income tax audit of top companies tanuja mittal. aim qualitative improvement selective approach from...

Income Tax Audit of Top CompaniesIncome Tax Audit of Top CompaniesTanuja Mittal

AimAim

Qualitative Improvement

Selective Approach from A.R.1998-99

ObjectivesObjectives

Correctness of application of provisions of the Income Tax Act 1961 & Wealth Tax Act 1957

Assessing officer has taken due care during finalisation of assessments

Methodology….Methodology….

I. Selection a)Strategic sectors - Significant growth -Privatisation b)Top Companies -Sales Turnover -Profit before Tax -Actual Tax Paid

Methodology - ContdMethodology - Contd

II. Hqrs sent Financial data - Capitaline - First Source(CMIE)

III. Guidelines prepared in consultation with field offices

IV. Audit StrategyV. All cases covered Summary or

scrutiny

GuidelinesGuidelines

List of companies and Financial dataNews clippingsCorrelation with Central Excise and

Sales TaxOutstation TDSNot assessed immediately forward to

the concerned AG

AR 2000-01AR 2000-01

Sectors selectedImportanceBlack money

- Cement- Automobiles- Textiles

All IndiaAll India

97 companiesA.Y. 1994-95 to 99-00PBT above Rs 25 lakhs326 observations T.E. Rs 65442 lakhs

MaharashtraMaharashtra

Sector No. of selected

Companies

Textile 19

Automobiles 13

Cement 13

Total 45

MaharashtraMaharashtra

45 companies 100 printed paras T.E. of Rs. 41480 lakhs

Cement SectorCement Sector

India second largest producer4 groups account for 50% of domestic

cement capacitywww.cementindia.net

Associated Cement Cos Ltd….Associated Cement Cos Ltd….

Audit Para # 4.6.1CIT Mumbai City IV chargeThe assessments for the A.Y.1994-95

to 1997-98, completed after scrutiny, and for the A.Y. 1998-99, done in summary manner

ACC Ltd - Contd Ltd - Contd

A.Y.1997-98Receipts relating to railway insurance

and other claims including road transport subsidy to be added back

Total income more than 30% of the book profit

Provisions of Section 115JA not applicable

ACC Ltd - ContdACC Ltd - Contd

A.Y.1994-95 to 1996-97Rs. 8384 lakh on account of receipts

relating to Railway insurance and other claims including road transport subsidy paid by the State Government

Shown as sundry debtors Accrued income and added to the total

income.


A.Y.1995-96 to 1998-99Excise duty on manufactured goods

lying in the factory premisesNot taken into account in valuing

closing stock


A.Y.1994-95 to 1996-97Deductions were admissible only in

respect of profits and gains from industrial activity in respect of newly established industrial undertakings

Incorrectly deduction allowed in respect of the profits on trading activity (sale of cement, etc.)


A.Y.1994-95 and 1995-96 Deduction on account of royalty, commission,

technical fees etc, from foreign Government at 50 percent of gross receipts of Rs. 816.96 lakh

Net receipts (reducing 10 % of Gross receipts) Rs.760.25 lakh

Omission resulted in underassessment of income


The above omissions resulted in an aggregate undercharge of tax of Rs. 10897.52 lakh

Gujarat Ambuja Ltd…Gujarat Ambuja Ltd…

Audit Para # 4.6.4CIT Mumbai City III chargeThe assessments for A.Y. 1994-95 to

1997-98, assessed under scrutiny

Gujarat Ambuja Ltd - Contd Gujarat Ambuja Ltd - Contd

A.Y.1997-98Pre-operative expenditure of Rs.

1107.60 lakh on interest on borrowed funds and premium on lease hold land

Capital expenditure.Hence disallowed


A.Y.1995-96Restrict the deduction of Rs. 1141.15

lakh on account of expenditure incurred on a power line for a new unit to 1/10th


A.Y.1994-95 & 1995-96Excise duty payable on finished goods

was not taken into account in valuing closing stock


A.Y.1994-95 & 1996-97Puja function expenses and share

transfer expenses Not incurred for the purpose of business Excess computation of loss.

Gujarat Ambuja Ltd - ContdGujarat Ambuja Ltd - Contd

The above omissions resulted in an aggregate undercharge of tax of Rs. 1061.62 lakh.

Automobile SectorAutomobile Sector

Backward and forward linkagesIndicates economic performancewww.acmainfo.com

Audit Para # 4.8.1CIT Mumbai City V chargeA.Y. 1994-95 to 1997-98 assessed

under scrutinyA.Y.1998-99, done in summary manner

Mahindra and Mahindra Ltd…

M & M Ltd - ContdM & M Ltd - Contd

A.Y.1994-95Incorrect deduction under

section 80HHC of Rs.82.17 lakh allowed

Rs.11.03 lakh indicated in the assessment order

T.E. Rs.44.17 lakh


A.Y.1994-95Incorrect allowance of depreciation of

Rs.46.10 lakhRs.36.86 lakh admissibleT.E. Rs.9.59 lakh


A.Y.1996-97Expenditure of Rs.530.99 lakh

and income of Rs.25.04 lakh of earlier years as debited/credited toprofit and loss account

Irregular allowance of prior period expenditure

T.E. Rs. 232.74 lakh


A.Y.1994-95, 1996-97 and 1997-98Omission to disallow capital expenditure

on loss on sale of assets,assets written off and loss of sale of investment as indicated in tax audit report

T.E. Rs. 257.55 lakh


A.Y.1994-95 to 1998-99Wealth Tax assessment recordsAircrafts not used for commercial

purposes Treat as assets for wealth tax purposeT.E. Rs.72.44 lakh

TELCO LtdTELCO Ltd

Audit Para # 4.8.3CIT Mumbai City II ChargeA.Y.1996-97

TELCO LtdTELCO Ltd

The proportionate expenditure of Rs.469.87 lakhs on the total expenditure incurred on scientific research of Rs.5580.43 lakh claimed as deduction was not taken into account to arrive at the correct amount of profit which resulted in excess allowance of deduction of Rs.117.46 lakh.

T.E. Rs 92.94 lakhs

Textile SectorTextile Sector

8 % of India’s GDP30 % of Export Earningswww.itd.org

Mafatlal Industries Ltd…Mafatlal Industries Ltd…

Audit Para # 4.10.1CIT Mumbai City II ChargeA.Y. 1994-95 to 1997-98 scrutiny

assessments

Mafatlal Industries Ltd - ContdMafatlal Industries Ltd - Contd

A.Y.1994-95 to 1997-98Excise duty payable on stock in trade

was not taken into account in valuing closing stock


A.Y.1994-95 to 1997-98Expenses on interest, commission and

technical know-how fee in foreign currency

No evidence for TDS


1994-95 to 1997-98No TDS on rent and lease rent of

premises of Rs.4540.60 lakhBut debited to profit and loss account


1997-98Assets, owned by the assessee but not

utilized for own businessNot included in the net wealth


The above omissions resulted in an aggregate under charge of tax of Rs. 4034.98 lakh.

Morarjee & Gokuldas Spinning & Weaving MillsMorarjee & Gokuldas Spinning & Weaving Mills

Audit Para # 4.10.10(4) CIT Mumbai City I Charge A.Y.1995-96 &1996-97 assessed under

scrutiny Interest of Rs. 386.46 lakh earned on

investment in tax-free bonds, which were purchased after obtaining loans on which interest of Rs. 4070.20 lakh was paid by the assessee.

Tax Effect Rs.177.76 lakh

ConclusionConclusion

It was observed that although most of the assessments of these companies were completed in scrutiny manner, adequate care was not taken during assessment leading to avoidable mistakes. As these companies contribute significantly to the tax collection, it is imperative that the assessing officers focus greater attention on these companies

ConclusionConclusion

Audit of Companies in select Sectors for A.R. 2001-02

income tax audit of top companies tanuja mittal. aim qualitative improvement selective approach from...

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