Auditor wants CBDT to create accurate database to plug revenue leakage.
The Comptroller and Auditor General has found civil construction companies misusing various tax exemptions, and has suggested the preparation of a “complete and accurate” database of the entities in the sector to plug revenue leakages.
The apex audit body said its analysis in West Bengal and Tamil Nadu indicated residential construction projects targeting higher-income groups to avail tax incentives, “thereby frustrating the legislative intent behind it”. This, when Section 80IB(10) was introduced to incentivise building of housing for low- and middle-income groups, said the latest audit on the ‘Business of Civil Construction’.
The CAG also noticed the trend of several entities, which are assessed in the construction business, registering as firms/AOP with their turnover and profits comparable to some companies in the sector. “However, the provisions of MAT being applicable only to companies favoured the firms who could get away by paying nil or minimal tax,” the report said.
The 2011-12 report noticed that builders and developers were using Transfer of Development Rights (TDRs) to construct extra floor space index (FSI) or selling these to other developers. “In the absence of TDS provisions, the department (I-T) could not levy TDS on TDR transactions.”
The CAG has also pointed out that builders and developers were paying compensation on commercial consideration on surrender of booked flat, commercial space and tenancy right or on vacating premises for re-development or as part of contract and mobilisation of advances. “In the absence of proper mechanism on these payments, there is the material risk of the related receipts not being offered to tax.”
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The audit agency has found lack of clarity and uniformity on deduction and treatment of certain elements of income and expenditure — like interest towards borrowed funds, income derived from leasing of properties held in stock in trade, sale of parking space and allowing TDS credit on mobilisation of advances.
To rectify the loopholes, the CAG has suggested a cap linked to Housing Pricing Index on the sale value of the flats constructed by the builders and contractors as a condition for claiming deduction under Section 80IB(10). “The purview of Section 115JB i.e. MAT may be extended to Firms/AOP who are taking advantage of deductions available in the Act.”
It has further said the Central Board of Direct Taxes might consider introducing a suitable mechanism to reduce tax evasion in the cases of TDR transactions and payment of compensation on commercial considerations in cases of surrender of a booked flats, commercial space and tenancy rights.
The CAG noted the I-T department did not have a proper database of the assessees engaged in the business of civil construction. “Non-filers could not be identified by cross-linking the records of the department with that from third-party sources as the PAN details of the contractors engaged in the works departments.”
The CAG found 256 cases involving Rs 83.54-crore tax in which income in the hands of TDS deductees escaped assessment and 220 cases of inadmissible claims involving Rs 469.10 crore tax on which either the TDS was not deducted or was not remitted to the government after deduction.