This Report primarily discuss compliance to the provisions of the Income Tax Act, 1961 and the associated rules, procedures, directives, etc. as applied to all aspects related to the administration of direct taxes. Direct tax receipts of the Union Government in FY 2016-17 grew by 14.5 per cent over the previous year. Share of direct taxes in gross tax revenue decreased to 49.5 per cent in FY 2016.17 from 51 per cent in FY 2015-16. The arrears of tax demand in FY 2016-17 was of ₹10.4 lakh crore of which 98.6 per cent would be difficult to recover. Number of appeals pending with CIT (Appeals) were 2.9 lakh in FY 2016-17 in which amount locked up was ₹ 6.1 lakh crore. This Report includes 457 high value cases having tax effect of ₹4,186.85 crore. ITD raised exaggerated demands to achieve its revenue collection targets which was refunded in the next financial year along with the interest, putting a burden on the exchequer in the form of avoidable interest paid on refunds. Assessing officers were allowing or disallowing amounts pertaining to bogus transactions arbitrarily, applying discretion that was not available to them. In some of the cases, reports of the Investigation Wing regarding bogus donations were not taken cognizance of. While giving effect to the appellate orders mistakes on account of non-consideration of the refund already issued to the assessee and short/ non levy of interest, etc. were noticed. There were delays in implementation of appellate orders resulting in avoidable payment of interest on refunds. No action was taken to implement the decisions given by the appellate authorities in favour of the revenue resulting in unrealized revenue.