CAG Report Disclosed significant errors and irregularities in Corporation Tax Assessments

The Comptroller and Auditor General of India (CAG) audit report on Direct Taxes identified 57 instances of significant errors and irregularities in corporation tax assessments of high-value cases with tax effects of Rs. 6,304.56 crore.

467 audit observations totaling Rs 8,413.10 crore in tax effects are included in the report of the Comptroller and Auditor General on Direct Taxes of the Union Government for the year ended March 2021, which was presented to Parliament on Wednesday.

According to the CAG report, 319 high-value cases involving corporation tax have been identified, with a tax impact of Rs 7,788.98 crore. The majority of these cases involved mathematical mistakes in the calculation of income and tax, mistakes in the imposition of interest, irregularities in the allowance of depreciation, business losses, and capital losses, incorrect allowance of business expenses, unexplained investments, cash credits, etc.

Eight cases involving a tax effect of Rs. 114.73 crore were not accepted by the Ministry/ITD, but 165 cases totaling Rs. 5,845.39 crore were.

However, out of 319 cases, the ITD has successfully completed corrective action in 183 cases with tax effects totaling Rs 6,506,10 crore and begun corrective action in 27 cases with tax effects totaling Rs 345,34 crore. According to the report, the ITD had not taken or initiated any action in the remaining 109 cases as of July 2022.

“We draw attention to 57 instances of significant errors/ irregularities in corporation tax assessments involving tax effect of Rs 6,304.56 crore out of 319 high value cases cited,” the CAG report stated.

It was noted that income tax collections decreased by 2% from Rs. 4.80 lakh crore in FY 2019–20 to Rs. 4.71 lakh crore in FY 2020–21 and that corporation tax collections decreased by 17.8% from Rs. 5.57 lakh crore in FY 2019–20 to Rs. 4.58 lakh crore.

Demand backlogs decreased from Rs 16.2 lakh crore in the financial year 2019–20 to Rs 15.1 lakh crore in the financial year 2020–21. Despite the fact that the total amount of unpaid demands in FY 2020–21 was 6.63 percent less than that in FY 2019–20, the audit report stated that the proportion of unpaid demands that were deemed “difficult to recover” rose slightly, from 97.61 percent in FY 2019–20 to 98.26 percent in FY 2020–21.

Application of incorrect tax and surcharge rates, mistakes in the imposition of interest, excess or irregular refunds, and other issues are all indicators of weaknesses in the internal controls in the ITD that need to be addressed, according to the CAG.

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