The Comptroller and Auditor General (CAG) in its report recommended the Central Board of Direct Taxes (CBDT) put in place a mechanism so as to ensure that Appraisal Report along with seized material be handed over to assessment wing within stipulated time so that AO could have sufficient time to examine all the issues pointed out in Appraisal Report.
Search and Seizure is a very powerful tool available to the Income Tax Department to unearth any concealed income or valuables and to check the tendencies of tax evasion thereby mitigating the generation of black money.
The Income Tax Department resorts to search and seizure only in cases where there is sufficient reason to believe that the person concerned would not disclose the true picture of his income in the normal course of filing of return and regular assessment.
The Income Tax Department may like to ensure that search warrants are issued after proper examination of the information available, research and due diligence in a manner which is above suspicion as search and seizure involves lot of harassment to the assessees and their families, CAG has said in a report ‘Performance Audit on Search and Seizure Assessments in Income Tax Department’.
The Performance Audit (PA) covered the search assessments completed during the financial years 2014-15 to 2017-18. Audit checked 24,869 assessment records pertaining to 185 Groups with assessed income of Rs 1,71,503.78 crore during the PA. Audit issued 1659 observations having tax effect of Rs.4150.02 crore.
The report pointed out that 76.5% of additions made in search assessments did not stand the test of judicial scrutiny in appeals at the level of CIT(A) or ITAT. There were cases where sustainability of additions made in the assessment orders was nil at appellate stage.
The report pointed out various irregularities and lacunas.
Firstly, assessing Officers did not take uniform stand in making additions on account of bogus purchases, accommodation entries and in adoption of figures of assessed income/revised income.
Secondly, the additions were made arbitrarily either on a lump sum amount basis or different percentages ranging from five per cent to 50 per cent under similar circumstances without proper justification.
Thirdly, there were cases of non-compliance of CBDT’s instructions/orders. Provisions related to levy of penalty, allowances of deductions/expenses/set off and carry forward of losses/ MAT etc. were not followed correctly.
Fourthly, there was a delay ranging from one month to 14 months in handing over the Appraisal Report along with seized material to the AO.
Verification of source/genuineness of the transaction pointed out in Appraisal Report was not done and undisclosed income recommended in the Appraisal Report was not added. Coordination with other wings of ITD to resolve the issues pointed out in Appraisal report was not there. Useful information was not shared by ITD with other government agencies/authorities or vice versa either directly or through REIC.
Action Notes based on comprehensive and methodical examination of seized material, were not prepared by the AO. Separate Narrative Reports were not prepared and sent to the Member (Investigations).
Therefore the report recommended that CBDT may introduce a time limit for issuing notices under amended section 153A/153C.
“Audit is of the view that all the assessees related to issues pointed out in Appraisal Report may be centralized and their assessments should be completed in a nameless/faceless manner, where the assessees as well as AOs are not aware of each other’s identities, to ensure transparency in the assessments,” the report said.
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