Firms paying MAT may come under lens

Companies that paid the minimum alternate tax (MAT) after earning book profits of more than Rs 50 lakh during 2004-05 may come under tax scrutiny, according to the new norms finalised by the revenue department for the current assessment year.

Under the new norms, as many as 111 companies may come under the taxman's special scrutiny this year. According to data available with the Business Standard Research Bureau (BSRB), 111 companies out of the 1,750 companies, which have so far announced their 2004-05 results, paid MAT and also earned profit before tax of more than Rs 50 lakh.

Some of these companies are Essar Steel, Great Eastern Shipping, HCL Technologies, Gujarat Ambuja Cement, Reliance Energy and Biocon.

Direct tax practitioners said the book profit for most companies was approximately the same as their profit before tax. Explaining the move, they said the government's attempt was to widen the coverage of tax scrutiny.

Senior government officials told Business Standard that refunds and claims of more than Rs 10 lakh made by non-corporates and Rs 50 lakh in case of corporates may also be taken up for scrutiny. The scrutiny norms will also cover international transactions exceeding Rs 5 crore.

Officials said the ministry had instructed field formations to scrutinise earnings of exporters to check for variation in profits as 2004-05 was the last financial year for them to claim income-tax benefits under Section 80 HHC.

Section 80 HHC of the Income-tax Act provides for a deduction from the total income in respect of profits derived from the export of goods or merchandise, which are realised in convertible exchange.

The benefit under the section was withdrawn in a phased manner and no deduction is now allowable under the section for the assessment year 2005-06 and the subsequent assessment years.

"Since the income tax benefits have been phased out, there may be instances where exporters are suddenly showing a dip in incomes. We will scrutinise such cases," an official said.

Cases of income tax exemption available to charitable and religious institutions and trusts under Section 11 of the Income tax Act would also be scrutinised, officials said adding that such institutions which had grant receipts of more than Rs 5 crore would also be scrutinised.