‘Complete Scrutiny’ of Income Tax Returns in India: New Guidelines for FY 2022-23

Posted by Written by Naina Bhardwaj Reading Time: 5 minutes

We discuss the parameters and related procedures for compulsory scrutiny of income tax returns for FY 2022-23 as released by India’s apex direct tax authority, the CBDT. The mandatory selection for complete scrutiny of tax returns is applicable in certain listed scenarios, such as when information is available about tax evasion from any other authority. Under complete scrutiny, a detailed inspection of the income tax returns is done by tax officers to confirm the genuineness of various claims, deductions, etc. made by the taxpayer. The guidelines include a new clause that requires approval from relevant authorities like Principal Commissioner/ Director etc. before tax officers can launch scrutiny measures like survey, search, and seizure, etc.


On May 11, 2022, the Central Board of Direct Taxes (CBDT), the apex statutory body for direct tax in India, issued guidelines for selecting income tax returns (ITR) and procedures for full scrutiny during the financial year 2022–23.

According to the new guidelines, such scrutiny would be applicable in cases where information about tax evasion is available from any other authority. Additionally, it has also been specified that in certain cases, scrutiny shall be done with prior administrative approval of the Principal Commissioner/ Principal Director/ Commissioner / Director.

For example, in cases pertaining to survey, search, and seizure, it is mandatory to get prior approval before transmitting them to the National Faceless Assessment Centre (NaFAC) for serving necessary scrutiny notices.

The new guidelines, released vide Instruction No. F.No.225/ 81/2022/ITA-II, specify the necessary parameters for compulsory selection of ITR for complete scrutiny and simultaneously prescribes the procedure for compulsory selection in such cases.

Here we list out the specified parameters and their selection procedure.

Specified parameters and procedures for compulsory scrutiny of income tax returns in India

Case-Specific Parameters and Procedures for Compulsory Scrutiny

Cases

Parameters

Procedure for compulsory selection

Cases pertaining to survey u/s 133A of the Income-tax Act, 1961

 

Returns filed for the assessment year relevant to the previous year in which survey was conducted under section 133A of the Act subject to exclusion below:

 

Exclusion:

Cases, where following conditions are satisfied, are excluded from selection for compulsory scrutiny:

  1. Books of accounts, documents, etc. were not impounded;
  2. Returned income (excluding any disclosure of hitherto undisclosed income made during the Survey) is not less than returned income of preceding assessment year; and
  3. Assessee has not retracted from the disclosure referred to in the clause mentioned above.

The cases shall be selected for compulsory scrutiny with prior administrative approval of relevant authorities (Principal Commissioner/ Principal Director/ Commissioner / Director) concerned, who shall ensure that such cases are transferred to Central Charges u/s 127 of the Income-tax Act within 15 days of service of notice u/s 143(2) of the Act by the Assessing Officer (AO) concerned.

Cases pertaining to search and seizure

Assessments in search and seizure cases to be made under section(s) 153A, 153C read with section 143(3) of the Income-tax Act and also for return filed for assessment year relevant to previous year in which the search was conducted under section 132 or requisition was made under section 132A of the Act.

The cases shall be selected for compulsory scrutiny with prior administrative approval of relevant authorities concerned, who shall ensure that such cases are transferred to Central Charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)/142(1) of the Act by the AO concerned.

Where such cases are not centralized and ITR is filed in response to notice u/s 153C, the AO concerned shall serve notice u/s 143(2) of the Act.

Where such cases are not centralized and no ITR is filed in response to notice u/s 153C, the AO concerned shall serve notice u/s 142(1) of the Act calling for information.

Cases in which notices u/s 142(1) of the Income-tax Act, calling for return, have been issued and no returns have been furnished

Cases where no return has been furnished in response to a notice u/s 142(1) of the Act.

The AO shall upload the underlying documents, on the basis of which notice u/s 142(1) was issued, on ITBA, for access by National Faceless Assessment Centre (NaFAC).

The Directorate of Income-tax (Systems) shall forward these cases to NaFAC, which will take further necessary action.

Notice u/s 142(1) of the Act calling for information shall be served on the assessee through NaFAC.

Cases in which notices u/s 148 of the Income-tax Act have been issued

Cases where return is either furnished or not furnished in response to notice u/s 148 of the Act.

Cases, where notices u/s 148 of the Act have been issued pursuant 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 the relevant authorities concerned who shall ensure that such cases, if lying outside central charges, are transferred to central charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)/142(1) of the Act calling for information by the AO concerned.

Cases not covered in above clause:

  1. The AO shall upload the underlying documents, on the basis of which notice u/s 148 was issued, on ITBA, for access by NaFAC.
  2. The Directorate of Income-tax (Systems) shall forward these cases to NaFAC, which will take further necessary action. Notice u/s 143(2)/142(1) of the Act calling for information shall be served on the assessee through NaFAC.

Cases related to registration/ approval under various sections of the Income-tax Act

Cases where registration/approval under various sections of the Act, such as section 12A, 35(1)(ii)/ (iia)/ (iii), 10(23C), etc. have not been granted or have been cancelled/ withdrawn by the Competent Authority, yet the assessee has been found to be claiming tax exemption/ deduction in the return.

However, where such orders of withdrawal of registration/approval have been reversed/set-aside in appellate proceedings, those cases will not be selected under this clause.

The AO shall prepare a list of cases falling under this parameter with prior administrative approval of the relevant authorities.

The list of such cases shall be submitted by these relevant authorities to the Principal Chief Commissioner of Income Tax concerned for onward transmission to NaFAC with a copy marked to DGIT(Systems).

Notice u/s 143(2) of the Act shall be served on the assessee through NaFAC.

Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact and/or law and fact

Where the addition in an earlier assessment year(s) on a recurring issue of law or fact and/or law and fact (including transfer pricing issue) is:

  • exceeding INR 2.5 million in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune; or
  • exceeding INR 1 million in charges other than eight metro charges.

Where such an addition:

  • has become final, as no further appeal has been preferred against the assessment order; or
  • has been upheld by the Appellate Authorities in favor of Revenue; even if further appeal of assessee is pending, against such order.

The AO shall prepare a list of cases falling under this parameter with prior administrative approval of the relevant authorities.

The list of such cases shall be submitted by these relevant authorities to the Principal Chief Commissioner of Income Tax concerned for onward transmission to NaFAC with a copy marked to DGIT(Systems).

Notice u/s 143(2) of the Act shall be served on the assessee through NaFAC.

 

Cases related to specific information regarding tax-evasion

Cases, in respect of which:

  • specific information pointing out tax evasion for the relevant assessment year is provided by any law-enforcement agency, (investigation wing/ intelligence/ regulatory authority/ statutory agency, etc.); and
  • the return for the relevant assessment year is furnished by the assessee.

The AO shall prepare a list of cases falling under this parameter with prior administrative approval of relevant authorities concerned.

The AO shall upload the underlying documents containing specific information regarding tax evasion, for access by NaFAC.

The list of such cases shall be submitted by the relevant authorities to the Principal Chief Commissioner of Income Tax concerned for onward transmission to NaFAC with a copy marked to DGIT(Systems).

Notice u/s 143(2) of the Act shall be served on the assessee through NaFAC.

 


About Us

India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.

We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.

Leave a Reply

Your email address will not be published. Required fields are marked *