The Hindu Business Line : I-T authorities to target large assessees to boost collections

IT looks like the income-tax authorities, in a bid to boost revenue collections like never before, have now decided to give all large assessees (corporate or non-corporate) claiming deductions, exemptions and refunds a tough time.

All NSE-500 companies and BSE-A group companies as on August 31, 2004 listed on the Bombay Stock Exchange, and all cases of companies liable to pay tax under Section 115JB with book profit exceeding Rs 50 lakh (MAT) may now be picked compulsorily for scrutiny.

Going by the fresh guidelines recently issued by the Department of Revenue, Central Board of Direct Taxes (CBDT) with regard to criteria for selection of cases for `scrutiny', for all assessees, it is quite clear that everyone, with special focus on large assessees, is being targeted to boost collections.

Tax consultants, however, are quite elated that the new scrutiny guidelines may bring more business to them, as a large number of departmental appeals in cases going for litigation do not succeed.

While welcoming the new norms, they, however, caution that a judicious approach must be followed by the department, especially with regard to high pitch assessments. Section 143(2) of the Act provides that a return can be selected within 12 months from the end of the month in which the return is filed. Among the large fish targeted are stockbrokers, building and bridge contractors, NBFCs, trusts, all professionals and even local bodies, if the income declared by them falls below a specified percentage of gross receipts.

For instance, all cases of stockbrokers (including sub-brokers) where gross brokerage disclosed is Rs 1 crore and above, and income declared is less than 10 per cent of gross brokerage will be picked for scrutiny. All NBFCs/investment companies with a paid-up capital of more than Rs 10 crore will come under the scanner.

Similarly, all cases of contractors whose gross contract receipts exceed Rs 5 crore and net income declared is less than 5 per cent of gross contract receipts will be scrutinised.

And in the case of non-corporate assessees, all cases of professionals with gross receipts of Rs 50 lakh or more and income declared is less than 20 per cent of gross receipts, will face scrutiny.

A significant departure from last year's guidelines seems to be the elimination of the department's dependence on outside agencies for information on tax evasion. The fresh norms, it is learnt, will apply to all returns filed between October 1, 2003 and March 31, 2005. The selection of cases for scrutiny for returns filed up to March 31, 2004 will have to be completed by October 15, 2004.

According to informed sources, for returns filed during 2004-05, selection of cases has to be completed within three months of the date of filing of returns. Going by this, the returns filed during April-June 2004 may not get selected for scrutiny, say experts.

Asked to comment, Mr Narayan Jain, tax expert and visiting faculty at National University of Juridical Sciences, Kolkata, said the Supreme Court has already laid out in a clear judgement that the additions to an assessee's income cannot be made on mere surmise.

Quoting the landmark judgement in Dhakeshwari Cotton Mills vs CIT (26-ITR-775), he said scrutiny assessments have to be based on cogent material which can stand up to legal scrutiny.

Sources point out that compared to the criteria issued for scrutiny of cases last year, as many as 11 new ones have been included in the fresh guidelines this year.

For example, all returns where refund claimed is Rs 50 lakh or above in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs 20 lakh or above in other places will now come under the scanner.