New Delhi, December 17, 2024

The Comptroller and Auditor General of India (C&AG) presented Audit Report No. 14 of 2024 on “Outstanding Demand on Income Tax Assessees” in Parliament today. The report unveils critical shortcomings in the Income Tax Department’s (ITD) recovery mechanisms, emphasizing the persistent challenge of tax arrears accumulation.

Key Findings

The audit, spanning the financial years 2016-17 to 2019-20, reveals that total outstanding tax demands consistently exceeded direct tax collections. Over 97% of these demands were categorized as "difficult to recover." The analysis covered 21.58 lakh cases involving ?8.5 lakh crore in outstanding demand, representing over half of the total arrears at the national level.

Significant issues highlighted include:

1. Inflated Tax Demands: Errors in calculations, incorrect interest levies, and non-credit for taxes already paid.

2. Delays in Processing: Some appeal orders took up to 11 years for resolution, causing unnecessary hardships to taxpayers.

3. Weak Monitoring: Lack of robust data systems, incomplete dossier reports, and discrepancies in reporting.

4. Inefficient Recovery Actions: Limited use of tools like property attachment under Section 281B and non-registration of attachments with the Central Registry (CERSAI).

5. Unresolved Discrepancies: Duplicate and nullified demands remain in records, inflating arrear figures.

Recommendations

The report proposes 28 measures to address these systemic failures. Key suggestions include:

• Categorizing data to identify high-risk cases for prioritized recovery efforts.

• Accelerating recovery actions, particularly for cases under provisional attachment.

• Reconciling discrepancies in arrear demands and improving accuracy in reporting.

• Strengthening the process for summary assessments and ensuring swift clearance of Tax Recovery Certificates (TRCs).

• Enhancing data integration to track untraceable assessees.

Procedural Gaps Exposed

The audit identified lapses in the ITD’s recovery framework, such as failure to implement existing provisions for annual interest levies on outstanding demands and delays in using recovery powers effectively. Moreover, many unresolved cases involved discrepancies in tax deducted at source (TDS) credits and protective demands, leading to an inflated "difficult to recover" category.

Call for Reforms

The findings underscore an urgent need for procedural reforms to safeguard revenue interests and curb further tax arrears. The report emphasizes better monitoring, timely processing of appeals, and leveraging technology for data accuracy and recovery efforts.

This audit provides a roadmap for the Income Tax Department to strengthen its recovery mechanisms and address systemic inefficiencies, ensuring improved compliance and revenue protection.