Tax relief worth ₹40,178cr given without PAN, says CAG
What's the story
A recent audit by the Comptroller and Auditor General (CAG) has revealed major compliance gaps in bad debt claims by banks and non-banking financial companies (NBFCs). The report found that these institutions received huge tax deductions without providing borrowers' Permanent Account Number (PAN) details over several assessment years. The CAG's findings cover a wide range of cases involving 28 banks and 99 NBFCs.
Audit findings
Bad debts claimed in income tax returns
The CAG's audit revealed that between Assessment Years (AYs) 2014-15 to 2019-20 for NBFCs and AYs 2010-11 to 2019-20 for banks, a total of ₹1.37 lakh crore in bad debts were claimed in income tax returns. The audit found no evidence of borrower PAN details or proof of verification by the assessing officer (AO) in these cases.
Missing information
Inadequate verification by assessing officers
Out of the total bad debts claimed, ₹64,696 crore was written off for loans to people whose PAN details were not provided. Despite this missing information, the Income Tax Department allowed deductions worth ₹40,178 crore during assessments. This raised concerns over inadequate verification by assessing officers and their failure to validate claims or assess tax implications on borrowers.
Recommendations
Recommendations for stricter instructions and regional variations
The CAG has recommended that the Central Board of Direct Taxes (CBDT) should issue stricter instructions to ensure verification of borrower details above a certain threshold, and integrate such data into systems for effective scrutiny. This is aimed at safeguarding tax revenues and improving transparency in bad debt claims. The audit also highlighted regional variations in these cases across Ahmedabad, Bengaluru, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Mumbai and Chennai.