A CAG report tabled on Tuesday in Parliament has found several cases in which big corporate houses were involved in misusing the provisions of Income Tax deduction in infrastructure projects, leading to a tax effect of Rs 2,716.79 crore. The report also blamed Central Board of Direct Taxes (CBDT) for not assessing properly when such wrong tax deduction claims were made by corporate houses.
The audit report tiled as “Performance Audit on Allowance of deduction to the assessees engaged in infrastructure development” detailed the serious misuse and frauds in claiming tax deduction by industrialists, conducting a random checking 229 infrastructure projects across the country.
Some major cases of misuse and malpractices were found in Reliance Ports and Terminals limited and Idea Cellular limited. “The Income Tax Department irregularly allowed deduction to assessees in eight cases in two states in respect of the profits derived from Railway Sidings/Jetties constructed and operated by the assessees for their private purposes, which did not qualified to be treated as infrastructure facilities in terms of explanation to section 80 IA(4). Irregular allowance of deduction attracted tax effect of Rs 2,066.70 crore,” said the CAG report detailing the tax deduction allowed to Reliance Ports and Terminals limited.
“The Income Tax Department irregularly allowed deduction to assessees in six cases in four States for the period beyond the permissible limit of 10 consecutive assessment years, starting from the declared initial assessment year. Incorrect allowance of deductions resulted in underassessment of income involving tax effect of Rs 859.47 crore,” said the report detailing the tax deductions allowed to Idea Cellular and Reliance Infrastructure limited.
The report also detailed how corporate suppress profits by amalgamation and demerger of their firms in claiming tax deductions and underassessment of income tax. Finding fault with CBDT, the CAG said there CBDT did not have any establishment mechanism to curb such malpractices. “There is no existing system to ascertain from the sponsoring ministries as to whether the tax holidays have had the desired impact on the growth of the economy. Therefore, the audit is unable to ascertain whether the very purpose of introducing the deductions in the Act has been achieved,” said CAG outlining the failures of CBDT in curbing misuse and frauds in claiming IT deductions by corporate houses. In its recommendations, the apex auditor said the CBDT should address the systemic failures and finding faults and rectifying faults in assessing tax liability. It suggested that CBDT should cross check the deduction claims with concerned infrastructure ministries and departments including the computerisation of the information network.