The audit observed that there is no clarity on allowing deduction under Section 80G for donations out of CSR funds.
The audit observed that there is no clarity on allowing deduction under Section 80G for donations out of CSR funds.
The CAG has slammed the income tax department for not formulating a data sharing mechanism with the Home Ministry to keep track of foreign contributions received and their utilisation for the declared purpose by charitable trusts and institutions.
The Comptroller & Auditor General’s (CAG) Performance Audit report on ‘Exemptions to Charitable Trusts and Institutions’ noticed 35 assessment cases where the trusts/institutions received foreign contributions without having registration under FCRA, mismatch of figures of foreign contribution shown in ITR and that disclosed with the MHA, donation of foreign contribution by recipient trust to other trusts that were not registered under the FCRA 2010 or investment in foreign contribution in speculative mode.
In all the cases, the department had allowed exemption on such foreign contributions involving tax effect of ₹182.10 crore, said the report tabled in Parliament on Monday.
Non-government organisations (NGOs)/ trusts are allowed to receive foreign contributions (FCs) under the Foreign Contribution (Regulation) Act (FCRA). The Home Affairs Ministry monitors the receipts of FC.
The FCRA envisages registration of recipient of FCs with the ministry and also stipulates maintenance of separate accounts in a designated bank for the FCs received and the purpose of its receipt in the accounts. The returns are to be submitted annually to the Ministry of Home Affairs (MHA).
The Act also provides that before any foreign funds received by a registered association are passed on to any person/association in India, the transferor has to ensure that the recipient is also registered under the FCRA 2010 and has not been prohibited under the Act.
Parliament’s Public Accounts Committee (PAC) recommended in 2018 that the income tax department should formulate a data sharing mechanism with the MHA to keep a track of FCs received and their application for the purposes for which they have been received.
The committee also recommended developing a mechanism to monitor the application of foreign contributions received and issuing a clear set of guidelines in this regard to all Assessing Officers.
“Audit, however, observed that the ITD has still not formulated a data sharing mechanism with the MHA to keep track of Foreign Contributions (FCs) received and their utilisation for the declared purpose,” the CAG audit report said.
The Income Tax Act provides tax exemptions to various charitable trusts and institutions, and the money received as donations by such entities is required to be applied for the objects for which these trusts or institutions have been set up.
The performance audit carried out for the assessment years 2014-15 to 2017-18 noticed “certain deficiencies” in the Income Tax Return Form ITR-7 and Audit Report in Form 10B for effective monitoring of exemption claimed by Trusts/Institutions.
ITR-7 does not contain activity-wise separate business code for government and private entities, details of the balance sheet, schedules of assets and liabilities, year-wise receipt and utilisation of corpus donation, details of contributors/donors etc.
“Audit noted that quality of assessment has been impacted as incorrect claims made by the assessees were allowed leading to loss of revenue to the exchequer etc,” the CAG said, adding there was an increasing trend in a number of trusts/institutions claiming exemptions from AYs 2014-15 to 2016-17; although the number of them claiming exemptions for AY 2017-18 decreased slightly. Analysis of data of 6.89 lakh cases pertaining to ITRs for AY 2014-15 to AY 2017-18 revealed that the I-T department scrutinized only 0.25 lakh (3.7 per cent) of the total cases while 6.30 lakh (91.4 per cent) cases were processed under summary manner in an automated environment. However, the audit noted certain deficiencies in the ITD system, which led to incorrect claims of exemption along with the possibility of revenue leakage.
Examination of data of 6.89 lakh cases provided by the Pr.DGIT (Systems) revealed that exemption was allowed in 0.21 lakh cases although registration under Section 12AA of the I-T Act was not available. In the case of foreign contribution, Audit noticed that in 347 cases, the foreign contribution was received by the assessee though the registration details under FCRA were not available. Thus, field validations in the above-related field were not available in the ITR Form-7.
The audit observed that there is no clarity on allowing deduction under Section 80G for donations out of CSR funds.
“As a significant amount is spent by the companies toward CSR activities through the Trusts claiming exemptions under Section 80G, it requires urgent attention of the Department to bring clarity to the issue to ensure that the provisions are interpreted uniformly by the Assessing Officers and to minimise the possibility of litigation,” the CAG said.
