CAG spots irregularities in ‘Zero Tax Companies’

Audit shows that there were shortcomings in the assessments of several companies with large profits that reduced tax liability by availing various deductions

GN Bureau | August 21, 2017


#CAG   #zero tax companies  


The Comptroller and Auditor General (CAG) has noticed irregularities in the way the income tax department (ITD) carried out the assessment of Zero Tax Companies.
 
Several companies that were having large profit from business and distributing substantial portion of the income to their shareholders as dividend, were reducing their tax liability by availing various deductions and exemptions available in the Act. Such companies referred to as “Zero Tax Companies”, were attempted to be brought into tax net by introduction of section 115J by Finance Act 1987, said the report no. 30 of 2017 (Performance Audit) 
This provision was withdrawn by Finance Act 1990. It was re-introduced as section 115JA by Finance Act, 1996. Section 115JA was further revised from 1 April 2001 by introducing a new section 115JB whereby companies had to pay tax on their book profit/deemed income at a rate prescribed by the Government from time to time. Section 115JAA provided for allowance of credit of tax paid by the companies under section 115JA/115JB in subsequent years.
 
The CAG found that the ITD did not consider incomes in 22 assessment cases for tax under Minimum Alternate Tax (MAT) though the same were considered for tax under normal provision. Omission resulted in tax effect of Rs 74.10 crore.
 
In 16 assessment cases, ITD did not consider the extraordinary/exceptional items for computation of book profit. Omission resulted in underassessment of income aggregating Rs 126.57 crore involving tax effect of Rs 23.13 crore.
 
The CAG report said that the ITD allowed in eight assessment cases deduction in respect of Debenture Redemption Reserve/Loan Redemption Reserve charged to the ‘Appropriation Account’ as claimed by assessee in computation of book profit under MAT involving tax effect of Rs 331.14 crore.
 
ITD on one hand reduced excess depreciation pertaining to earlier years due to change in method of depreciation credited to the profit and loss account in computation of book profit in eight assessment cases. On the other hand in six assessment cases, ITD did not add shortfall in depreciation due to change in method of accounting. This involved tax effect of Rs 5.16 crore.
 
The report went on to say that ITD allowed bad debts actually written off as deduction in computation of income under normal provisions in six assessment cases. However, while computing book profit under section 115JB, bad debts actually written off was not reduced.
 
ITD made disallowances on account of bogus purchases/undisclosed income/unaccounted income under normal provisions in 18 assessment cases, and not under special provisions of MAT, there being no provision for addition of such items under special provisions.
 
The income tax department made transfer pricing adjustments with respect to items which had direct bearing on the profit as per profit and loss account in 36 assessment cases during computation of income under normal provisions but were not considered for computation of book profit under MAT. This involved tax effect of Rs 93.05 crore.
 

Comments

 

Other News

When BHU’s calm was shattered

The campus of the prestigious Banaras Hindu University (BHU), which completed its 100 years less than a year ago, has turned into a curfew town following an alleged sexual harassment of an undergraduate student. Unhindered discussions in the art faculty, creative endeavours in visual and performing arts an

Mukul Roy quits TMC, jolt to Mamata

 Mukul Roy, once considered the right hand man of West Bengal chief minister Mamata Banerjee, on Monday resigned from the Trinamool Congress, paving the way for his joining the Bharatiya Janata Party (BJP). Mukul Roy told the media that he has decided to quit the primary membership of t

Niti Aayog calls for ‘exams on demand’

Niti Aayog has suggested holding “exams on demand” so that school students can take the tests whenever they are ready. “Under the RTE, everyone is promoted till class VIII and are suddenly required to clear board examinations in higher grades. This leads to student stress and high

Jewar airport: Turbulence on the ground

Ranveer Singh, a 78-year-old resident of Mukeempur Shivara village in the Jewar area, knows exactly what he wants in return for giving up his land for the international airport that is being planned there: four to five times the present circle rate, Rs 20 lakh for rehabilitation, a government job for at le

Does the Indian economy now need a fiscal stimulus?

Does the Indian economy now need a fiscal stimulus?

Rise of Nirmala Sitharaman, plight of Baiga women and more from the week gone by

Today, Nirmala Sitharaman, India’s first woman full-time defence minister, may appear a picture of poise and confidence. But 11 years ago, she wasn’t even sure if she should join the Bharatiya Janata Party (BJP), which has allowed her political career – and, of course, her abilities &ndas



Video

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter