New Delhi: The Comptroller and Auditor General of India (CAG) has upbraided the government for allowing "misuse" of the voluntary disclosure of income scheme (VDIS), 1997, due to several lacunae in the text of the scheme that allowed declarants to undervalue their assets.

"The scheme was not in the interest of revenue and, in fact, provided one more opportunity to dishonest assesses to pay tax at a preferred rate and then retire to the old habit of concealing income," says the CAG report tabled in Parliament.

The scheme valid for six months from July 1, 1997, brought in tax collections of Rs 9,729.02 crore out of total declarations of Rs 33,697.32 crore from 4,75,477 declarants.

Several lacunae in the text of the scheme provided the declarants with an opportunity for widespread misuse by under-valuation of jewellery, bullion, shares and real estate and also "creation" of capital loss to be set off against income in future years, says the report.

"The track record of the declarants showed a clear scenario where they were found to have taken advantage of earlier amnesty schemes too," it says while criticizing the Central Board of Direct Taxes (CBDT) for creating categories of eligible persons not envisaged in the Act such as minors.

The CAG report warns that the net effect of creation of these categories will be that the immediate revenue gain would be completely wiped out in the next few years.

The subsequent assessments of the ineligible persons who were found to have taken advantage of the scheme were also accepted summarily, says the report.

An analysis of the range of income declared under VDIS indicates that only 0.43 per cent of the declarants made disclosures of Rs 1 crore and above.

However, the amounts disclosed by them accounted for 18 per cent of the total amount, paying 15.21 per cent of the total tax collected under the scheme.

"Tthe highest declaration to the tune of Rs 257.96 crore was made by an individual but he paid no tax," the report observes.

Test check of the cases sent for verification revealed that 26 assesses had availed of the immunity under the 1985 amnesty scheme and had again made disclosures under the VDIS, 97. In other cases, the assessment records pertaining to the assessment year 1985-86 were either not filed by the assesses or were not maintained or were not produced to audit thereby rendering it impossible to verify whether the assesses had previously disclosed under the amnesty scheme as well, says the report.

Taking a dig at the Central Board of Direct Taxes (CBDT), the report says post-VDIS action was found missing by the department "which did not monitor the cases of declarations."

The commissioners in this case failed to share information with the assessing officers and it was noted in audit that most of the assessments were completed summarily.

As a result, "several kinds of irregularities in the implementation of the scheme such as multiple declarations, could not be rectified at the assessment stage during the last three years, enabling the declarants to reap the unintended benefits," says the report.

The assessing officers in most of the income tax commissionerates are yet to take necessary action in cases where the declarants have failed to pay tax under the scheme, says the report.

It says on occasions when the CBDT had opportunities to give clarifications, the instructions issued were to the advantage of the declarants and mostly against the interests of the departments.

It says highly institutional assets such as shares and debentures are likely to generate more black money because of lacunae in the scheme compounded by CBDT clarification.

"Declaration of these assets was allowed without accompanying details like description of shares, distinctive numbers, number of shares held, their face value, purchase date, cost of acquisition etc.," it says.

As many as 2,472 declarations by minors whose income are clubbed with that of parents were permitted by the CBDT clarifications which it says "was inconsistent with the stated law."

"A test check revealed that minors declared undisclosed income prior to their birth and ‘benami’ declarations could be proved in a number of cases."

The CAG says adoption of April one, 1987 as the date of valuation for jewellery or bullion was ill conceived and could not stand the test.

The scheme provided that value of jewellery or bullion declared should be taken to be its market value as on April one, 1997 in case the declaration related to assessment year 1987-88 onwards.

This resulted in huge under-valuation of jewellery and bullion that could have made possible a revenue loss of Rs 519.45 crore.

The scheme also failed to lay down valuation requirement on real estate properties and this lacunae was taken unfair advantage of by the declarants who declared these assets at "absurd" values and protected themselves by the immunity provisions of the scheme, says the report.

PTI