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Scrutiny of the income tax return is a regular feature to find out whether the income declared in the income tax return of relevant assessment year is correct and the income tax has been paid on the same.
Recent years there were progressively reduction in selection of the cases for scrutiny and more & more stress has been given on better compliance from the
assesses, the tax payer.
Nevertheless the scrutiny is part & parcel of all the revenue collection and under Income Tax Act also it has some specific features and going to stay till the
taxation on the income will last.
Though there are very positive changes and the mind set of the department for carrying out the scrutiny of the income tax returns, there is wide scope to make the same assesses friendly and live to the changing scenario of the business environment. There are sections , notes , circulars , about the selection of the cases for scrutiny, time limit for completion of the selected cases , and the income tax provisions for assessment of income, However I think there is non availability of guidance note on how to conduct the scrutiny and the procedures applied are left to the discretion of the officers to be applied for scrutiny based on their own judgment and views and here there is a wide scope for betterment in application of procedures for conducting the scrutiny assessments.
The motto of the scrutiny assessments will be the same as our judiciary that is no matter of hundreds of defaulters will go unpunished but never punished a non -defaulter. This view has many advantages as follows.
The general view is that the revenue will increase whenever there is better and wilful compliance to the law and never increase because of scrutiny or raids though the same has its own place and required only in specific cases.
The assesses will came forward to supply the required details willingly and the compliance will also increase, this in turn reduce the timing in completion of the scrutiny assessments.
The assesses will be happy to get their returns scrutinized instead of general view of keeping yourself out of the scrutiny by the whatever ways available.
It is always this very few badly handled cases, will give a bad name to a efficiently managed department and also keep the right views and persons out of the channels of department. My views are on the this part of conducting scrutiny in an improved manner are expressed in this note.
PROVIDE MORE CHANNEL FOR READDRESS:
Now a days, there are only two layers for addressing the grievances with in the Income tax dep't. Against the order passed by the income tax officer,
Commissioner of Income Tax ( Appeals )
Income Tax Tribunal Instead of three layers as earlier, these are, Asstt. Commissioner of Income Tax ( Appeals )
Commissioner of Income Tax ( Appeals )
Income Tax Tribunal.
In my view , there is no harm in providing at least three layers to address the grievances and this will help to the rightful assesses in following manner. The cost incurred for readdresses will be reduced and majority of the least revenue earning additions will be reduced at first stage itself. The tendency of making wrongful additions will be discouraged as the same will be immediately nullified and are put to test before three higher authorities.
The rightful assesses have option and hope for readdresses in case he feels mishandled at the first stage.
THE READDRESSES CHANNEL TO HAVE FULL AUTHORITY
The readdress of grievances will be full proof and the grievance should end at the same level it self. The assesses have not to required to approach the earlier authority say the Income Tax Officer for ratification , reassessment etc.
THE CHANNEL MAY BE GIVEN SPECIFIC GRIEVANCES TO DEAL WITH
The first layer will look after the correctness and verification of assessment order, calculation, re-verification of items of income as well as expenses part of the assessment order.
The second layer should look after in case required a basic issue of technicality like valuation , accounting method , etc.
The third layer should look after a Law point required are deal for completion of assessment.
THE PRESENT SCENARIO OF CONDUCTING THE SCRUTINY ASSESSMENTS
The priorities of verification are not decided. The details are demanded from the assesses at the same time notices were issued to the parties for
requiring their attendance along with the details for completion of assessments. The basic approach is the assesses has habit and must be,
1. hiding the actual income.
2. not having the details, or required proofs,
3. he has to be screwed by all methods to agree that he has always wrong.
4. the details submitted by him are false, malafide , not true and cooked up..
5. Not a trustworthy fellow,
6. the cross verification is the only way available for verification.
7. he is a regular deflator and the dept has duty cast upon to recover maximum that is whatever evaded in previous 2-3 years and next same period should be recovered in this year itself.
8. he does not know the law and hence make him to understand ,
9. all his connections drs, crs, etc should know that he is under scrutiny,
10. Last but not least, tell him what an officer can do.
In my view, the above approach is a very nervous and negative approach to called scrutiny an assessment.
The positive approach as per my view may be as under.
1. The assesses see is a genuine tax payer and had a habit of better compliance.The case is selected for scrutiny because of either by random selection or some of the points in his return needs clarification by the department.
