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Our Bureau

New Delhi, March 11 The Comptroller and Auditor General of India (CAG) has come down heavily on the revenue department for its faulty income-tax assessments of banks in as many as 46 cases, involving tax effect of a staggering Rs 1,719.78 crore due to “incorrect allowance of bad debts written off and incorrect allowance of provision for bad and doubtful debts”.

This has been highlighted in a performance audit report for the year ended March 2007 tabled in the Lok Sabha on Tuesday. The CAG reviewed the assessments of 89 banks including public sector, private and foreign banks for the assessment years 2002-03, 2003-04, 2004-05 and 2005-06 completed after scrutiny up to March 2007.

On the issue of incorrect allowance of bad debts written off, the audit has noticed that income-tax provisions Section 36(1)(vii) and Section 36(2)(i) were not complied with while allowing deduction towards bad debts written off in 24 cases involving tax effect of Rs 1,647.22 crore. This included excess allowance of bad debts written off of Rs 1,368.78 crore and Rs 1,173.97 crore in respect of State Bank of India for the assessment years 2003-04 and 2004-05 respectively involving aggregate short levy of tax of Rs 1,058.70 crore.

The CAG has recommended that the Finance Ministry prescribe a check-list for the assessing officers requiring them to check that the bad debts to be written off have been debited to the provision for bad and doubtful debt account and that the credit balance of provision for bad and doubtful debt account of earlier years have been considered before allowing the same.

Evidently, the CAG would like the amount already available as provision for bad and doubtful debts to be set off against actual claims of bad debts and excess, if any, alone be considered for deduction in computing the taxable profits for a relevant assessment year.

The performance audit report has also highlighted that there appears to be wide variation in the figures of bad debts written off as furnished in the NPA returns to the RBI and the deductions allowed in the assessment orders.

“In view of the quantum of revenue involved in the deductions for bad and doubtful debts written off, audit recommends that the Finance Ministry may examine the issue of the wide variations in the figures reported in NPA returns to the RBI and the income-tax returns,” the CAG report said.

More Stories on : Income Tax | Non-Performing Assets | Regulatory Bodies & Rulings

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