1. Income Tax Audit of Top Companies Tanuja Mittal

2. Aim Qualitative Improvement Selective Approach from A.R.1998-99

3. 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

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

5. 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

6. 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

7. AR 2000-01 Sectors selected Importance Black money - Cement - Automobiles - Textiles

8. All India 97 companies A.Y. 1994-95 to 99-00 PBT above Rs 25 lakhs 326 observations T.E. Rs 65442 lakhs

9. Maharashtra SectorNo. of selected Companies Textile19 Automobiles13 Cement13 Total45

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

11. Cement Sector India second largest producer 4 groups account for 50% of domestic cement capacity www.cementindia.net

12. Associated Cement Cos Ltd…. Audit Para # 4.6.1 CIT Mumbai City IV charge The assessments for the A.Y.1994-95 to 1997-98, completed after scrutiny, and for the A.Y. 1998-99, done in summary manner

13. Ltd - Contd ACC Ltd - Contd A.Y.1997-98 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

14. ACC Ltd - Contd A.Y.1994-95 to 1996-97 Rs. 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.

15. ACC Ltd - Contd A.Y.1995-96 to 1998-99 Excise duty on manufactured goods lying in the factory premises Not taken into account in valuing closing stock

16. ACC Ltd - Contd A.Y.1994-95 to 1996-97 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.)

17. ACC Ltd - Contd 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

18. ACC Ltd - Contd The above omissions resulted in an aggregate undercharge of tax of Rs. 10897.52 lakh

19. Gujarat Ambuja Ltd… Audit Para # 4.6.4 CIT Mumbai City III charge The assessments for A.Y. 1994-95 to 1997-98, assessed under scrutiny

20. Gujarat Ambuja Ltd - Contd A.Y.1997-98 Pre-operative expenditure of Rs. 1107.60 lakh on interest on borrowed funds and premium on lease hold land Capital expenditure.Hence disallowed

21. Gujarat Ambuja Ltd - Contd A.Y.1995-96 Restrict the deduction of Rs. 1141.15 lakh on account of expenditure incurred on a power line for a new unit to 1/10th

22. Gujarat Ambuja Ltd - Contd A.Y.1994-95 & 1995-96 Excise duty payable on finished goods was not taken into account in valuing closing stock

23. Gujarat Ambuja Ltd - Contd A.Y.1994-95 & 1996-97 Puja function expenses and share transfer expenses Not incurred for the purpose of business Excess computation of loss.

24. Gujarat Ambuja Ltd - Contd The above omissions resulted in an aggregate undercharge of tax of Rs. 1061.62 lakh.

25. Automobile Sector Backward and forward linkages Indicates economic performance www.acmainfo.com

26. Audit Para # 4.8.1 CIT Mumbai City V charge A.Y. 1994-95 to 1997-98 assessed under scrutiny A.Y.1998-99, done in summary manner Mahindra and Mahindra Ltd…

27. M & M Ltd - Contd A.Y.1994-95 Incorrect 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

28. M & M Ltd - Contd A.Y.1994-95 Incorrect allowance of depreciation of Rs.46.10 lakh Rs.36.86 lakh admissible T.E. Rs.9.59 lakh

29. M & M Ltd - Contd A.Y.1996-97 Expenditure of Rs.530.99 lakh and income of Rs.25.04 lakh of earlier years as debited/credited to profit and loss account Irregular allowance of prior period expenditure T.E. Rs. 232.74 lakh

30. M & M Ltd - Contd A.Y.1994-95, 1996-97 and 1997-98 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. 257.55 lakh

31. M & M Ltd - Contd A.Y.1994-95 to 1998-99 Wealth Tax assessment records Aircrafts not used for commercial purposes Treat as assets for wealth tax purpose T.E. Rs.72.44 lakh

32. TELCO Ltd Audit Para # 4.8.3 CIT Mumbai City II Charge A.Y.1996-97

33. TELCO 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

34. Textile Sector 8 % of India’s GDP 30 % of Export Earnings www.itd.org

35. Mafatlal Industries Ltd… Audit Para # 4.10.1 CIT Mumbai City II Charge A.Y. 1994-95 to 1997-98 scrutiny assessments

36. Mafatlal Industries Ltd - Contd A.Y.1994-95 to 1997-98 Excise duty payable on stock in trade was not taken into account in valuing closing stock

37. Mafatlal Industries Ltd - Contd A.Y.1994-95 to 1997-98 Expenses on interest, commission and technical know-how fee in foreign currency No evidence for TDS

38. Mafatlal Industries Ltd - Contd 1994-95 to 1997-98 No TDS on rent and lease rent of premises of Rs.4540.60 lakh But debited to profit and loss account

39. Mafatlal Industries Ltd - Contd 1997-98 Assets, owned by the assessee but not utilized for own business Not included in the net wealth

40. Mafatlal Industries Ltd - Contd The above omissions resulted in an aggregate under charge of tax of Rs. 4034.98 lakh.

41. Morarjee & 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

42. 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

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