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Income Tax Department responsible for loss of Rs 6,000 cr in real estate taxes after error in assessment, reveals CAG report

Yatish Yadav
CAG has exposed the chinks in the armour of the Income Tax Department revealing that the department has lost Rs 6,093.71 crore as tax revenue from the real estate sector due to errors

The Comptroller & Auditor General of India (CAG) has exposed the chinks in the armour of the Income Tax Department revealing that the department has lost Rs 6,093.71 crore as tax revenue from the real estate sector due to errors. And, the finding is limited to merely 7 percent of the sample cases that were picked up by the auditors for scrutiny. The figure could go up as the national auditor has recommended an internal audit of remaining 61,492 cases.

The CAG report 'Performance Audit on Assessment of Assessees in Real Estate Sector' tabled in the Parliament on Tuesday broadly looked into four objectives €" whether (i) all the developers/ builders/real estate agents dealing in real estate sector are in the tax net and filing income tax returns; (ii) all resources available with assessing officers, eg, Annual Information Returns (AIRs), surveys and searches and seizures reports and information available in assessment files, etc, have been effectively utilised to widen the tax base by bringing more assessees from this sector under the tax net; (iii) the existing systems and controls are adequate to promote compliance of provisions specific to the real estate sector under the Income Tax Act, 1961, as well as compliance to general provisions of the Act; and (iv) the Central Board of Direct Taxes (CBDT) has any system to ensure that the intended benefits of allowing deductions under section 80-IB(10) to the real estate sector reached the eligible persons.

CAG has covered the scrutiny assessments completed by the Income Tax Department during the financial years 2013-14 to 2016-17 in its report.

"Total number of assessments relating to 'real estate sector' completed by the Income Tax Department during 2013-14 to 2016-17 were 78,647 with assessed income of Rs 1,76,990 crore in 5,001 assessment charges falling under 357 principal commissioners of Income Tax/commissioners of Income Tax. Out of total of 78,647 assessments made in the period by the Income Tax Department, we checked 17,155 assessment records (approximately 22 percent) with assessed income of Rs 1,02,106 crore during this performance audit. We noticed 1,183 mistakes (approximately 7 percent of the audited sample) having tax effect of Rs 6,093.71 crore, thus causing loss of revenue to the government. Since a sample of 22 percent has yielded errors of Rs 6,093.71 crore, the Income Tax Department needs to have the remaining 61,492 cases audited internally. The Income Tax Department also needs to try to pin down the reasons for why there is such a substantial proportion of errors and fix the identified systematic faults and responsibility where the errors have happened as an act of commission," the CAG report said.

While verifying records of 923 transactions pertaining to third parties of sale or purchase of immovable properties each having consideration of more than rupees one crore from the scrutiny cases, the CAG noticed that the Income Tax Department failed to bring 142 transactions into the tax net.

"Audit noticed several companies outside the tax net. There is no mechanism with the Income Tax Department to ensure that all the registered companies have PAN and are filing their Income Tax Returns regularly. The system in the Income Tax Department to ensure compliance of filing of ITRs by the sellers of high-value immovable properties was not effective. Due importance was not accorded by the Income Tax Department to monitor non-PAN transactions despite these being under the highest risk category from the point of view of tax evasion in general and due to these being transactions of real estate sector, in particular. The Income Tax Department did not use surveys effectively to widen its tax base in the real estate sector," the CAG report said.

The CAG conducted a performance audit of real estate sector taxes since a white paper on black money published by the finance ministry in 2012 had identified 'real estate' as one of the sectors of the economy or activities more vulnerable to the menace of black money. The paper had indicated that due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can encourage tax evasion through under-reporting of transaction price which leads to both generation and investment of black money.

The CAG, in a bid to ascertain whether or not all the developers, builders and real estate agents dealing in real estate sector are in the tax net and filing income tax returns, had collected information from the Registrar of Companies (ROC), Real Estate Regulatory Authority (RERA) and Confederation of Real Estate Developers' Associations of India (CREDAI) regarding details of entities engaged in the real estate sector registered with them and registrar/sub-registrar of properties, and compared it with the tax database with the Income Tax Department.

CAG said ROCs did not have information about PAN in respect of 51,670 (95 percent) of a total of 54,578 companies for which data was made available for audit. The CAG report also revealed that it was difficult for auditors to ascertain from the information obtained from ROCs whether these companies were in the tax net of the Income Tax Department or not except in case of Andhra Pradesh and Telangana where CAG audit could identify PAN in respect of 147 of these companies.

"Audit forwarded the information received from ROCs without PAN data to the Income Tax Department to ascertain whether these companies were filing Income Tax Returns. However, no reply was received from the Income Tax Department. All corporate assessees are compulsorily required to file their Income Tax Returns with the Income Tax Department irrespective of income or loss. It can be concluded that there is no mechanism with the Income Tax Department to ensure that all the registered companies have PAN and are filing their Income Tax Returns regularly. Audit noticed several companies outside the tax net and several high-value property transactions escaping tax. The system for ensuring compliance of filing of Income Tax Returns by the sellers of high-value immovable properties was not effective," the CAG report noted.

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