The Comptroller and Auditor General (CAG) on Friday rapped the income tax department for allowing irregular tax exemption to two Tata trusts involving tax effect of Rs 1,066.95 crore.
According to the CAG report tabled in Parliament Friday,the tax department allowed irregular exemptions to Jamsetji Tata Trust and Navajbai Ratan Tata Trust who invested Rs 3,139 crore in prohibited modes arising from accumulation of capital gains.
The CAG in its report said that trusts earn huge profits consistently after showing meagre expenditure as compared to their total income. This,the auditor said,leads to accumulation of surpluses that are then used for creating fixed assets or transferred to other trusts rather than for charitable purposes to avoid tax.
The income tax department granted registration in 1,149 cases without verifying paper documents such as trust deed,audited accounts,audit reports,PAN and objects not charitable in nature.
It noticed 14 trust cases involving tax liability of Rs 1,090.03 crore,wherein accumulation arising from capital gains was either not invested in the specified mode or computed incorrectly.
They did not fully utilise … proceeds for acquiring capital assets. The income tax department allowed exemption irregularly in these assessments completed after scrutiny, the CAG added.
In one such case,Jamsetji Tata Trust and Navajbai Ratan Tata Trust earned Rs 1,905 crore and Rs 1,234 crore on account of capital gains during assessment years 2008-09 and 2009-10,respectively and invested the same in prohibited mode of investment which is in contravention to the provisions of section 13 (1) (d) of the Income Tax Act (dealing with investment).
The CAG said that the assessing officer should have brought the investments to tax at maximum marginal rate under the Income Tax Act.
The auditor has suggested that the finance ministry should ensure that such mistakes do not recur on the part of assessing officers.