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Scrutiny Guidelines

K. B. Srinivas (Chartered Accountant) (81 Points)

05 September 2008

Can any one provide Recent Scrutiny guidelines issued in Income Tax Act

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Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 05 September 2008

PROCEDURE FOR SELECTION OF CASES FOR `SECRUTINY' FOR NON-CORPORATE ASSESSEES

In super
cession of earlier instructions on the above subject the Board hereby
lays down the following procedure for selection of returns / cases of
Non-Corporate Assessees for scrutiny during the current financial year i.e. 2007-08.

2. The following categories of cases shall be compulsorily scrutinized;-

i) All assessment pertaining to search and seizure cases.

ii) All assessment pertaining to surveys conducted u/s 133A of the Income tax Act.

iii)
[1]All
returns where deduction claimed under Chapter VIA of the Income tax Act
is Rs. 25 lakhs or above in stations other than the cities on computer
network.

iv) 1All
returns, including those of non-residents, where refund claimed is Rs.
5 lakhs or above in stations other than the cities on computer network.

v) (a)
All cases in which the CIT (Appeals) or ITAT has confirmed an addition
/ disallowance of Rs.5 lakhs or above or if the assessee has conceded
on addition in any proceeding Assessment year and Identical issue is
arising in the current year. But
if the issue involves a substantial question of law, the cases may be
picked up for scrutiny irrespective of the quantum of tax involved.
However, if the addition has been deleted by a superior
appellate authority and the Department has accepted that decision, the
case need not be taken up for scrutiny.

(b) All
cases in which an appeal is pending before the CIT (Appeal) against an
addition / disallowance of Rs.5 lakhs or above, or the department has
filed an appeal before the ITAT against the order of the CIT (Appeal)
deleting such an addition / disallowance and an identical issue is
arising in the current year. However, as in (i) above, the quantum
ceiling may not be taken into account if a substantial question of law
is involved.

(vi) All returns filed by statutory bodies, marketing committees and other authorities assessable to income tax.

(vii) All cases of banks and Non-banking financial institutions with deposits of Rs. 5 crores and above

(viii) Cases
of universities , educational institutions, hospitals, nursing homes
and other institutions for rehabilitation of patients (other than
those, which are substantially financed by the Government), the
aggregate annual receipts (including donations credited to the corpus /
any other fund) of which exceed Rs 10 crores in Delhi, Mumabi, Chennai,
Kolkota, Pune, Hyderabad, Bangalore and Ahmedabad and Rs. 5 crores in
other places (Ref. S 10 (23c) & Rule 2 BC)

(ix) All
cases where exemption is claimed under section 11 of Income Tax Act and
the gross receipts (including donations credited to the corpus / any
other fund) exceed Rs. 5 crores in Delhi, Mumbai, Chennai, Kolkata,
Pune, Hyderabad, Bangalore and Ahmedabad and Rs. 1 crores in other
Places.

(x) (a) All cases where total value of International Transactions (as defined u/s 92 B of the Income tax Act) exceed
Rs.15 crores)

(b) In
all other cases where the Transfer Pricing Audit carried out in the
earlier year had led to an adjustment / addition to the total income.

(xi) All
cases of stockbrokers and commodity brokers as well as their sub
brokers where brokerage received is disclosed at Rs. 1 crore or above.

(xii) All
cases of stockbrokers and commodity brokers as well as their sub
brokers where there are claims of bad debts of Rs. 5 lakhs or more.

(xiii) All
cases of professionals with gross receipts of Rs.20 lakhs or more if
total income declared is less than 20% of gross professional receipts.

(xiv) All cases of deductions under sections 10 A / 10 AA / 10BA / 10 B of the I.T. Act exceeding
Rs.25 lakhs.

(xv) All
cases of contractors (excluding transporters) whose gross contractual
receipts exceed Rs. 1 crores if total income declared from contract
work is less than 5% of gross contractual receipts.

(xvi) All cases of builders following project completion method.

(xvii) All cases in which fresh capital introduced during the year exceed Rs.50 lakhs in
Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad,
Bangalore and Ahmedabad and Rs.10 lakhs in other cities.

(xviii)
¹All cases in which new unsecured loan introduced during the year exceed
Rs.25 lakhs.

