TAX NEWS - June 2010

India Tax Evasion: Govt to use computer tool to detect complex cases of tax evasion

The finance ministry is developing a computer-aided investigation mechanism to deal with high-profile tax-evasion cases. The revenue department is developing what it calls Computer-Assisted Investigation Tool (CAIT) to extract data from accounting softwares, such as Tally, and analyse it to find instances of evasion, according to a source.

"The system being developed would analyse the extracted data on the basis of various accounting and auditing parameters fed into it. This is going to increase the efficiency of the department and enhance productivity and quality of investigation done," said the source said.

To be rolled out on a pilot basis this year , the mechanism would scrutinise cases of large additional tax demand.

"The investigation tool would catch tax payers evading taxes through window-dressing or not disclosing the information. The software would generate reports and indicate areas where there is a possibility of fraud," the source added.

There are 4.05 lakh cases of scrutiny pending as on April 1, 2010, and around 1.5- 2 lakh cases are expected to be taken up this current fiscal. Cases for scrutiny are taken up either randomly or in instances where searches and seizures have been conducted.

With the economy picking up and many sectors performing well, the incomes are expected to go up and so will the tax evasion. Hence the government felt a need for such a system as it is not possible to investigate each of the so many pending cases.

The software will be used for around one-fourth of the total number of pending scrutiny cases which involve huge money and complex accounting methods.

The system has various parameters such as accounting ratios and sectors-based tax payers of the well-performing sectors. However, the threshold for taking up the cases was yet to be decided,the source said. The system would be used by all assessing officers across the country once it is rolled out.

In the last three financial years, the government collected Rs 96,190 crore from the cases scrutinised. In 2009-10, from a total of 4.1 lakh scrutiny cases, additional tax collected stood at Rs 36,240 crore.

Similarly, in 2008-09, there were 5.5 lakh cases and additional tax collected was Rs 31,250 crore. As regard 2007-08,from 3.8 lakh cases, Rs 28,700 crore were raised.

The source said the department expected the additional tax collection to go up substantially on account of the new mechanism.