As many as 195 assessment cases were identified where systemic issues including ambiguities/ lacunae in some provisions of the Income Tax Act were noticed, a Comptroller and Auditor General of India (CAG) report has said.
The performance audit covered cases of scrutiny assessments, appeal and rectification completed during the financial years 2012-13 to 2015-16. Summary assessment records were also checked in respect of the selected cases where scrutiny assessment was not completed till the date of audit.
"In 22 assessment cases, the income tax department (ITD) did not consider incomes 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," the CAG report said.
CAG carried out a performance audit of payment of tax by certain companies during the period from July 2016 to November 2016. The findings of audit were reported to Central Board of Direct Taxes (CBDT) on April 10. The report was laid on the floor of Parliament on Friday.
In 16 assessment cases, ITD did not consider the extraordinary/ exceptional items for computation of book profit. Omission resulted in under assessment of income aggregating Rs 126.57 crore involving tax effect of Rs 23.13 crore.
In eight assessment cases, ITD allowed 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, it said.
"Audit came across certain irregularities in computation of brought forward loss and unabsorbed depreciation," the report said.
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 Income Tax 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. This provision was withdrawn by Finance Act 1990.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.