The Comptroller and Auditor General of India (CAG), in its report tabled before the Parliament, has stated that there is no Standard Operating Procedure (SOP) or instructions/ guidelines has been prescribed by the CBDT for completion of assessment of assessees specific to Gems and Jewellery sector.
The CAG observed from sampled cases checked in audit that the assessments were completed based on disclosures in the Tax Audit Reports and submission made by the assessee. In the absence of proof of detailed examination of valuation details in the assessment records, the audit could not ascertain how the Department satisfied itself with the correctness of the valuation of inventory disclosed by assessees in Income Tax Returns and Tax Audit Reports. Also, no Standard Operating Procedure (SOP) or instructions/ guidelines has been prescribed by the CBDT for completion of assessment of assessees specific to Gems and Jewellery sector.
“There is no provision in the Income Tax Act to deal with the share application money pending allotment for long period. The non-verification of share application money pending for allotment for a long period is indicative of risk of routing of black money or illegal money,” the report said.
Audit noted that the valuation of the diamond depends on four Cs i.e. Cut, Clarity, Colour and Caratage. The Tax Audit Report, however, contains only carat- wise quantitative details of diamonds (rough, rejected & polished), and does not give grade- wise (Cut, Clarity, Colour & Caratage) details. In absence of grade wise details of diamonds, it was not clear how the Department was satisfying itself that the value of diamonds declared by assessee was correct. The gradations of diamonds or precious gems based on difference in cut, clarity, color and carat makes it extremely difficult to have standard valuation methodology.
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