The Comptroller and Auditor General of India plans to focus on infrastructure companies and banks for special audit during the current financial year.

According to sources, the focus of the audit will be on all infrastructure companies that are availing deductions in their profits or gains under Section 80 IA of the Income-Tax Act, 1969.

The issue assumes significance given the controversy surrounding the numerous projects related to special economic zones. This is because one of the categories that enjoys Section 80 IA benefits also includes industrial facilities involved in developing, operating and maintaining industrial park or special economic zones notified by the central government.

Similarly, the focus area for banks will be income tax sops used for setting off profits against bad debt and carry forward losses during merger with another bank.

According to Section 36 of the Income-Tax Act, bad debt will be deducted from the profits of a bank to the extent it has not been provided for in the credit balance as provisioning for bad and doubtful debts. Earlier, the deduction was available for the year in which the debt went bad. Now the debt can be written off any year and so it offers the opportunity to the assessee to make the adjustments any year depending on the level of profits. This follows a recent tribunal order passed in favour of Oman International Bank.

Section 74A allows a bank to carry-forward losses and unabsorbed depreciation during amalgamations of companies with another company. This also applies in the case of bank mergers.

The audit will scrutinise whether such sops have been used genuinely.

Deduction under Section 80 IA is available against hundred per cent profits for 10 consecutive assessment years. The deductions could be availed for any ten consecutive assessment years out of fifteen years beginning from the year in which the enterprise started. The enterprise could be engaged in any infrastructure facility.