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I-T assessment error caused loss of Rs 6,000 cr in real estate taxes, reveals CAG report
Financial Express  |  February 13, 2019

FE Bureau

In its report tabled in Parliament on Tuesday, the Comptroller and Auditor General (CAG) found that the income tax department (ITD) caused a loss of Rs 6,093 crore to the exchequer due to 1,183 mistakes made in assessing the income-tax returns (ITRs) of real estate companies between financial years 2013-14 and 2016-17.


The CAG scrutinised only 22% of the 78,647 assessments made during this period, and said ITD needed to internally audit the remaining assessments to pin down reasons for errors. Further, CAG found that out of 923 real estate transactions involving more than Rs 1 crore, ITD failed to bring 142 transactions into the tax net.


The performance audit on ‘assessment of assessees in the real estate sector’ found that several companies were outside the tax net as there was no mechanism with ITD to ensure that all the firms registered with registrar of companies (RoC) have permanent account number (PAN) and are filing their returns regularly. Further, ITD system to ensure compliance of filing of ITRs by the sellers of high value immovable properties was not effective.


ITD was not effectively using other third-party data to widen their tax net, the audit report said. “Due importance was not accorded by the ITD 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 the real estate sector in particular.” it said.


Further, the report said that ITD hadn’t properly used section 56(2)(vii)(b) of the I-T Act to tax transactions where sales consideration were undervalued and were lower than the value adopted for stamp duty purposes. “Audit observed 40,906 transactions in which, as per PAN, the purchasers were either Individuals or HUFs and hence attracted provisions of section 56(2)(vii)(b). The total difference between stamp duty valuation and sales consideration in these transactions was of Rs 6,057 crore,” the report said.


ITD also failed to verify the source of funds listed as unsecured loans in the balance sheet of of the real estate companies.


“Introduction of undisclosed/unaccounted money of the assessee itself as unsecured loans cannot be ruled out in audit,” the report said.


Additionally, in cases where shares were issued at a high premium, ITD had failed to share the information about the subscribing entities with jurisdictional assessing officers for verification of sources of funds and to get assurance that no unaccounted money/own funds were introduced by the assessee through share premium.


“Justification for issue of shares at high premium was not examined by the ITD as fair market value of shares was not based on the valuation as per the balance sheet and thus manipulation of accounts to accommodate black money cannot be ruled out,” the audit report said.