T. N. Pandey

T. N. Pandey looks at the CAG's findings in its review of the I-T Department's working

THE Comptroller and Auditor General (CAG) report for the year 2002-03 on `Audit of Direct Taxes' was placed before Parliament on July 13, 2004. Going by the report, the tax department's prime task seems to be that of collecting revenues for the Government, even as the tax systems in various countries now seem to reflect the social, economic and political aims of the respective governments.

Total collections from various direct taxes have been showing an upward trend — from Rs 46,600 crore in 1998-99 to Rs 83,088 crore in 2002-03, an annual increase of 12.03 per cent. Overall collections as a percentage of GDP have risen from 2.68 in 1998-99 to 3.39 in 2002-03, and the average tax over the past five years has also increased. However, most of the collections come from pre-assessment exercises, such as TDS, advance payment and self-assessment. During 2002-03, pre-assessment collections accounted for 83.85 per cent of corporate taxes and 93.95 per cent of the taxes from non-corporate assessees.

Thus, non-corporate assesses seem to be more cooperative in the discharge of their pre-tax obligations than corporate assesses. Yet, individuals having incomes over Rs 8.50 lakh are being subjected to a 10 per cent surcharge and corporations get away with a mere 2.5 per cent.

Assessees, assessments

The total number of assessees at the end of 2002-03 was 2.85 crore. However, as per the Finance Minister's Budget speech, this figure had risen to 3.4 crore on March 31, 2004. But, of these, 70-lakh persons filed returns but paid no tax. Thus, assessees actually paying tax as on March 31, 2004, was much lower — 2.70 crore, that is. And this figure pales against the country's population of more than 100 crore.

Of the total number of assessees, more than 98 per cent were non-corporate and less than 2 per cent, corporate. The classification of corporate and non-corporate assessees in 2002-03 is presented in Table 1.

It is highly improbable that out of a population of over 100 crore, there are only 88,000 (0.31 per cent of the total taxpayers) having incomes or losses of Rs 10 lakh and above. Similarly, the figure of 39,000 for corporate assesses, too, is very low. These indicate that there is something fundamentally wrong either with the functioning of the tax department or in the I-T law, which brings down the incomes of assessees.

Tax arrears

At the end of 2002-03, the position of tax demand collected and in arrears is as shown in Table 2. The uncollected amount of Rs 67,638 crore comprised Rs 48,821 crore of earlier years and the current demand of Rs 18,817 crore outstanding as on March 31, 2003. Though outstanding demand both in corporation tax and income-tax has decreased, substantial amounts still remain uncollected. As at end-March 2003, Rs 41,365.77 crore or 61 per cent of total uncollected demand was in abeyance.

More than 56 per cent of the gross arrears as on March 31, 2003, consisted of cases where the arrears in each case were Rs 1 crore and above.

The other aspects in the report that need mention are:

Workload

The position with regard to workload and disposal of scrutiny and non-scrutiny cases in 2002-03 is as shown in Table 3.

Disposal of scrutiny cases has been quite low (19.28 per cent of the workload); in fact, it has fallen from 77 per cent in 2001-02. The reasons for this have not been indicated. More attention should have been paid to such assessments, as only these can boost revenue.

PAN

As on March 31, 2003, 3,53,680 applications were still pending allotment of Permanent Account Nos. This is despite the I-T Department outsourcing the work to UTT Services.

Penalties

The number of penalties for disposal during 2002-03 was 2,46,188. Of these, only 36,795 (38.3 per cent of the workload) were disposed of. Fifty-five per cent of the total cases for disposal pertained to concealment, but only 24.18 per cent of these were disposed of. Delay in disposal of penalties acts as disincentive for voluntary compliance.

The position with regard to prosecution has been more unsatisfactory. In 2002-03, of the 12,303 cases for prosecution, 433 were disposed of and 18 convictions ordered. Compounding was done in 11 cases and acquittals ordered in 404 cases.

Refund applications

Only 70 per cent of the refund claims was disposed of. The pendency was 2,19,728 — accounting for 30 per cent of the Department's workload. However, the position with respect to refund orders arising out of appellate orders has not been satisfactory. Despite appeal/revision orders having been received, 36,835 cases or 43 per cent of total cases where refunds were due to assessees remained pending.

Interest paid by the Government

Considerable amount of interest had to be paid by the Government for delays in giving refunds. In 2001-02, the Government paid Rs 1,922.88 crore by way of interest on refunds, and in 2002-03 this figure shot up to Rs 6,268.07 crore, representing a 226 per cent jump. The Government refunded Rs 22,031 crore from the gross collection of Rs 1,05,069 crore and paid interest of Rs 6,268 crore, which works out to 28.5 per cent of the amount refunded. With vigilance and expedition, such a loss can be avoided.

The cost of tax collection was 0.26 paise per rupee for corporation tax and 2.51 paise per rupee for income-tax.

Appeals

Of the 2,19,966 appeals, only 1,18,743 were disposed of by the Commissioner (Appeals). As per the norms fixed for disposal (60 appeals per month), 2.08-lakh appeals should have been disposed of by the Commissioners. However, only 1.19-lakh appeals were decided by the CIT (Appeals).

The appeals pending with Income-Tax Tribunals, High Courts and the Supreme Court and their disposal are shown in Table 4.

The CAG report does not give a very good account of the tax department's functioning. In fact, the position has been such year-after-year, but nothing has been said on whether such reports have been given serious consideration and improvements made based on them. Initiating action against those who have done slipshod work and setting right the administrative deficiencies only can help tide over the problems highlighted in the report.

(The author is a former chairman of CBDT.)

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