NEW DELHI: The income tax department has begun an investigation into the case against insurance companies fraudulently availing input tax credit under GST, as per government sources. The department is trying to establish that if these expenses are not genuine then they must have escaped the income tax assessment, a top government official added.
“Nearly 22 companies including the Life Insurance Corporation (LIC), HDFC Life Insurance, ICICI Prudential, Max Life Insurance and Bajaj Allianz have given representations before the government in relation to fake input tax credit,” the official said.“We have to scrutinize the documents, start adjudication and recovery process,” the official cited above further added.
However, as per experts, the computation of income tax liability for life insurance companies is slightly different from non-life companies, so whether the penalty provisions for tax evasion can be invoked is a bit ambiguous. As per tax experts, the only option available to insurance firms for the resolution of this issue is litigation. The entire matter is fact-based. The extent of evidence and the quality of it will decide the outcome of the matter. However, a long-drawn process of litigation seems inevitable.
“On the GST front, the moot point remains whether there is any evasion of tax as relevant taxes may have been paid on procurements and supplies. The relevant question is whether there is an absence of service and in the presence of service, whether valuation can be a subject matter of investigation”, explained Abhishek A Rastogi, founder of Rastogi Chambers, who is representing some of the taxpayers on this issue.
“On the income tax side, the issue would arise with respect to the disallowance of expenditure. In case the revenue department is able to prove that the purchases were either fake or non-genuine, the notices will be issued. Taxpayers will have all legitimate rights to substantiate the genuineness of the transactions so that income tax authorities do not initiate proceedings under section 148A of the Income Tax”, added Rastogi.
As per government sources, insurance companies allegedly paid a sum to intermediaries which was further paid to commission agents in violation of the permissible limits prescribed in the rules and regulations of the Insurance Regulatory and Development Authority of India (IRDAI). These insurance companies collectively are facing tax liability in thousands of crores along with penalties prescribed in the tax laws.