Guidelines for selection of cases for scrutiny during Financial Year 1997-98. - Income Tax - 1942/1997

INSTRUCTION NO. 1942/1997 Dated: July 11, 1997 Section(s) Referred: 44AD ,44AE Statute: Income - Tax Act, 1961 Subject : Guidelines for selection of cases for scrutiny during Financial Year 1997-98-- Regarding. The following are the parameters for selection of cases for scrutiny in respect of the returns filed during the Financial Year 1997-98 : 1.1. Class 'A' (Cases for compulsory scrutiny) : i) All assessments relating to searches; ii) All assessments involving surveys under section 133A; iii) All reassessments u/s. 147, set aside assessments and assessments requiring compulsory scrutiny u/s. 44AD or 44AE of the Act; iv) Any other assessment where scrutiny is recommended by the Investigation Wing based on information in their possession; v) Cases of assessees having turnover exceeding Rs. 100 crores in CCIT, Mumbai region and turnover in excess of Re. 25 crores in other CCIT regions; vi) Cases where there is an increase in share/capital or introduction of share application money and/or unsecured loan of Rs. 1 crore or more in aggregate during the relevant previous year. 1.2 Class 'B' (Sample Scrutiny Cases) : After selection of cases for compulsory scrutiny under class 'A' and information based, scrutiny under Class 'C' and after excluding exceptions provided in Para 1.2.7 below the officer will select cases for sample scrutiny out of the remaining cases in the following manner : Corporate Assessees : i) 50% of the returns with income or loss of Rs. 25 lakhs and above in metropolitan cities of Mumbai, Delhi, Chennai, Calcutta, Bangalore, Ahmedabad and Hyderabad and Rs. 10 lakhs and above in other charges. ii) 33% of the returns with income or loss of Rs. 50,000/- and above but below Rs. 25 lakhs in metropolitan cities of Mumbai, Delhi, Chennai, Calcutta, Bangalore, Ahmedabad and Hyderabad. In case of other charges the upper limit will be Rs. 10 lakhs, in place of Rs. 25 lakhs provided for metropolitan cities. iii) 10% of the returns with income or loss less than Rs. 50,000/- Non-Corporate assessees : i) 33% of the returns with income or loss of Rs. 10 lakhs and above. ii) 20% of the returns with income or loss of Rs. 2 lakhs and above but below Rs. 10 lakhs; and iii) 2% of the returns with income or loss of less than Rs. 2 lakhs. 1.2.1. Following categories of cases falling in class 'B' (Sample Scrutiny cases) shall not be picked up for scrutiny : i) All cases covered by C.B.D.T. Instruction No. 1932 dated 27-10-95 in respect of cases covered u/s. 44AD(1) and 44AE(1) and (2); ii) All salary cases except those covered by Class 'A', Class 'C' and Class 'D'. iii) All cases where all the following criteria are satisfied : a) the returned income for assessment year 1997-98 is at least 40% more than the total income returned for assessment year 1996-97; b) the total income for assessment year 1996-97 and 1997-98 exceeds the basic exemption limit. c) the total income for the assessment year 1996-97 does not exceed Rs. 10 lakhs. d) taxes including interest as per return of income for the assessment year 1997-98 are fully paid before the return is filed for that year. The exemption provided in Clause (iii) above shall not be applicable in cases of Corporate Assessees. iv) All cases where returns of income have been filed under proviso to Section 139(1); v) Cases of individuals resident in India, who are of the age of sixty five years or more at any time during the previous year, subject to the condition that the returned/income is less than Rs. 5 lakhs and the same does not include any income under the head 'profits and gains from business or profession'. For removal of doubts, it is clarified that even in respect of cases covered by Para 1.2 above, scrutiny is compulsory if the conditions mentioned in Class 'A', Class 'C' or Class 'D' prevail. 1.3 Class 'C' (Information based scrutiny) : In addition to the above categories, where information has been received from the CIB of Income-tax Department, Sales-tax Department, Customs Central Excise Department, FERA or any other authority of similar other services, the Assessing Officer will select such cases for scrutiny after recording reasons for selection and obtain the approval of the DCIT/Addl.CIT/CIT as the case may be. 1.4 Class 'D' (Exceptional Cases) In addition to the above, the assessing officer may select cases, where on the facts of a particular case, scrutiny is required. Such cases will be selected after recording reasons and after obtaining the approval of the Range DCIT/Addl.CIT in cases assessed with ACsIT/ITOs and approval of CIT in cases assessed with DCIT (Special Range). It must be ensured by the authority granting approval that cases are not selected routinely. The results of scrutiny should be periodically monitored by the supervisory officers. The number of such cases selected should not exceed 20. 2. Limited scrutiny of cases not covered in Classes 'A', 'B' and 'C' above in DCIT (Special Range) and company cases : All the remaining returns (i.e. the returns left after selection of cases for compulsory scrutiny, sample scrutiny and information based scrutiny referred above as Class 'A', 'B' and 'C' respectively) falling within the jurisdiction of DCIT (Special Range) and all the returns of corporate assessees shall be examined for limited scrutiny in terms of C.B.D.T. Instruction No. 1938 dated 17-5-96. 3. For the purpose of selection of sample scrutiny cases assessed with DCIT (Special Range), the random number shall be given by the CIT concerned. In respect of cases assessed with ACsIT/ITOs, the random number shall be given by the Range DCIT/Addl. CIT. For this purpose, the returns shall first be serially numbered according to the acknowledgement number assigned to the returns of each ward/circle/Special Range. However, when a return of a partner is selected for scrutiny, on the basis of random number allotted, the same may be ignored and the next following case of a non-partner may be taken for scrutiny. 4. For the purpose of these guidelines income would mean current year's income after allowing current year's depreciation but before allowing set off of brought forward depreciation, other brought forward allowances, such as unabsorbed investment allowance etc. and other allowances/losses. 5. The Chief Commissioner or Director General should ensure that there is an even distribution of work in different assessment units. However, if it is found that the work load of an Assessing Officer is either very high or very low, the percentage mentioned for selection of cases for sample scrutiny may be suitable varied by the Chief Commissioner of Income-tax. 6. These guidelines do not apply to religious and charitable trusts, cases assessed in Central Charges and political parties. In the case of political parties, all assessments for assessment year 1997-98, irrespective of whether the returns are filed voluntarily or in response to notice issued u/s. 142(1) or 148, may be completed after scrutiny. 7. Where IT returns are selected for scrutiny, Wealth tax returns should also be taken up simultaneously for disposal. In any case where the Wealth tax return is not filed, a prima-facie examination of various taxable assets belonging to the assessee should be undertaken where the assessee prima facie is liable under the Wealth-tax Act, further follow up action should be initiated by calling the wealth-tax return. If the prima-facie examination does not indicate any liability of the assessee under the Wealth-tax Act, a note in this regard may be placed on the file. 8. These guidelines will be applicable in respect of returns of income filed on or after 1-4-1997. 9. Regarding pending returns and assessments -- In view of the new income limits fixed for jurisdiction of assessing officers in company charges, as referred to in para 1.2 above, the CCIT/DGIT may ensure that cases as per new limits are reallocated immediately so as also to conform to the revised work norms for disposal of cases. F.No. 225/100/97-ITA-II (Malathi R. Sridharan) Under Secretary to the Govt. of India.