A classified report prepared by the department has found that "a large number" of trusts and societies are violating I-T exemption laws and are conducting "business, commerce and trade" instead of charity.
The department had put in a new clause in the I-T Act in 2009-10 that such entities engaged in the "advancement of any object of general public utility" will cease to enjoy tax exemptions if they collect fees or other charges for services rendered in the nature of business, commerce or trade.
"The department`s unit dealing with exemptions has identified a large number of such cases and are being investigated for scrutiny," I-T sources said.
Sources declined to quantify the numbers and the identity of entities under its scanner as the probe is underway.
The department has also asked the Chief Commissioners of Income Tax (CCITs) in the country to identify such trusts, including those registered as religious charitable bodies, who are violating charity clauses, the sources said.
Such entities are enjoying exemptions under sections 11 and 12 of the I-T Act when it comes to huge donations and contributions and on holding of property, they said.
While Section 11 of the I-T Act deals with with "income from property held for charitable or religious purposes", Section 12 defines "income of trusts or institutions from contributions."
According to sources, once the cases are scrutinised and investigations are complete, prosecution against violators will be launched.
The department expects to uncover violations to the tune of crores of rupees in these cases. However, I-T sources said a figure can be established only after the probe finishes.