction under section 80-IB(10) – 

In a sample of 72 cases involving tax effect of Rs.270 crore, the audit has found that the Revenue did not ensure the preconditions for availing of the benefits provided therein.

CAG’s Recommendations:

  • An Inter-Ministerial arrangement between the Ministry of Finance and the Ministry of Corporate Affairs for mutual benefit.
  • A mechanism to ensure compliance of provisions of section 285BA and section 139 (5)(c), read with Rule 114B by AIR filers.
  • Strengthening of the existing mechanism for sharing of information within the department.
  • Suitably address the long pending issue of share application money after it is due for a refund.
  • Extend the Tax Deduct at Source (TDS) mechanism to Transfer of Development Rights (TDRs) transactions among others.
For further updates of Income Tax, New GST Scheme, Decisions taken in 34th GST Council Meeting  & their impact on real estate sector, click here to buy
Author: PRABHAKAR K.S. Proprietor, Shree Tax Chambers

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