The big corporates were found manipulating the Section 80 IA of the Income Tax Act, which provide deductions in respect of profits and gains of industrial undertakings engaged in infrastructure development.
The audit report tiled as “Performance Audit on Allowance of deduction to the assessees engaged in infrastructure development” detailed a series of misuse and violations in claiming tax deduction by big industrial groups. The CAG unearthed these malpractices by conducting random checks in 229 infrastructure projects across the country.
The big corporates were found manipulating the Section 80 IA of the Income Tax Act, which provide deductions in respect of profits and gains of industrial undertakings engaged in infrastructure development. The CAG’s 111 page report tabled in Parliament named the companies engaged in frauds in claiming Income Tax deductions wrongly.
“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.2066.70 crores ($302 million),” said the CAG report detailing the tax deduction allowed to Reliance Ports and Terminals Limited, owned by Mukesh Ambani’s Group.
“The Income Tax Department irregularly allowed deductions 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 crores ($125 million),” said the report detailing the tax deductions allowed to Idea Cellular, owned by Aditya Birla Group and Reliance Infrastructure Limited, owned by Anil Ambani’s Group.he CAG also found similar irregularities by Monnet Ispat and Energy Limited in wrongly claiming Rs.177.75 crores ($26 million) as Income Tax deduction. The Report said most of such frauds occurred in Power and Energy sectors and even involved the PSU company National Thermal Power Corporation (NTPC).
In its recommendations, the Apex auditor said the CBDT should rectify its systemic failures.
The CAG report detailed how corporates suppress profits by showing amalgamation and demerger of their firms in claiming tax deductions. Finding fault with the CBDT, the CAG said the tax body did not have any established 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 preventing misuse and frauds in claiming IT deductions by big corporates.
In its recommendations, the Apex auditor said the CBDT should rectify its systemic failures. The Auditor also suggested that CBDT should cross check the tax deduction claims with concerned infrastructure ministries and departments, The CAG also recommended the complete computerization of the information network of CBDT in tackling fraud.
1. The conversion rate used in this article is 1 USD = 68.42 Rupees.
2. Text in Blue points to additional data on the topic.