17 September, 2014

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New guidelines on manual selection of cases for compulsory income tax (I-T) scrutiny, issued by the Central Board of Direct Taxes (CBDT)


Ø Threshold for selection of cases in transfer pricing for scrutiny dropped.

Until now all the cross border transactions whose amount exceed Rs 15 crore had to be referred to a TP officer by the assessing officer. This lead to a large number of transactions to be brought under scrutiny. To cite an example, transactions in case of a trading company would easily exceed Rs 15 crore. Experts have now decided to employ a risk based approach for selecting transfer pricing transactions. This approach will be more focused and help reduce litigation.

The rationale behind the same is to increase the quality of assessment by the transfer pricing officers, as in India they are overburdened with cases. Practitioners demanded for doing risk based analysis of transfer pricing adjustments. Hence, there was a dire need of going for sectors and companies more prone to mispricing.

Ø CBDT has spared from compulsory scrutiny all companies and organizations which got a donation from abroad of more than Rs 1 crore.

Ø Scrutiny in case of a charitable institution.

If the registration of a charitable trust has been cancelled and it continues to file I-T returns claiming exemption, the case would have to be taken up for scrutiny. In case of information received from other government departments pointing to tax evasion, compulsory scrutiny will be initiated only if the information is specific and verifiable.

The point is similar to last year but they have changed it to what is specific and verifiable. If any information received from the excise or customs department is based on suspicion, the case cannot be selected for scrutiny.

Source: Instruction No. 6 of 2014 dated 02.09.2014 issued by CBDT.

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