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 taxes receipts of Union Government in FY 2017-18 was 6.0 per cent of the GDP. Share of direct taxes in Gross Tax Revenue increased to 52.2 per cent in FY 2017-18 from 49.5 per cent in FY 2016-17. The uncollected demand in FY 2017-18 Rs 11.1 lakh crore of which 98.2 per cent would be difficult to recover. This Report includes 472 high value cases having tax effect of Rs 5,197.72 crore. The ITD allowed Exemption for agricultural income without verification of supporting documents such as the land records, proof of agricultural receipts and expenses and cross examination of documentary evidence where available. In a follow-up test check of Exemptions to Charitable Trusts and Institutions during FY 2017-18, Audit noticed instances of irregularities such as diversion of income/property by trusts to related group trusts/institutions as application of income, exemptions to assessees whose activities were not ‘charitable’ in nature, allowance of expenditure and accumulation where exemption was denied, lack of monitoring the investment of accumulated money by the trusts in the forms or modes other than those specified in the Act, exemptions granted to trust on application of funds given to foreign universities, exemption to assessee where voluntary contribution including foreign currency donation was considered as corpus fund without specific direction of donor, non-cancellation of registration where activities of the Trust and Institutions are not in accordance with the provisions of the Act, Failure of the Assessment Information System to levy surcharge. The ITD did not cross link material transactions with related parties to ensure the correctness/ genuineness during the assessment of related companies in a group and lacked a system of information sharing amongst its various charges leading to assessments of group companies getting completed in standalone manner.