Press Release — Release dated 14 12 2010

What this is

Press Release was issued by the Central Board of Direct Taxes on 14 December 2010. Its subject is Release dated 14 12 2010.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Denies press reports that hundreds of takeover, merger and acquisition cases were under scrutiny, saying the department was then scrutinising only a handful, and not 380 or 100 as reported. It restates how selection works: about one per cent of the taxpayer base is scrutinised, selection is risk-based and non-intrusive, and some cases come up after intensive investigation such as a survey or a search and seizure. It states in terms that the mere incidence of a takeover, merger or acquisition does not qualify a case for scrutiny, and that the overall scrutiny level had never exceeded one and a half per cent in the preceding decade.

Why it was issued

Sections of the media had reported far larger numbers of such cases under scrutiny, and the Board issued the clarification to correct that.

Who it reaches

Companies that had gone through a takeover, merger or acquisition
Advisers assessing the scrutiny risk of a transaction
Assessees selected for scrutiny in a transaction year

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

INCOME-TAX ACT

CIRCULAR/PRESS NOTE
CBDT Clarification on Tax Scrutiny of Mergers and Acquisitions Cases
PRESS RELEASE DATED 14-12-2010

The Central Board of Direct Taxes (CBDT) has clarified that the Income Tax Department is currently scrutinizing only a handful of cases relating to takeovers, mergers and acquisitions; not 380 or 100 as reported in some sections of the media. Tax scrutiny is an ongoing process and the numbers vary from year to year. This has already been stated in replies to several Parliament Questions. The Income Tax Department reposes trust in taxpayers. It scrutinizes about 1 per cent of its total taxpayer base. Selection of cases for scrutiny is risk-based and non-intrusive. Besides, some cases are scrutinized following intensive tax investigation, such as surveys, search and seizure. Mere incidence of takeover, merger and acquisition does not qualify a case for tax-scrutiny. The overall scrutiny level by the Income Tax Department has never exceeded 1.5 per cent in the last decade.

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What to watch

The useful sentence is that a takeover, merger or acquisition is not by itself a ground for selection - selection has to rest on the risk-based criteria or on an investigation.
This is a press statement correcting media reports; it lays down no criterion of selection and cannot be cited as the criteria themselves.
The percentages given are departmental averages of the time and say nothing about any particular case.

Where you meet it

Only as background where the ground for selecting a transaction year for scrutiny is being questioned.

← Press Release · Circular No. 8/2010 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.