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Rs 500cr farm income got I-T relief sans verification: CAG

The CAG asks I-T department to revisit cases where agricultural income excess set threshold.

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Updated: Jul 31, 2019, 11.23 AM IST
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The office of the CAG.
(This story originally appeared in on Jul 31, 2019)
MUMBAI: The Comptroller and Auditor General of India (CAG) has found that agricultural income of nearly Rs 500 crore was allowed as exempt by the income-tax authorities without adequate verification.

The auditor’s report on direct taxes for the year ended March 2018 focused on exempt income — both agricultural and that which is earned by charitable trusts.

CAG has recommended that the I-T department reexamine all cases where agricultural income exceeds a certain threshold — say Rs 10 lakh — to ensure that exemption is allowed only to genuine taxpayers.

CAG said it chose to focus on this topic as the Tax Administration Reform Commission had noted in its 2014 report that agricultural income of ‘non-agriculturists’ is being increasingly used as a conduit to avoid tax and for laundering funds.

In its report, CAG pointed out that it reviewed 6,778 scrutiny assessment matters and found that in 22.5% (or 1,527 cases), claims for exemption of agricultural income were allowed without verification of supporting documents.

SC has put onus on taxpayer: CAG
These documents include land records, income and expenditure statements, crop information, bills, invoices, which would establish veracity of the claims. The Central Board of Direct Taxes (CBDT) has not set any specific instructions for scrutiny of agricultural income exemption claims. However, I-T officials must insist during assessment on production of evidence from taxpayers.

The apex court has held that the onus lies on the taxpayer to establish the genuineness of the claims made, the CAG added. The CAG also noted that data entry errors relating to agricultural income, which continue to exist in the I-T data base, need to be rectified.

A follow-up test check of exemptions to charitable trusts during fiscal 2017-18, conducted by the CAG, showed several irregularities. These included grant of exemption even where the activities were not charitable in nature, or treatment by such trusts of donations (including foreign) as part of the corpus (that is, capital) of the trust without specific instructions from the donor. The tax effect involved is Rs 723 crore, points out the CAG report.

CAG suggests that prior approval should be a pre-condition for receipt of foreign donations, which could be capped at 5-10%. Amendments should be carried out in the I-T Act to make trustees also liable for violations. Lastly, various provisions of the I-T Act must be streamlined to apply uniformly to all trusts, irrespective of when they were set up.

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