Mandatory scrutiny of ITR: Income tax dept reveals the criteria how the ITRs will be selected for the scrutiny
May 23, 2024
Synopsis
Income tax return: The tax department has released a circular which outlines the criterias and procedure to be followed if a particular income tax return (ITR) is to be selected for scrutiny. These guidelines also includes the procedure and criteria to be followed for section 142 (1) income tax notice.
Income tax returns (ITRs) will be picked up for scrutiny based on certain pre-defined criterias and parameters. These parameters have been released by the Central Board of Direct Taxes (CBDT) for FY 24-25.
A taxpayer can now know exactly why his/her income tax return (ITR) has been selected for scrutiny (close examination) by the Income Tax Department. This is because the Central Board of Direct Taxes (CBDT) has released guidelines via a circular dated May 3, 2024, which are to be followed for compulsory selection of ITRs for complete scrutiny for FY 2024-25.
"Since the last few years, CBDT has issued similar circulars on an annual basis providing criteria for mandatory/ compulsory selection of ITRs for scrutiny and recently this circular was issued for FY 2024-25. These circulars issue guidelines for compulsory selection of ITRs for complete scrutiny as well as for the procedure for compulsory selection in such specified cases," says Dr Suresh Surana, founder, RSM India, a tax and business consultancy group.
What are the specified cases where an ITR will be selected for complete scrutiny?
In specified cases, the Income Tax Department will pick up a particular ITR for complete scrutiny based on certain predefined parameters.
As per the circular, here are some of the cases:
Cases in which notices under section 142(1)- asking to file ITR - have been issued but no ITR has been filed
Parameters: Under this criterion, the tax department will send a notice if no ITR was filed in response to a notice sent under section 142 (1).
Procedure: The jurisdiction assessing officer (AO) shall upload the underlying documents based on which notice under section 142 (1) was issued for access by the National Faceless Assessment Centre (NaFAC).
Ramakrishnan Srinivasan, former chief commissioner of Income Tax, shares some insights about why individual may receive a section 142 (1) notice.
"The Income Tax Department has a huge repository of financial data collected from Annual Information Return (AIR) from specified entities such as Sub Registrars, NSE/BSE etc., and it has also entered into a memorandum of understanding (MOU) with other departments like GST and has its own data from TDS portal. I remember the case of an erstwhile actress who disposed of immovable property located in a metropolitan city and had not disclosed it in her ITR. Similarly, persons who had not filed an ITR but made multiple IPO applications, or spent high amounts through credit cards, or investors who made huge investments in bonds, stock market, etc., have received notice under 142(1) from the department," he says.
Cases pertaining to survey under section 133A
Parameter: Assessments resulting from survey under section 133A (other than survey under section 133 (2A) leading to detection of specific information/material pointing out tax evasion.
Procedure: These cases shall be selected for compulsory scrutiny with prior administrative approval of the Principal Commissioner of Income tax/Principal Director of Income tax/ Commissioner of Income tax/ Director of Income tax concerned, who shall ensure that such cases are transferred to Central Charges under section 127 within 15 days of serving of notice under section 143 (2) by the jurisdictional assessing officer concerned.
Cases pertaining to Search and Seizure
These cases are subdivided into two parts based on the date when this occurred.
Search and seizure/ requisition prior to April 1, 2021
Parameters: The assessments in search and seizure cases are to be made under section 153C, read with section 143 (3), and also for ITRs filed for the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132.
Procedure: The cases shall be selected for scrutiny with prior administrative approval of the Principal Commissioner of Income tax/Principal Director of Income tax/ Commissioner of Income tax/ Director of Income tax concerned, who shall ensure that such cases are transferred to Central Charges under section 127 within 15 days of serving of notice under section 143(2)/142(1) by the jurisdictional assessing officer concerned.
The procedure is slightly different if these cases are not centralised and if the ITR in response to these searches and seizures/ requisition is filed or not.
"Notice under section 143(2) will be issued if these cases are not centralised and ITR is filed in response to a notice under section 153C. However, if these cases are not centralised and no ITR is also filed in response to a notice under section 153C, then a notice under section 142(1) will be issued," said CBDT in the circular.
Search and seizure/ requisition on or after April 1, 2021
Parameters: The assessments in these search and seizure/requisition cases under section 132/132A conducted on or after April 1, 2021.
Procedure: These cases shall be selected for scrutiny with prior administrative approval of the Principal Commissioner of Income tax/Principal Director of Income tax/ Commissioner of Income tax/ Director of Income tax concerned, who shall ensure that such cases are transferred to Central Charges under section 127 within 15 days of serving of notice under section 143(2)/142(1).
Cases in which notices under section 148 have been issued
Parameters: Cases where the ITR is either furnished or not furnished in response to notice sent under section 148.
Procedure: There are two procedures based on the dates.
Cases where notice under section 148 has been issued due to search and seizure/survey actions conducted on or after April 1, 2021:
"These cases shall be selected for compulsory scrutiny with prior administrative approval of Principal Commissioner of Income tax/Principal Director of Income tax/ Commissioner of Income tax/ Director of Income tax concerned who shall ensure that such cases, if lying outside Central Charges are transferred to Central Charges under section 127 within 15 days of service of notice under section 143(2)/142(1) calling for information by the Jurisdictional AO," said CBDT in the circular.
Cases other than search and seizure/survey:
For these cases, the scrutiny must be completed by NaFAC on or before March 31, 2025. The jurisdictional AO shall upload the underlying documents on the basis of which section 148 notice was issued. Notice under section 143(2)/142(1) calling for information shall also be served through NaFAC.
Cases related to specific information regarding tax evasion
Parameters: There are two parameters to select these cases for complete scrutiny. These are:
Specific information pointing out tax evasion for the relevant assessment year is provided by any law enforcement agency, and
The ITR for the relevant assessment year is furnished by the taxpayer.
Procedure: The jurisdictional AO shall prepare a list of cases under the above-mentioned parameters with prior approval of the Principal Commissioner of Income tax/Principal Director of Income tax/ Commissioner of Income tax/ Director of Income tax concerned. The consolidated list of such cases shall be submitted to the concerned Principal Commissioner of Income tax who in turn will submit the list to the Directorate of Income-tax (Systems)
"The above-mentioned scrutiny guidelines are intended to bring in transparency in the tax department's functioning with regard to scrutiny assessments. The tax department is increasingly relying on a data driven approach for identifying cases for scrutiny assessment cases. Further use of discretionary powers for taking up the cases for scrutiny has been virtually curbed," says Srinivasan.
[The Economic Times]
