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Few thoughts on Income Tax Scrutiny Provisions – is it Income scrutiny or Expenditure one!

Once upon a time there was an Expenditure Tax – it was so unpopular that government had no option but to withdraw it. Now indirectly it is in vogue in Income Tax Scrutiny cases. All kind of questions –even most embarrassing are being asked to assess the expenditure of an assessee to determine unaccounted income escaped to income tax due! This way all assessees under income tax scrutiny are treated as tax evaders and - this is an insult of tax payers though it is not unconstitutional but practically it is so!

If there is any doubt of income not disclosed in the income tax return let the tax officers have first proof of such an income of an assessee in question-under scrutiny and than do all legal exercises but mere on suspicion of income escaped such an exercise is like an unconstitutional step!

Remember it is an income tax scrutiny and not an expenditure one. No doubt the intention is to get the income of an assessee under question but way and means – gathering information personally by an assessee is wrong. All in all, tax officers must concern only income part of an assessee and not expenditure one- yes prosecute for income evasion if there is a direct evidence of such an income liable to be taxed under income tax Act but not disclosed in I-T Return in appropriate columns of I-T Return. But no way ask expenditure of an assessee under any circumstances to co-relate with income declared.

If expenditure is not in proportionate to income let the tax officer resort to means of discovering his sources of such expenditure –now days lot of expenditure information is gathered by tax department like, property sale-purchase transactions , shares dealings etc.  Once Bank statement is scritunised –remember one’s expenditure is other person’s income, from Bank statements find that all incomes reflected in it is declared in tax return –that is enough.

Further, on an appeal for undisclosed income treated by tax officer, it is nullified by higher authorities or Courts then concerned tax officer must be held personally responsible-accountable too and appropriately penalise him  for it, unless proved genuinely he was mot at mistake for corrugating  evidence–reliably proves, if any he had.

Most damaging example is Questionnaire u/s142 (1) of the I.T.Act for assessment proceedings –which require furnishing the copy of income and expenditure account for the last 3 years. This clause must be deleted. It is a practical hardship as to get expenditure for last 5 years (assessment year relates to one more previous-past year) –notices are send after almost two years that makes 5 years old expenditure called for – it require even supporting bill /cash memos –who keeps such an old record and if it require bank to provide details of any entry it is nightmare –you won’t get practically. This proviso is too harsh.


Time limit for all issuances of notices under various provisions of Income Tax act must be reduced drastically to get desired results and settlement of disputed tax cases at an early date. Also refunds are not issued in time. This way interest on refunds payable by the department too shall be reduced. Revenue lost is revenue earned.


I need not add how many cases of politicians under scrutiny or by CBI for disproportionate assets are actually verified and proved? But for such cases of ordinary citizens all possible legal recourses shall never fail-unless such a person joins some political party or have such connections!

Mahesh Kapasi

M. Com., LL.B., FCA, FCMA, FCS  

Ex- Member-AMIMA, AMIBM, ACEA (London), MIIA (USA)

B-49, Gulmohar Park,      

New Delhi-110 049



Published by

Mahesh Kapasi
(Practising CA)
Category Income Tax   Report

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