Selection of cases for audit u/s 142(2A) of the Income-tax Act, 1961. - Income Tax - 1076/CBDT

INSTRUCTION NO. 1076/CBDT Dated : July 12, 1977 Section(s) Referred: 142(2A) Statute: Income - Tax Act, 1961 The Board have laid down the following guidelines for selection of cases for audit u/s 142(2A) of the Income-tax Act, 1961. 2. As regards companies, only those cases are to be referred for special audit where: (i) There are reports of misfeasance, gross neglect or breach of duty on the part of the principal officer or director in relation to the affairs of the company; or (ii) the company's affairs have been the subject of a search or seizure under the Income-tax Act or been the subject of a probe under the Foreign Exchange Regulations Act, or (iii) the company has foreign collaboration arrangements, or (iv) where the company's principal is a foreign company and deduction of Head Office expenses etc. have been claimed, or (v) where the company has import/export business with an yearly turnover of more than a crore of rupees, or (vi) there are allegations of substantial tax evasion, or (vii) where the ITO has any other information necessitating a special audit. 3. As regards non-company assessees, the following cases could be referred for a special audit: (i) Search and seizure cases, where a large number of account books/documents etc. have been seized. (ii) Cases with an annual income exceeding Rs.5 lakhs or turnover exceeding Rs.50 lakhs. (iii) Business/Industries notified to the Commissioners by the Board at the beginning of every financial year keeping in view: (a) possibilities of earning on-money due to scarcity (b) reaping of high profit margins due to the circumstances prevalent in the relevant accounting year, and (c) any other circumstances which the Board might consider as adequate for selection of such cases. (iv) Cases where suspected concealment is above Rs.2 lakhs. (v) Cases involving large ramifications: (a) due to inner-branch transfers (b) as a result of setting up of several intermediaries such as purchasing agents, distributing and selling organisations, advertising agents etc. 4. While the above guidelines give a broad spectrum of the area of selection, the actual selection should be confined to a few carefully selected cases needing special probe. further, when a case is referred for special audit for any particular assessment year, it would be desirable if the other intervening years as well as the latest assessment year are also covered. While submitting such cases for approval to the CIT, the reasons for selecting the case/cases should be stated. 5. It was felt that it would not be desirable to lay down any time limits for referring a case to Audit. At the same time, while referring cases for audit ITOs should bear in mind the time that will be taken by the Auditor to complete the audit and submit his report and the time required to consider the report, examine the case further, wherever necessary, and finalize the assessments.