CAG Report Flags Major Lapses in Income Tax Department’s Handling of Arrears and Outstanding Demands
Date: December 20, 2024
Category: TAX News
Read Time: 4 Minutes
The Comptroller and Auditor General (CAG) has raised significant concerns about the Income Tax (I-T) Department’s inefficiency in handling arrears and outstanding tax demands. The findings, presented in Report No. 14 of 2024, were tabled in Parliament on Tuesday and reveal several systemic issues and operational lapses.
Key Findings of the CAG Report
1. Limited Data Access for Audit
The audit team faced barriers in accessing crucial data. They were denied information for 42% of the requisitioned cases, which severely restricted the audit’s scope. Additionally, the department excluded cases closed after March 2020, preventing the team from verifying their closure.
2. Exorbitant Outstanding Demands
As of March 2021, outstanding demands totaled ₹14.41 lakh crore, with ₹10.58 lakh crore (73%) still under dispute. The report identifies several instances where tax demands were exaggerated due to:
- Denial of tax credits that were already paid
- Incorrect interest charges
- Errors in implementing appeal orders
3. Errors and Delays Impacting Taxpayers
The report shows that the outstanding demand figures included amounts that had been nullified because of delayed appeal orders. Taxpayers also experienced delays in receiving refunds, which were often issued against inflated demands and accompanied by interest. These delays caused financial strain and administrative burdens. Furthermore, taxpayers suffered from harassment due to errors in demand calculations and refund processing.
Systemic and Operational Issues Identified
Weak Monitoring and Review Mechanism
The CAG found that the department lacks granular data and risk-scoring techniques to evaluate arrears effectively. It also failed to maintain taxpayer dossier reports, which hindered comprehensive monitoring.
Prolonged Delays in Appeal Orders
The report highlights severe delays in appeal orders, with some lasting up to seven years and one case still pending after 11 years. These delays inflated outstanding demands and underreported interest dues on delayed tax payments.
Ineffective Recovery Mechanisms
The report indicates that provisional attachments under Section 281B failed to recover the arrears. Recovery officers also did not use their powers to attach and dispose of properties, even in high-value cases.
CAG’s Recommendations
To address these issues, the CAG recommended that the I-T Department:
- Strengthen data-sharing protocols to improve audit compliance.
- Implement risk-scoring techniques to focus on recoverable arrears.
- Enhance monitoring mechanisms to prevent inflated tax demands.
- Improve the efficiency of appeal order implementation to avoid delays and unnecessary refunds with interest.
Conclusion
The CAG’s findings reveal deep-rooted inefficiencies within the Income Tax Department, particularly in managing arrears and resolving disputes. The department must urgently implement systemic reforms to improve transparency, streamline processes, and reduce taxpayer harassment. These reforms will align the tax administration with best practices and help serve the public more effectively.
