Taxman made ‘exaggerated’ demands on large firms: CAG

As the Central Board of Direct Taxes races to meet its revenue collection target for the fiscal year, it has been rapped by the Comptroller and Auditor General of India (CAG) for making “exaggerated” tax demands on large corporate firms which were refunded in the next financial year.

“The income tax department had raised exaggerated demands on certain corporate assessees like State Bank of India, Bank of Baroda, Bank of India, IDBI Bank, HDFC, Kotak Mahindra Bank, Air India, Deposit Insurance & Credit Guarantee Ltd, to achieve its revenue collection targets, by resorting to methods that were irregular and unwarranted,” said the CAG in its audit report on Direct Taxes.

The report, which was tabled in Parliament on Tuesday, further noted that the demands so collected were refunded in the next financial year along with interest, which eventually put a heavy burden on the Exchequer.

The CAG also noted that there were “persistent and pervasive irregularities in respect of corporation tax and income tax assessments cases over the years” with arithmetical errors in calculating income and corporate tax in nearly 500 cases.

These include 320 high-value cases involving ₹3,851 crore of corporate tax and 131 cases of income tax and six cases of wealth tax involving a combined tax effect of ₹ 336 crore.

The CAG also pulled up the department for not adopting a uniform approach to deal with cases of fictitious donations or bogus purchases that are generally used to launder money. This caused a revenue loss to the government.

“The Assessment Officers did not take cognisance of report of the investigation wing and failed to initiate necessary follow up actions by disallowing the amounts of the fictitious donations or bogus purchases, which resulted in the loss of revenue,” said the report.

Meanwhile, a separate audit report on Central Excise Duty revealed that the Commissionerates of the Central Board of Excise and Customs had taken inadequate action against tobacco industry.

“Tobacco is the second highest revenue yielding commodity contributing revenue of ₹ 21,463 crore during 2015-16,” noted the CAG report. However, the audit found no effective mechanism to identify and ensure filing of returns by beedi units, poor enforcement of maintenance of prescribed records and non-conducting of quarterly inspection of cigarette units by the CBEC.

Similarly, for paan masala and chewing tobacco products, the report found that the CBEC did not take action against the “abnormal excess production of pouches over and above the deemed production which led to loss of revenue”.