The Hindu Business Line : Inscrutable world of tax scrutiny

Section 143(2) gives the assessing officer considerable powers in this regard. He can resort to scrutiny to ensure that excessive loss is not shown or income is not under-reported.

But the CBDT has been over the years issuing internal circulars to its officers providing guidelines for this purpose. For the financial year 2003-2004, scrutiny assessment would be compulsory in case of all public sector companies and banks; all cases where addition/disallowance of Rs 1 lakh and more has been sustained by the CIT (Appeals) in the preceding year; all search and seizure cases; cases acted upon pursuant to information as to tax evasion and where international transaction exceeds Rs 5 crore.

In addition, companies may be selected at random as per the prescribed procedure.

Surprisingly, individuals, firms and entities other than companies are out of the loop as far as random selection procedure is concerned for scrutiny assessment.

Signed, resigned

WHAT all would be the consequences should an auditor resign after signing the auditor's report on annual accounts to be laid before the AGM shortly, the notice whereof has already been sent to members? - R. Kannan, Coimbatore

A vacancy in the office of auditor can be filled only by the company in a general meeting. In all other instances of casual vacancy, the board enjoys the optional power to fill in the vacancy.

In law, an auditor's tenure is from conclusion of an AGM till the conclusion of the next AGM and, therefore, strictly speaking, there is a void in the office of the auditor. But the truth is the auditor has signed the auditor's report.

As a sequel, he must attend and field queries, if any, from members on accounts and audit. It would be unbecoming of a professional to make himself scarce when he is needed the most.

But the timing of the resignation beats me. Why should he have signed the report in the first place if pressure was brought to bear upon him to do things he ought not do?

In any case, the management or members can activate the Section 190 mechanism to squeeze in a resolution for appointing a new auditor assuming they still have 14 clear days before the meeting, failing which, another meeting may have to be convened hot on the heels of the AGM in which of course the resolution to reappoint the incumbent auditor will have to be dropped with due information to the members.

It is significant to note that there is a special regime to deal with removal.

One wonders why the same regime has not been extended to resignations as well. In its absence, members will be in the dark as to the attendant circumstances leading to resignation.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

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