2. He is trustworthy and assume that all the details etc are available with him. and they are most reliable at first stage unless otherwise proved.
3. Welcome him, explained him the position correctly that the return is in selection due to random or clarification.
4. There is no harm in assuming that assesses is always right as he has made his return on that basis only.
5. He should be assured that if any procedural lapses are there which were not result in loss of revenue or basic part of declaration of income, he will be protected and no non-relevant, immaterial issues will be taken up.
6. Restrict ourselves only to the pertain year of assessment only instead of wondering around his business activity , personal life and all other issues.
The nodal method of assessment as I see may be as under.
STUDY THE CASE THOROUGHLY
This will include why the same was selected for scrutiny , persons behind the business, nature of business activity , details already filed along with the return, basis of calculation of income , expenses and its nature, etc.
In house study and working should be devoted more time than calling the assesses and time devoted with him. List out only those parts, items which needs to be verified , needs clarification, more details , and leave aside all the rest so that specificity will be seen in verification and completion of assessments.
The assesses should be inform at once the details, clarification needed for verification and the list will be conclusive and once the same is complete the assessment should be completed.
THE ATTENDANCE AND DISCUSSION WITH ASSESSES:
The attendance should be segregated to specific purpose only, like,
First attendance for introduction and information of selection and reasons for selection. The list of requirements may be given and explained in this attendance itself.
Second attendance is for submission of the details and clarification asked for, In case of difficulty in submitting the details in the format, or impossibility of submission the alternatives will be discussed and other ways will be decided for verification.
Third attendance, for submission of left out details and final submissions.
STUDY THE DETAILS SUBMITTED
The reliability of the details, further clarifications explanations required, The possibility and requirement of verifications as well as details by counter evidence available with the assesses it self. Say interest of bank loan, payment to specific account can be counter verified by the bank details or statements.
The assesses may be asked to produced the counter evidence to support the details submitted by him. Fourth attendance is to ask further details or counter evidence in support of the details submitted by him and more clarification on some of the items.
The counter evidence may be from the parties, banks, other bodies etc. which will be demanded and produced by the assesses.
ITEMS SELECTED FOR THIRD PARTY VERIFICATION.
In case the officer is not satisfied with the details and evidences in few of the items he may be required to adopt direct confirmation procedure. This be necessarily in very few items and on very selective basis, noting and informing why the details and evidences are not relied upon to the assesses.
CALL FOR THE DETAILS, STATEMENTS AT FIRST STAGE FROM THIRD PARTIES.
The statements submitted by the third parties may be tallied with the details submitted by the assesses. In case the differences the assesses has to
asked for the reconciliation if any for the differences.
Fifth attendance is required for informing the assesses about the items selected for third party verifications and reasons for the same.
Sixth attendance is required to provide explanations on the differences in his details and the details submitted by the third party through direct verification procedure.
ATTENDANCE BY THE THIRD PARTY
In case, the details submitted by the third party are not found reliable and has prima facie found to be false , or not reliable , the attendance by issue of summons may be resorted to in very few cases with the information to assesses and explaining the reasons for need of such attendance.
RECORDING OF STATEMENTS
Prepare a set of relevant questions pertain to the assessment and details to be verified. Only specific questions will be asked and only revalent details be obtained at the time of attendance.
Seventh attendance is required for presenting the findings and obtain the views of the assesses on findings. Eighth attendance for submission of counter explanation and evidences on the findings by the honourable officer.
CONCLUSION OF ASSESSMENT
The draft assessment order and the conclusion will be discussed and the assesses views on the same will be obtained.
Ninth attendance of the assesses is required to discuss his views on the draft assessment. The above procedure has a stage wise procedure and to my mind the jumping of the stages will harm the basic purpose of the assessment.
This procedure will also takes care of involving the assesses at each stage of assessment and providing him the information on specific method adopted for verification and the reasons behind the same.
This is needed in the changing scenario and required as right under Information Act. About reasons of specific steps undertaken by the department.
GREATER INVOLMENT OF THE ASSESSES WILL CREATE MORE CONFIDENCE IN HIM AND REDUCE THE GRIEVANCES AT INITIAL STAGE. THIS TO MY MIND RIGHTLY CALLED AS A HONOURABLE ASSESSMENT.
Satish Badve, B.Com.F.C.A.D.C.M.D.I.S.A. (ICA)