No action if AG’s objection is against court orders or Board instructions - CBDT

By Vijay Kumar

The CBDT has issued detailed instructions on how to deal with objections from AG’s Audit.

Please don’t suppress records from AG. Over the years the department has learnt a lesson that the best way to avoid AG’s objections is to give them good food but no files. When the auditors ask for a file, a ‘search’ operation is vigorously initiated and most often the file is not ‘found’. Central Excise officers have started asking assessees also to adopt this system and avoid showing files to AG. A routine objection recorded by AG’s Audit is – “Files not produced”. In some cases there is genuine difficulty in making available the files. With frequent changes in jurisdiction and location, the files do get misplaced. And in a system where there are more officers to give directions and hardly any one to take them, files are difficult to trace. In many government offices, file management has collapsed. There was a time when every file opened was entered in a register of files and its movement and location monitored. Now there is hardly any control of files and sadly there is no systematic handing over of files, when one is transferred – result absolutely no responsibility. Now CBDT wants Commissioners to ensure that the relevant records are made available to the CAG’s Audit party. What will they do, if the files are not traceable?

Remedial action:

(i) An Audit objection should be accepted and remedial action should be taken in a case where the audit objection relating to an error of facts or an issue of law is found to be correct.

(ii) Even if objection is not accepted by the CIT, remedial action should be initiated, as a precautionary measure.

No Remedial action: Remedial action need not be initiated in the following cases if

(a) the CIT is of the view that the interpretation of fact or law by the audit is in conflict with a decision of the Supreme Court and the decision squarely applies to the facts of the case,

(b) the CIT is of the view that the interpretation of fact or law by the audit is in conflict with a decision of the jurisdictional High Court, which is squarely applicable to the facts of the case and the operation of which has not been stayed by the Supreme Court,

(c) the CIT is of the view that the Assessing Officer has acted in conformity with Board's Instruction/Circular.

(d) the audit objection raised is on facts, and the CIT, after necessary verification, is of the opinion that the audit objection is factually incorrect.

Disciplinary action: Whenever the Audit objection becomes a Draft Audit Para, the department is required to tell the CAG, the officers responsible for the lapse and what action has been taken against them. Though normally no action is taken against any officer for any objection raised by CAG, this is the real threat perception of Audit. Now CBDT wants the explanation of officers to be obtained if the Audit objections are due to

(a) Failure to follow departmental instructions/circulars;

(b) Failure to follow binding judicial decisions; and

(c) Palpable mistakes on fact or law, or mistakes arising from gross negligence or mala fide action.

(d) default in adhering to the time-limit prescribed for various.

And when failure to take timely and appropriate remedial action in respect of objections raised by Revenue Audit leads to irretrievable loss of revenue.

Arithmetical mistakes: Board does not want to tolerate arithmetical mistakes of its officers and wants action initiated in the following cases:-

(a) where an issue is considered / discussed in the body of assessment order, and necessary addition on the issue is directed to be made, or where a deduction is directed to be allowed by the Assessing Officer, but such directions are not taken into account at the time of calculation of tax, interest and surcharge;

(b) where there is totalling mistake in the computation of income;

(c) where an income disclosed in the return is not included in the computation in the assessment order, except where the Assessing Officer has discussed in the body of assessment order and directed not to include it;

(d) where there is wrong calculation of tax including application of wrong rate of tax;

(e) where there is wrong calculation of interest including application of wrong rate of interest or wrong calculation of period for which interest is leviable;

(f) where any income is added in the computation of income more than once;

(g) where wrong set-off of brought forward losses, unabsorbed depreciation, loss on long/ short term capital gain etc. in the scrutiny/search assessments, not commented by the Assessing Officer in the assessment order, has been allowed;

(h) where wrong verification of, or failure to verify, the arrear demand before the issue of refund results in wrongful issue of refund;

(i) where credit of pre-paid taxes is wrongly allowed.

Shouldn’t CBEC also think of issuing such instructions at least to stop issuing silly Show Cause Notices when Audit objects to the law and Board instructions? The notices for Goods Transport under Service Tax are a classic example.