In News:

• In an audit of assessments made by the Income Tax Department on the real estate sector, the Comptroller and Auditor General (CAG) found that a whopping 95% of the companies registered with the Registrar of Companies (RoC) did not have a permanent account number (PAN).

Explained:

• A CAG report tabled in Parliament Tuesday said the Registrar of Companies did not have information about PAN of 95 per cent of the real estate companies.
• Registrar of Companies (RoC) maintains database of all companies that register at the time of incorporation. Companies are required to file annual returns with RoCs.
• Form MGT-7, prescribed in the Companies (Management and Administration) Rules, 2014, requires a company to file its annual report mentioning its Permanent Account Number (PAN)
• Registrar of Companies (RoCs) did not have information about PAN in respect of 51,670 (95 per cent) of a total of 54,578 companies for which data was made available to Audit.

CAG Findings:

• Out of 840 companies with PAN coming under selected assessment charges, it was noticed that 159 companies (19 per cent) were not filing their ITRs. According to report of CAG, it can be concluded that there is no mechanism with ITD (income tax department) to ensure that all the registered companies have PAN and are filing their ITRs regularly. Out of total 78,647 assessments, the CAG checked 17,155 assessment records (about 22 per cent) with assessed income of Rs 1,02,106 crore during this performance audit. CAG noticed 1,183 mistakes (approx seven per cent of the audited sample) having tax effect of Rs 6,093.71 crore, thus causing loss of revenue to the government.
• CAG said since a sample of 22 per cent has yielded errors of Rs 6,093.71 crore, ITD needs to have the remaining 61,492 cases audited internally
• CAG also said the system in ITD to ensure compliance of filing of ITRs by the sellers of high value immovable properties was not effective.

Recommendations of CAG:

• The Central Board of Direct Taxes (CBDT) and corporate affairs ministry may have an arrangement “where there is an interface between ITD and RoC so that when a company is registered with RoC, the application for PAN is submitted automatically with ITD”.
• Also when PAN is issued to the newly incorporated company, it should be automatically sent to RoC Systems for updation.
• Further, the companies should be compulsorily required to submit a copy of acknowledgement of ITR while furnishing their annual reports in Form MGT-7. This will ensure that companies file their ITRs and at the same time the data of RoC will be in sync with that of ITD
• The tax department also needs to try to pin down the reasons for why there is such a substantial proportion of errors and fix the identified systematic faults and responsibility where the errors have happened as an act of commission.