CAG Uncovers Rs 13,000 Crore Tax Shortfall

A compliance audit by the Comptroller and Auditor General (CAG) of India has revealed significant under-reporting of sales by 11 distilleries and breweries across Uttar Pradesh, Maharashtra, Karnataka, and Delhi. The CAG estimates the tax implications of this 'short accounting' to be approximately Rs 12,800 crore over a 10-year period, up to December 2022.

In one instance, a distillery in Uttar Pradesh allegedly under-reported sales by Rs 1,378 crore, resulting in a tax implication of Rs 448 crore. The CAG noted that while the distillery reported sales of Rs 4,036 crore in its profit and loss account, the information provided by the UP excise department showed sales of Rs 5,414 crore.

The under-reported sales were accepted by the Income Tax (I-T) department from Assessment Year (AY) 2011-12 to 2013-14, leading to a short computation of income involving a tax effect of Rs 448 crore, excluding interest. The CAG has identified deficiencies in the functioning of I-T assessment units, stating that information available within the I-T department was not utilized by assessment units, resulting in a tax impact of Rs 12,781 crore.

The auditor has recommended that the Central Board of Direct Taxes (CBDT) consider issuing a Standard Operating Procedure (SOP) or Method of Procedure (MoP) for requisitioning information/statements of financial transactions from state excise authorities as mandatory while conducting assessments of distilleries and breweries. The CAG also pointed out systemic failures in the I-T department, where a large amount of rebates, discounts, etc., were allowed as expenditure in the accounts of distilleries without verifying the genuineness of such claims.