C&AG Report 2016-Compliance Report Income Tax Department Write-off of Arrears of tax demand FY 2014-15

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Comptroller and Auditor General (C&AG) Report No. 03 of 2016 for the year ended March 2015 on Compliance Audit on Direct Tax Department Union Government tabled on 11-03-2016.

As per the report the instances mentioned are those which came to notice in the course of test audit for the period 2014-15 as well as those which came to notice in earlier years but could not be reported in the previous Audit Reports; instances relating to the period subsequent to 2014-15 have also been included, wherever necessary.

Chapter VI: Write-off of Arrears of tax demand

6.1 Introduction

In the recent past, the arrears of tax demand have gone up many folds and are piling up year after year, despite several provisions57 in the Income Tax Act (Act) and instructions issued by CBDT regarding recovery of tax demand. As on 31 March 2014, the total arrears of tax demand pending was ` 5.75 lakh crore which included ` 2.21 lakh crore (38 per cent) as certified58 demand. The ITD instituted a specialised mechanism as Tax Recovery Officer (TRO) to monitor and recovery of arrears of tax demand by allocating one TRO exclusively for each CIT charge59. When tax demand remained irrecoverable inspite of exercise of power of recovery by TRO, writing-off of arrears of tax demand is to be considered. The Rule 13 read with schedule VII of Delegation of Financial Powers, 1978 confers on the Commissioners of Income Tax (CsIT) has powers to write-off irrecoverable tax demands subject to approval of competent authority. Manual of Office Procedure (MOP), Volume-II (Technical) issued by CBDT, contains the provisions of law relating to write-off of arrears of tax demand.

The Public Accounts Committee (PAC) in its 29th Report presented to Lok Sabha on 11 August 2006 and Tax Administration Reform Commission (TARC) in 2014 also raised concern over process of recovery and write-off of arrears of tax demand.  The present study deals with the evaluation of effectiveness of system of writing-off the arrears demand in the ITD.

6.2 Administrative set-up

The administrative set-up vis-a-vis monetary limits60 for write-off of arrears of tax demand as prescribed by CBDT is shown in Chart 6.1.

arrear waiver

6.3 Legal provisions and procedures

There is no specific provision in the Act or in any of other Direct Tax Acts for writing-off of the tax arrears which become irrecoverable. In pursuance of Rule 31 of the General Financial Rules, 1963, powers to sanction write-off of the revenue have been delegated by the Central Government to the incometax authorities. Chapter 13 of MOP, Volume-II (Technical) issued by CBDT, contains the provisions of law relating to write-off of arrears of tax demand. The CBDT has issued instructions/guidelines from time to time on powers and Rs.ary limits for write-off of arrears of tax demand. The procedure is same for both total write-off and partial write-off. Tax arrears may be written-off by any one of the procedures: namely (i) Summary write-off, (ii) Ad-hoc procedure for write-off and (iii) Regular procedure for write-off.

6.9 Conclusion

During FYs 2012-13 to 2014-15, percentage of demand difficult to recover due to PWO/ANT/NAR with the total arrears of tax demand substantially increased from 12.59 per cent to 22.60 per cent. However, out of ` 74,077.78 crore of the demand difficult to recover due to PWO/ANT/NAR, only ` 2.21 crore was written off as of 31 March 2015. In most of the charges/states, Zonal Committee was either not constituted for review of unrealisable demands or if constituted, no meeting was held during the period 2012-13 to 2014-15.

We found that arrear demand was written off in contravention to the provisions of CBDT manual. The ITD did not write-off arrears of tax demand for which ICs were issued by the respective TROs. Arrear demand was also not declared irrecoverable by following regular procedure in cases where the assessees were not traceable and there was no fund/asset or insufficient fund/asset. Further, neither old arrears of tax demand were declared irrecoverable nor these were referred back to jurisdictional AOs by the TROs for initiating write-off after issue of IC. Arrear demand was not pursued for effective disposal due to lack of co-ordination between TRO and the jurisdictional AO. The AOs and CsIT did not submit Reports/Statements as per the provisions laid down in the CBDT Manual. Registers required to be maintained for ‘Tax Recovery’ and ‘Write-off’ purpose were either not maintained or maintained improperly.

The Rs.ary limits for write-off of arrears of tax demands were last revised in 2003 which has not been revisited considering the latest restructuring in the ITD and growth in the revenue collection. The ITD has not taken prompt action for identification of genuine cases which were fit for write-off. The CBDT also did not evolve any mechanism/system for monitoring of high value cases which were pending for a considerable time and were required to be written off.

6.10 Recommendations

We recommend that:

  1. ITD may ensure that periodical review of the arrears of tax demand is conducted to identify unrealisable demands for initiating write-off proceedings under the appropriate procedure and there is proper co-ordination between the AOs and TROs for speedy disposal of arrear cases.
  2. ITD may prescribe a definite timeline to be observed by TROs as well as other authorities to avoid indefinite delay in deciding possibility of recovery of tax arrears and speedy disposal of write-off cases.
  3. ITD may ensure that details of outstanding demands categorised as PWO/ANT/NAR along with updated reports/statements/registers are properly maintained by TROs/AOs. ITD may also strengthen its Internal Audit Wing to ensure the audit of adequate number of TROs every year.

On above recommendations, the Ministry stated (30 November 2015) that in the light of Tax Administration Reform Commission’s recommendations, the CBDT had already set up a Committee for updating and revising the existing guidelines which had submitted its report in June 2015 proposing simplification and improvement of write-off procedure. The Ministry further stated that the report of the Committee is under consideration and the recommendations of the Audit will be considered for incorporation in the revised guidelines proposed to be issued.

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