Uncollected demand is rising despite clear provisions in the Income Tax Act.
The government could have been richer by a whopping Rs 5.8 lakh crore if the income tax (I-T) department had not been dragging its feet over recovering the amount in time or holding up files in appeal cases at the Commissioner of Income Tax level.

Throw in another Rs 2.1 lakh crore that is stuck in litigation cases at the Income Tax Appellate Tribunal, high courts and the Supreme Court, and the total figure shoots up to Rs 8 lakh crore.

These figures have been highlighted in the latest report of the Comptroller and Auditor General of India (CAG) tabled in Parliament last week. The report points out a tax demand for Rs 2.9 lakh crore remained uncollected at the end of March 31, 2011. "The recovery mechanism is inefficient as certified demand remaining uncollected increased to Rs 1,06,990 crore (96.3 per cent) in 2010-11 from 26,703 crore (75.8 per cent) in 2006-07," the report adds.

According to the report, the uncollected demand is rising despite clear provisions in the Income Tax Act to enforce collection and recovery of outstanding demand through attachment and sale of the tax defaulters' movable and immovable assets, appointment of a receiver for the management of these properties and imprisonment of defaulters.

"While there has been much talk in the government about making tougher laws to bring tax dodgers to book, it is turning out that the existing laws are not being adequately used," a senior official pointed out. "Since there is no dispute over the tax amount, there is no reason why a major chunk should not have been collected," he added.

Tax demands remain irrecoverable for a long period in spite of exercise of powers of recovery conferred under the Act. The I-T department claimed that in some of the cases the assesses were not traceable while in others there were no assets to recover as the company was in liquidation.

However, the CAG has observed that there was a lack of action on the part of the department. According to sources, there have been several instances where defaulters got enough time to sell off their assets and move out as the department was late in initiating action.

The CAG has recommended that the Central Board of Direct Taxes (CBDT) needs to prepare a timebound action plan for recovering current and arrear demands by fixing targets for each assessing officer. "Recovery proceedings can be Mountain of uncollected taxes piles up CAG report says I-T department's recovery system is inefficient made effective by increasing the accountability of the tax recovery officers and incentivising their achievements," the report adds.

CBDT has issued instructions that each CIT (appeals) is required to dispose of a minimum of 60 appeals each month and a total of 720 appeals during the entire year.

According to the target set for the department, 2.58 lakh cases should have been disposed of in 2010-11 with the working strength of 147 commissioners dealing with appeal cases. However, they managed to clear only 70,474 appeals, which works out to a mere 27.4 per cent of the target.

The amount stuck in appeals at the CIT level exceeds the total revenue deficit of Rs2.5 crore in the Union Budget for the year.

The report has also found that while the I-T department launched prosecution proceedings in 11,705 cases during 2010-11, only 356 cases were disposed of. As many as 222 of the cases resulted in acquittal. The CAG has recommended the CBDT needs to analyse reasons for the slow pace of disposal and the high rate of acquittal to ensure greater effectiveness of prosecution.