The Comptroller and Auditor General of India (CAG) has picked several holes in the way the Income Tax Department (ITD) goes about bringing the realty firms under the tax net.
The Government auditor has, in particular, come down heavily on the Department for its inability to effectively widen the tax net in the real estate sector by using third party data or its surveys.
In its performance audit report, tabled in the Lok Sabha on Tuesday, the CAG has highlighted that there is no mechanism with the Income Tax Department (ITD) to ensure that all the registered real estate companies have PAN and are filing their Income Tax Returns (ITRs) regularly.
The report titled ‘Assessment of Assesses in Real Estate Sector’, tabled in Parliament on Tuesday further mentioned that the system in the ITD to ensure compliance of filing of ITRs by the seller of high value immovable properties was not effective.
It also highlighted that justification for issue of shares at high premium was not examined by ITD as fair market value of shares was not based on the valuation as per the balance sheet and thus manipulation of accounts to accommodate black money cannot be ruled out.
Where shares were issued at high premium, the information about the subscribing entities was not shared with jurisdictional assessing officers for verification of sources of funds, the CAG report noted. Therefore it was not possible to get assurance that no unaccounted money/own funds were introduced by the assessee through share premium, according to CAG.
The performance audit covered cases of scrutiny assessments relating to the real estate sector completed by ITD during 2013-14 to 2016-17.
The report observed that ITD did not use surveys effectively to widen its tax base in the real estate sector.
The report added that due importance was not accorded by the department to monitor non-PAN transactions despite these being under the highest risk category from the point of view of tax evasion in general and due to these being transactions of real estate sector in particular.