The Hindu Business Line : A catalogue of failures

The Comptroller and Auditor General has prepared three reports (Nos 7, 8 and 10) on direct taxes. These were tabled before both Houses of Parliament on May 19, 2006, and contain valuable data and comments on income-tax and wealth tax.

Report No 8 relates to important areas of the Income-Tax Act relating to its administration. Also, for the period April 1, 2004 to March 31, 2005, it gives information about direct tax collections, profile of taxpayers, progress in allotment of PAN, assessment work concerning scrutiny and non-scrutiny cases, tax in arrears, functioning of the tax-recovery machinery, how penal provisions relating to interest, penalty and prosecutions have been implemented, how search and seizure provisions in the I-T Act have been made use of, the progress in regard to disposal of refund cases, details about the functioning of the appellate forums and Settlement Commission, and the amount lost consequent to write off of irrecoverable tax demands.

A major portion of the report, based on a sample study, relates to mistakes of omission and commission committed by assessing officers (AOs). In the context of income-tax and corporation tax, Report No 7 (on performance audit) highlights the mistakes committed and tax effect of the same (see Table).

The study needs to be seen keeping in view the fact that in 2004-05, tax of Rs 1,32,771 crore was collected and 2,07,03,381 assessments completed.

Report No 10, on audit of Assessment Information System of the I-T Department, has been examined using the COBIT framework and a number of shortcomings have been pointed out.

In short, the three reports are merely a catalogue of the failures of the tax department without any mention of the good work done.

Power to audit

The CAG is empowered to conduct audit of the Government's direct tax revenues under Section 16 of the Comptroller and Auditor General of India (Duties, Powers and Conditions of Service) Act, 1971 through test checks of assessment and other records. He is to examine "the systems and procedures laid down by the I-T Department/Government in critical areas of tax administration to assess the effectiveness of their working and evaluate the degree of compliance with tax laws, rules and judicial pronouncements in the assessment, demand and collection of tax revenues from assessees."

Obviously, the mandate is not to concentrate on the errors and omissions, disregarding the excellent work done by the officers of the tax department, who constitute a team of talented and well-trained personnel. The way the CAG reports are presented indicates that the Department is losing considerable revenue because of omissions, though year after year the number of taxpayers and tax collections have been rising.

The audit should appreciate that despite much progress in computerisation, there is still considerable work in the I-T Department that requires to be done manually. Hence, a balanced view regarding the Department's functioning needs to be depicted in the CAG's reports and this would be possible only when both good and deficient work done is mentioned. The 1971 Act enables the CAG to function in this manner.

(The author is a former chairman of CBDT.)