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CAG probe reveals dubious VDIS declarations

Josy Joseph in New Delhi

Politicians, journalists, government servants, reputed business families and public sector units figure along with scamsters and criminals in the list of those who took advantage of the Voluntary Disclosure of Income Scheme 1997.

A detailed report of the Comptroller and Auditor General of India, tabled on Friday in Parliament, details how massive tax frauds were allowed to be carried out through VDIS.

Through several illegal clarifications and lopsided assessments, over-enthusiastic bureaucrats and the finance ministry allowed the scheme to be carried through. It left enough lacunae for everyone from Mumbai's infamous Cobbler scam accused to liquidated companies to declare black money.

Under the 1997 scheme, 475,477 people and companies declared Rs 33,697.32 crores and paid Rs 9,792.02 crores as taxes. The highest number of declarants were in Mumbai, at 71,011, declaring assets worth Rs 6,764.89 crores. Among them were 17 people accused in the Cobbler scam.

Delhi followed with 38,217 people, with a declaration of Rs 4,026.39 crores. Among them are reportedly senior politicians, cricketers, senior journalists, media houses and Dawood Ibrahim's alleged henchman Romesh Sharma.

The report, 110 pages long, has 17 pages of annexures. Due to the secrecy clause, CAG has not named any individuals but listed several multinational companies, whose employees made use of the VDIS.

The scheme allowed individuals and companies to declare their undeclared assets by paying 30 per cent of it as taxes.

The CAG found a large number of medical practitioners as VDIS declarants, and 'a large number of these medical practitioners were employees of government hospitals and medical colleges.'

There were a large number of real estate agents, mostly from Maharashtra and Gujarat, and several leasing and financial firms from across the country.

Exposing the lacunae in the scheme, the audit found that 31,715 'housewives,' most of them from Uttar Pradesh, declared income of Rs 1,785.49 crores.

There are several minors, who declared assets and properties that were acquired by them even before they were born.

The CAG points out that 'the possibility that these declarations in these cases could be in respect of benami transactions cannot be ruled out. However, these declarations, for which no immunity was provided under the scheme, were accepted by the department and certificates granted.'

Under the scheme, cash accounted for almost 50 per cent of the total declaration at Rs 16,823.33 crores, followed by jewellery at 37 per cent.

Almost 87 per cent of the declarations were made in the last month of the scheme, December 1997. It was 'attributed, among other factors, to the numerous clarifications, circulars and press briefings by the department, not all of them in accordance with the provisions of the scheme, to attract the tax defaulters.'

'In fact, Parliament was provided with incorrect information in writing on specific questions in Parliament as regards number of declarants. Misuse of the scheme is likely as there is confusion in the department as to the number of declaration,' the CAG pointed out.

It has held the Central Board of Direct Taxes of issuing instructions 'to the advantage of the declarants but these were mostly against the interests of the department.' The audit also brought to light 'huge under-valuation of jewellery and bullion.,' Thus, the exchequer lost almost Rs 3,000 crores as taxes.

'Though the Scheme specifically barred certain persons who came under the provisions of COFEPOSA, the Indian Penal Code, Prevention of Corruption Act, TADA etc, a test check revealed the presence of 17 accused persons involved in the 'Cobbler scam' and eight persons involved in hawala transactions,' the CAG pointed out. The CBDT did not allow income tax commissioners from checking the antecedents of the declarants.

The finance ministry is also accused of ignoring the recommendation of the parliamentary committee to exclude declarants of earlier amnesty schemes. 'Test check of declarants as to their pre-VDIS and post-VDIS assessments revealed that most declarants had returned to the old ways of generating black money,' the CAG said.

A sector-wise analysis revealed that the finance and textile sectors had the most propensity to generate black money whereas 'housewives' and medical practitioners were at the forefront in the scheme.

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