Income Tax Audit of Top Companies Tanuja Mittal

Aim Qualitative Improvement Selective Approach from A.R

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

Methodology - Contd II.Hqrs sent Financial data - Capitaline - First Source(CMIE) III.Guidelines prepared in consultation with field offices IV.Audit Strategy V.All cases covered Summary or scrutiny

Guidelines List of companies and Financial data News clippings Correlation with Central Excise and Sales Tax Outstation TDS Not assessed immediately forward to the concerned AG

AR Sectors selected Importance Black money - Cement - Automobiles - Textiles

All India 97 companies A.Y to PBT above Rs 25 lakhs 326 observations T.E. Rs lakhs

Maharashtra SectorNo. of selected Companies Textile19 Automobiles13 Cement13 Total45

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

Cement Sector India second largest producer 4 groups account for 50% of domestic cement capacity

Associated Cement Cos Ltd…. Audit Para # CIT Mumbai City IV charge The assessments for the A.Y to , completed after scrutiny, and for the A.Y , done in summary manner

Ltd - Contd ACC Ltd - Contd A.Y Receipts 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 - Contd A.Y to Rs 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.

ACC Ltd - Contd A.Y to Excise duty on manufactured goods lying in the factory premises Not taken into account in valuing closing stock

ACC Ltd - Contd A.Y to Deductions 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.)

ACC Ltd - Contd A.Y and Deduction on account of royalty, commission, technical fees etc, from foreign Government at 50 percent of gross receipts of Rs lakh Net receipts (reducing 10 % of Gross receipts) Rs lakh Omission resulted in underassessment of income

ACC Ltd - Contd The above omissions resulted in an aggregate undercharge of tax of Rs lakh

Gujarat Ambuja Ltd… Audit Para # CIT Mumbai City III charge The assessments for A.Y to , assessed under scrutiny

Gujarat Ambuja Ltd - Contd A.Y Pre-operative expenditure of Rs lakh on interest on borrowed funds and premium on lease hold land Capital expenditure.Hence disallowed

Gujarat Ambuja Ltd - Contd A.Y Restrict the deduction of Rs lakh on account of expenditure incurred on a power line for a new unit to 1/10th

Gujarat Ambuja Ltd - Contd A.Y & Excise duty payable on finished goods was not taken into account in valuing closing stock

Gujarat Ambuja Ltd - Contd A.Y & Puja function expenses and share transfer expenses Not incurred for the purpose of business Excess computation of loss.

Gujarat Ambuja Ltd - Contd The above omissions resulted in an aggregate undercharge of tax of Rs lakh.

Automobile Sector Backward and forward linkages Indicates economic performance

Audit Para # CIT Mumbai City V charge A.Y to assessed under scrutiny A.Y , done in summary manner Mahindra and Mahindra Ltd…

M & M Ltd - Contd A.Y Incorrect deduction under section 80HHC of Rs lakh allowed Rs lakh indicated in the assessment order T.E. Rs lakh

M & M Ltd - Contd A.Y Incorrect allowance of depreciation of Rs lakh Rs lakh admissible T.E. Rs.9.59 lakh

M & M Ltd - Contd A.Y Expenditure of Rs lakh and income of Rs lakh of earlier years as debited/credited to profit and loss account Irregular allowance of prior period expenditure T.E. Rs lakh

M & M Ltd - Contd A.Y , and Omission 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 lakh

M & M Ltd - Contd A.Y to Wealth Tax assessment records Aircrafts not used for commercial purposes Treat as assets for wealth tax purpose T.E. Rs lakh

TELCO Ltd Audit Para # CIT Mumbai City II Charge A.Y

TELCO Ltd The proportionate expenditure of Rs lakhs on the total expenditure incurred on scientific research of Rs 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 lakh. T.E. Rs lakhs

Textile Sector 8 % of India’s GDP 30 % of Export Earnings

Mafatlal Industries Ltd… Audit Para # CIT Mumbai City II Charge A.Y to scrutiny assessments

Mafatlal Industries Ltd - Contd A.Y to Excise duty payable on stock in trade was not taken into account in valuing closing stock

Mafatlal Industries Ltd - Contd A.Y to Expenses on interest, commission and technical know-how fee in foreign currency No evidence for TDS

Mafatlal Industries Ltd - Contd to No TDS on rent and lease rent of premises of Rs lakh But debited to profit and loss account

Mafatlal Industries Ltd - Contd Assets, owned by the assessee but not utilized for own business Not included in the net wealth

Mafatlal Industries Ltd - Contd The above omissions resulted in an aggregate under charge of tax of Rs lakh.

Morarjee & Gokuldas Spinning & Weaving Mills Audit Para # (4) CIT Mumbai City I Charge A.Y & assessed under scrutiny Interest of Rs lakh earned on investment in tax-free bonds, which were purchased after obtaining loans on which interest of Rs lakh was paid by the assessee. Tax Effect Rs lakh

Conclusion 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

Conclusion Audit of Companies in select Sectors for A.R