Cases of Compulsory Scrutiny of Income Tax!

Arjuna (Fictional Character): Krishna, what are the recent guidelines given by CBDT for Compulsory selection of cases for Scrutiny?

Krishna (Fictional Character): Arjuna, CBDT has provided Guidelines for compulsory selection of returns for Complete Scrutiny for FY 2022-23. Also, procedure for compulsory selection has also been provided in the guidelines provided by CBDT.

Arjuna: Krishna, what is a Scrutiny of Income Tax?

Krishna: Arjuna, once the assessee files his return of income, irrespective of whether it is filed within the due date or in pursuance to a notice requiring the assessee to file his return, the department can initiate scrutiny proceedings if it has reason to believe that income is escaping assessment, i.e., income is under stated or expenditure is overstated. Therefore, a notice is issued on the assessee asking him to attend the department’s office and produce additional documents if any required.  A mere receipt of a notice does not indicate any crime; it simply indicates conducting of investigation to find out if any income has escaped assessment. It indicates a difference of opinion of AO from that of Assessee.

Arjuna: Krishna, what are the guidelines and procedures provided by CBDT for Compulsory selection of returns in Scrutiny?

Krishna: Arjuna, the returns filed under following categories shall be taken for compulsory Scrutiny:

• If any case pertains to Survey u/s 133A of Income Tax Act shall receive compulsory Scrutiny with prior approval of concerned officer but following people are excluded even though the case pertains to survey u/s 133A if books of accounts were not seized during the survey and Income shown in return is not less than the Income assessed during the assessment.
• If any case pertains to Search and Seizure.
• Cases where no return has been furnished in response to notice u/s 142(1) shall be selected for Scrutiny but AO shall upload the underlying documents based on which notice u/s 142(1) was issued and then the Directorate of Income tax shall forward these cases to NaFAC(National Faceless Assessment Centre) which will take the further necessary action.
• Cases in which notices u/s 148 were issued whether or not response was furnished to notices u/s 148.
• Cases where registration/approval u/s 12A, 35(1)(ii)/(iia)/(iii), 10(23C) etc have not been granted or have been cancelled or withdrawn, yet the assessee claims tax deductions in his ITR. However, if order of withdrawal has been reversed by authority, then cases such shall not be selected for Scrutiny.
• Cases where additions have been made during earlier assessment shall also be compulsory selected for scrutiny if the addition during earlier assessment exceeds Rs 25 Lakhs in Metro cities and Rs 10 Lakhs in cities other than metro cities.
• Cases where specific information regarding tax-evasion is available shall also be selected for Scrutiny.

Arjuna: Krishna, what should one learn from this?

Krishna: Arjuna, by this circular, the department has sent a message to the taxpayers to beware of the consequences that will happen if their returns fall in the above categories. Hence this is a warning signal for taxpayers to taker utmost care while filing their Income Tax Returns, also the department is trying to keep a check on assesses who had previously made mistakes and is making sure that such types of mistakes are not repeated by them in future.

Arjuna (Fictional Character): Krishna, what are the recent guidelines given by CBDT for Compulsory selection of cases for Scrutiny?

Krishna (Fictional Character): Arjuna, CBDT has provided Guidelines for compulsory selection of returns for Complete Scrutiny for FY  2022-23 also procedure for compulsory selection has also been provided in the guidelines provided by CBDT.

Arjuna: Krishna, what is a Scrutiny of Income Tax?

Krishna: Arjuna, once the assessee files his return of income, irrespective of whether it is filed within the due date or in pursuance to a notice requiring the assessee to file his return, the department can initiate scrutiny proceedings if it has reason to believe that income is escaping assessment, i.e., income is under stated or expenditure is overstated. Therefore, a notice is issued on the assessee asking him to attend the department’s office and produce additional documents if any required.  A mere receipt of a notice does not indicate any crime; it simply indicates conducting of investigation to find out if any income has escaped assessment. It indicates a difference of opinion of AO from that of Assessee.

Arjuna: Krishna, what are the guidelines and procedures provided by CBDT for Compulsory selection of returns in Scrutiny?

Krishna: Arjuna, the returns filed under following categories shall be taken for compulsory Scrutiny:

• If any case pertains to Survey u/s 133A of Income Tax Act shall receive compulsory Scrutiny with prior approval of concerned officer but following people are excluded even though the case pertains to survey u/s 133A if books of accounts were not seized during the survey and Income shown in return is not less than the Income assessed during the assessment.
• If any case pertains to Search and Seizure.
• Cases where no return has been furnished in response to notice u/s 142(1) shall be selected for Scrutiny but AO shall upload the underlying documents based on which notice u/s 142(1) was issued and then the Directorate of Income tax shall forward these cases to NaFAC(National Faceless Assessment Centre) which will take the further necessary action.
• Cases in which notices u/s 148 were issued whether or not response was furnished to notices u/s 148.
• Cases where registration/approval u/s 12A, 35(1)(ii)/(iia)/(iii), 10(23C) etc have not been granted or have been cancelled or withdrawn, yet the assessee claims tax deductions in his ITR. However, if order of withdrawal has been reversed by authority, then cases such shall not be selected for Scrutiny.
• Cases where additions have been made during earlier assessment shall also be compulsory selected for scrutiny if the addition during earlier assessment exceeds Rs 25 Lakhs in Metro cities and Rs 10 Lakhs in cities other than metro cities.
• Cases where specific information regarding tax-evasion is available shall also be selected for Scrutiny.

Arjuna: Krishna, what should one learn from this?

Krishna: Arjuna, by this circular, the department has sent a message to the taxpayers to beware of the consequences that will happen if their returns fall in the above categories. Hence this is a warning signal for taxpayers to taker utmost care while filing their Income Tax Returns, also the department is trying to keep a check on assesses who had previously made mistakes and is making sure that such types of mistakes are not repeated by them in future.