(xix) All
cases in which deduction u/s 80IA(4), 80 IB, 80IC, 80JJA, 80JJAA, 80LA,
10 (21), 10(22B), 10(23A), 10(23B), 10(23C), 10 (23D), 10 (23EA), 10
(23FB), 10 (23G), 10(37), 10 A, 10AA, 10B, or 10BA of the I.T. Act is
claimed for the first time.

(xx) *All cases in which loss from house property is more than
Rs.2,50,000/-

(xxi) *All
cases in which investment in property is more than five times the gross
receipts (
i.e. purchase of property (008 from AIR) / (Gross Total Income (746) +
Agricultural Income (762) + Income Claimed exempt (125)>5)

(xxii) *All cases in which sum of short term capital gains u/s 111A and long term capital gain is more than Rs 25 laksh.

(xxiii) *All
cases in which sale of property has been shown as per AIR return but no
capital gains have been declared in the return of Income.

(xxiv) *All cases in which commission paid is more than Rs. 10 lakhs

(xxv) *All cases having business of real estates with gross turnover exceeding Rs. 5 crores.

(xxvi) *All
cases having business of hotels/tour operations with gross turnover
exceeding Rs. 5 crores if net profit shown is less than 0.05%

(xxvii) *All cases in which total depreciation claimed at the rates of 80% and 100% is more than
Rs.25 lakhs.

(xxviii) All cases in which net agricultural income is more than Rs 10 lakhs.

(xxix) All
cases covered by retrospective amendment in setion 80 IA of the I.T.
Act, 1961 brought by the Finance Act, 2007 i.e. all persons who merely
executive the civil construction work or any other works contract
entered into with the undertaking or enterprise reffered to in Sec 80
IA of I.T Act 1961.

NOTE: If
a case has been assessed earlier under scrutiny for at least 2 A.Y.s
but in each of the immediately proceeding two years assessed u/s 143(3)
of the I.T
. Act, total additions or disallowances made / sustained in appeal are
less than 5 lakhs in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad,
Bangalore and Ahmedabad and less than Rs. 1 lakhs in other places then
such a case should be excluded from compulsory scrutiny under clauses
(ii). (vi), (vii), (viii), (ix), (x), (xii), (xiii)

Provided that the above exclusion clause shall not apply in cases involving substantial question of law.

3. In
addition to above, where the CCIT / DGIT (International taxation) /
DGIT (Exemptions), on the matter having been brought to his notice by
an authority below, is satisfied that the case needs to be taken up for
scrutiny, the CCIT / DGIT (International taxation) / DGIT (Exemptions),
for reasons to be recording in writing, may approve the selection of
the case for scrutiny.

4.
The CCIT / DGIF (International Taxation) / DGIT (Exemptions) may issue
suitable guidelines for reducing / increasing the number of cases
selected under specific clauses of para 2, for proper management of the
workload as well as to avoid large scale transfer of cases from one
jurisdiction to another.

5. All returns field in response to notice issued U/s 148 of the I.T. Act shall be selected for scrutiny.

6. In
addition to above, selection of cases out of returns processed on AST
will be made through a Computer Assisted Scrutiny System (CASS).
Separate instructions in this regard will be issued by the DIT
(Systems).

7. List
of cases up for scrutiny during each month shall be submitted by the
Assessing Officer to the CIT and Addl. CIT, Range by 15
^th of the following month and shall also be displayed on the Notice Board of the office.

[1]
Selection of cases under these criteria shall not be done manually in
the cities on computer network but through Computer Assisted Scrutiny
System (CASS), for which necessary provisions have been made in the
CASS software being issued by Directorate of Income tax (Systems)

¹
Selection of cases under these
criteria in the cities on the Computer network would be made through
Computer Assisted Scrutiny Systems (CASS) in respect of cases where
audit report U/s 44 AB has been filed.
In all other cases in threes cities and in all cases in
cities not on the Computer Network, the selection would be made
manually.

* Selection of cases under these
criteria shall not be done manually in the cities on computer network
but through Computer Assisted Scrutiny System (CASS), for which
necessary provisions have been made in the CASS software being issued
by Directorate of Income tax (Systems)