Income tax department irregularly allowed deductions: CAG -Governance Now

Income tax department irregularly allowed deductions: CAG

The income tax department irregularly allowed deduction to assessees in 19 cases in eight states in respect of income earned through sale of carbon credit

GN Bureau | November 23, 2016

#carbon credit #Income Tax department #CAG #infrastructure

The income tax department irregularly allowed deduction to assessees in 33 cases across 13 states in respect of infrastructure developed by joint venture formed by collaboration with foreign companies, undertakings owned by association of persons (AOPs), assessees who did not enter into agreement with the government, non-compliant industrial park and excluded works contractors. This resulted in underassessment of income involving tax effect of Rs 205.84 crore, observed the CAG.

The Comptroller and Auditor General (CAG) report on allowance of deduction to the assessees engaged in infrastructure development said that the ITD irregularly allowed deduction to assesses in 16 cases in eight states where the business of the assessees such as sale of plots, projects not covered under infrastructural facilities, conversion charges, development/maintenance of park etc, were not eligible for the deduction. This resulted in underassessment of income involving tax effect of Rs 174.35 crore.

The report also noted that the income tax department irregularly allowed deduction to assessees in 19 cases in eight states in respect of income earned through sale of carbon credit which involved tax effect of Rs 34.77 crore.

“The ITD irregularly considered additions made on account of treatment of expenditure as revenue, sale of fixed assets, disallowance made u/s 40A(3) 14A, 40(a) etc., for deduction in nine cases in five states. Consequently, the allowances were more than the amount claimed by the assessee involving consequential tax effect of Rs 74.66 crore.

“The ITD irregularly allowed deduction to assessees in eight cases in two states in respect of profits derived from ‘Railway Sidings/Jetties’ constructed and operated by the assessees for their private purposes, which did not qualify 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 crore.”

The report went on to say that the ITD 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.

“The ITD irregularly allowed deduction to assessees in 15 cases in eight states where the assessee did not apportion the common expenses between eligible and non eligible units properly which resulted in excess allowance of deduction involving tax effect of Rs 224.47 crore.”

Read the full CAG report here

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