CAG pulls up I-T dept for company taxes

The Comptroller and Auditor General (CAG) has pulled up the income-tax department for short levy of Rs 521.51 crore of minimum alternate tax (MAT) from companies including Reliance Industries, Videocon International and Southern Petrochemical Industries Corporation.

The report of the CAG tabled in Parliament today says in the case of these companies, the income-tax assessing officers "irregularly allowed deduction of amounts depicted as withdrawn from reserves".

This was set off against the additional depreciation arising from selective re-valuation of assets, in the calculation of book profits.

The tax effect in the case of Reliance Industries is Rs 498.34 crore in the assessment years, 1997-98 to 2002-03.

For Videocon International, it was Rs 3.87 crore in 1999-00, and for Videocon Appliances Rs 2.91 crore in the same assessment year.

For Southern Petrochemical Industries Corporation, the tax effect due to what the CAG calls a mistake was Rs 11.85 crore, in the assessment years 1997-98 and 1998-99.

The report adds that the income tax accepted the audit observation for this company and took remedial action to disallow the incorrect deduction from book profit.

MAT is levied by the finance ministry on those companies which claim a zero or lower than 7.5 per cent rate of profit. The tax is levied on 7.5 per cent of these companies' book profits.

The report of the CAG said the tax department did not accept the audit observation in the case of Reliance Industries on the ground that the revaluation was done in compliance with accounting standards and a judgment of the Supreme Court.

The department said the apex court had laid down that assessing officers had to accept the profit and loss account furnished by companies and certified by their statutory auditors.

But the CAG report says "the reply is no tenable as the claim of deduction was in clear contravention of the letter and spirit of the special provisions of the ( Income Tax) Act."

It adds "arguments relating to accounting standards and Supreme Court judgment are not relevant and do not apply to the case".

Commenting on the MAT regime, the report says the income tax department ought to bring under scrutiny all cases of companies, which opt for the tax. It says this is necessary as the department does not have an adequate mechanism to identify and take corrective measures for mistakes made in assessments.

The department also has no data base on zero tax companies and has not introduced any system to monitor the revenue realised from MAT companies.

Meanwhile, a wrong interpretation of the service tax provisions on advertising companies has led to a loss of Rs Rs 74.53 crore, by the Centre.

According to the latest report of the Comptroller and Auditor General on indirect taxes, 2004 tabled in Parliament today, the department instead realised only Rs 13.75 crore from the industry.

This occurred because the Central Board of Excise and Customs issued an order derecognising the component of expenses towards space and time in the print and electronic media for advertising agencies as taxable service has cost the government report of the Comptroller and Auditor General.