Income Tax CPC Frauds – An eye opener for Honest Tax Payers…

You may be surprised to read the heading of this article and it will be very hard to believe for many of us. But it a big eye opener for all honest tax paying citizen, how CPC utilize our hard ended money for paying planned fraudulent Refunds. Its common perspective of tax department that only traders/businessman indulge in Tax evasion, and consider salaried employees especially from Government and PSU sectors as honest tax payers, who are subject to Tax Deduction at Source. But After reading this article Tax department is bound to change their age old perception , by assessing such taxpayers also with utmost suspicion.

Though the department is aware of such frauds , but What is most hurting for honest tax payer , that in spite of all facts available with the department , the no action taken against the erring taxpayers and persons who facilitated such frauds, on the contrary if a small honest businessman make any mistake on tax account by claiming wrong deduction he is subject to all kinds of rigours of the law to the extent that he end up paying his hard earned money by way of penalty & interest and also loosing most precious peace of mind. Why such trust Gap applied indifferently for different tax payer is a big Question ?

Such frauds are live example of weak and leaked systems designed by the CPC and high probable involvement of persons managing CPC. Though such frauds exist and identified in previous manual system, but ought to be plugged in hybrid Online system but they continued, leading to the only conclusion that frauds were perpetrated by the Taxmen behind the system. A simple validation check would have avoid such frauds.

The necessity to bring such frauds to the Public domain is to highlight the indifferent behaviour of Tax department, even after such frauds has been identified & proved.

Real Story starts here:

Modus operandi:

The salaried employees (numbering in thousands across the country) of large PSU’s having taxable Income during AY-2017-18 & AY-2018-19, filed their returns mis-stating the Income under salaries Head , Losses under House Property ; Inflating deductions u/s Chapter VIA and claiming refund of tax rightly deducted by the employer . Interesting to know that most of the above misstatement was by way of revising the original returns for above AY’s. Certain Misstatements were in original returns itself. Further interesting to note that refunds were en-cashed with heavy interest u/s 244 of The IT act,1961. Such refunds are estimated to be worth hundreds of crores of rupees (Un-imaginable quantum).

A attachment below herewith is self-testamentary of the fraud perpetrated by CPC. The frauds was perpetrated by a team of filers sitting in different parts of country , and they were either aware of such system weakness or has handshake with people behind CPC ( Departmental & System developers ). The taxpayer who has come forward voluntarily to payback such claims has stated that kick-back to such preparators was whooping 35% of the refund encashed . The real figures above are only indicative and refund to the extent of 2-3 lacs were also claimed by high profile salaried employees belonging to same PSU’s.

E.g

*Interest u/s 244 .

The above facts are only illustrative and such frauds is continuing since last many years , further adding more and more preparators to year on year . Only proper IT audits can un-earth and quantify the real loss of Revenue to the exchequer.

Frauds in processing & so-called system weaknesses:

The misstatement would have been easily traced by the department, if Income details had been compared with that reported by the employer(deductor) in his TDS returns. Also, why such repetitive & claims were not red flagged as exceptional and scrutinised deeply by the processing authorities. The other way it is simple to conclude that knowingly the system was made to process all such returns and allow taxpayer to fly away with such heavy refunds (the taxpayer net windfall gains was 65% even after kickbacks of 35% to the preparators).

1. Failed to compare reported data in return with that of TDS data.

2. Failed to red flagged such exceptional claims which were repetitive and in large numbers

3. Failed to verify the Signatures on ITR-V filed with CPC.

Post-fraud Action by department:

When such frauds was identified by some diligent Taxman at some office based on heavy refunds figures, they instead of mining out all such cases simply find out few cases and issued a simple show-cause notice to such fraudulent tax payer. Some of the fraudulent taxpayer responded by re-paying the refund with interest for the period refund was enjoyed ( but the irony of the system is that interest was once gain refunded to such fraudulent taxpayer in there designated account ) . Beside only 10% of such cases were traced and limited action was taken by the department, still 90% of such fraud taxpayers along with preparators are enjoying the honest tax payers money.

In-action(silence) by department Vis-à-vis Action Warranted by the department:

When the department is aware of such fact, why all cases were not traced and acted upon for stringent penal action including prosecutions. Are they afraid of such scam coming to light highlighting their own mis-deeds or system weakness or they are afraid that other taxpayer suffering would have be treated on same leniency.

The honest Tax payer is waiting for needed fairness of indifferent IT department? The government should clearly come out with white paper on such scam and fix the responsibilities of preparators. Instead on working on newer methods of tracing out the tax evaders the department should first carry out self-assessment and plucking holes in system. Its high time under the able leadership of most adored honourable prime minister display all sense of honesty.

The Article is written by a professional CA’s who specialise in Information system audit having huge experience and in-depth knowledge of Income Tax law , procedure and related Information Technology. The Authors intends to maintain Anonymity of his whereabouts.

(Article was First Published on 1st November 2017 and Republished with Amendments)