The government may have to write off a whopping Rs 85,000 crore tax arrears out of the total arrears accumulated over the past years as these have been found "non-recoverable" by the Income Tax department.

Out of the outstanding Rs 1,19,000 crore tax arrears up to 2003-04, about Rs 85,000 crore is "non-recoverable". This includes Rs 28,400 crore outstanding against the Harshad Mehta group of companies, banks and stock brokers involved in the 1992 Securities Scam, sources in the Finance Ministry said.

The department, which has so far recovered about Rs 10,000 crore arrears against the target of Rs 11,000 crore for 2006-07, has expressed helplessness in recovering the "non-recoverable" tax arrears.

"About Rs 85,000 crore arrears are outstanding only on paper, and are mounting every year due to interest addition," a senior Income Tax official said.

The "non-recoverable" dues also include about Rs 12,000 crore against companies and assesses whose assets have reduced due to closure of the units or fall in stocks. In many cases, the companies have vanished from the market or funds have already been transferred elsewhere before the recovery of tax arrears, the sources said.

In the Harshad Mehta case, the custodian appointed by the Supreme Court is in possession of Rs 1,700 crore, which could be distributed only among various stakeholders after the decision of the case, sources said.

The department has also expressed doubts about recovery of tax arrears from companies and persons involved in various scams like the Telgi scam and the fodder scam in Bihar.