Tax authorities in India have the power of initiating scrutiny assessment under section 143 (3) of the Income Tax Act 1961, if they have a reason to believe that the individual has filed incorrect particulars or suppressed his income in his return of income.
The assessing officer (AO) could ask roving and general questions. Compulsory scrutiny cases have been a matter of grievance for many taxpayers due to fears of harassment by Income Tax officials and the trouble of making numerous visits to the tax office with piles of documents.
With non-adversarial approach on the minds of our policymakers, it is time to bid adieu to the unnecessary troubles caused by the department. Now most of the cases are selected for scrutiny through Computer Aided Scrutiny Selection (CASS) based on either Annual Information Return (AIR) data or non-reconciliation with 26AS data. The CASS is an intelligent risk-based system where the Income Tax department has fed some red-flag indicators to select cases for scrutiny. So your case shall be selected only if your facts fall in the list of the indicators, else you are free.
Taking a stern view of the undue “harassment” of taxpayers during scrutiny, the Central Board of Direct Taxes has issued orders asking the department to complete these enquiries in quick time and not drag them “unnecessarily”. CBDT, vide instruction no. 7/2014 dated 26.09.2014, endeavoring to achieve a non-adversarial tax regime mandated that, the ambit of these enquiries be limited to the verification of specific points on the basis of which the particular return has been selected for scrutiny. This instruction being clarificatory in nature is designed for the benefit of the assessees.
So now if you get a notice of scrutiny from the tax department, there is no need to panic because as per the directions of the CBDT, the AO has been instructed to issue a scrutiny notice with the remarks ‘limited’ and ‘selected’ under CASS. A notice sent by the AO to the taxpayer having details as to the reason why their case has been selected for scrutiny is less petrifying than the detailed and routine questionnaire that is sent to the taxpayer.
The instructions of the CBDT also emphasized that all efforts would be made to ensure that assessment proceedings are completed expeditiously in the minimum possible number of hearings without unnecessarily dragging the case.
An exception to the above can be made only after the AO has obtained a “written approval” from the Principal Commissioner of Income Tax (CIT) or Director of Income Tax (DIT). The CBDT has directed during the course of assessment proceedings, if it is found that there is potential escapement of income exceeding R10 lakh (for non-metro cities, the monetary limit shall be R5 lakh), apart from the AIR/26AS information based on which the case was selected under CASS, the case may be taken up for comprehensive scrutiny with the approval of the Principal CIT/DIT concerned. However, these approvals shall be based on the merits of the issue whether it actually requires a detailed probe. These instructions are a welcome step to curb unnecessary harassment of the assessees under the garb of a complete and exhaustive enquiry.
If the instructions issued by the CBDT for the simplification of scrutiny process are followed, it will help in creating non-adversarial tax regime, which will ultimately result in faster processing of assessments and save time of both the assessee and the revenue authorities.
The writer is managing partner, Nangia & Co. With inputs from Neha Malhotra, manager, Nangia & Co.