Income Tax Compulsory scrutiny notices to start flowing now as guidelines are in place.

[Vivek Jalan]

Notices u/s 143(2) will be served for all the cases selected for Compulsory Scrutiny, by 30.06.2023 as the Guidelines for compulsory selection of returns for Complete Scrutiny during the Financial Year 2023-24 have been issued on 24th May 2023. Like every year, the CBDT has released guidelines for the purpose of compulsory selection of returns for Complete Scrutiny during the Financial Year 2023-24 and the conduct of assessment proceedings in such cases. The government conducts massive data analytics to expand the tax base. This data along with information coming from GST and other agencies are used. The data is then tallied with the tax returns to assess if the income is adequately reflected or not, loss has been over stated or not or in any way has tax been underpaid.

The most critical Cases which would be selected for compulsory scrutiny are those related to specific information regarding tax evasion. Again, the question is how this “specific information” will be generated. The answer is that The Jurisdictional Assessing Officers (JAOs) shall prepare a list of cases falling under this parameter with prior administrative approval of Pr. CIT/Pr.DIT/CIT/DIT concerned. Hence, the assesses still need to k eep the JAOs in good humour to ensure that their cases do not come up in compulsory scrutiny cases. Important to note is that the JAOs need to upload this specific information. However, a breather for assessees is that the scrutiny would be undertaken by NaFAC.

However, the cases which are selected for compulsory scrutiny by the International Taxation and Central Circle charges, shall continue to be handled by International Taxation and Central Circle charges respectively, as earlier. These will not go to NaFAC.

The other cases which can be picked up for complete scrutiny are as follows –

a) Cases where notice is issued under Section 148 – The same will be picked up whether or not the return has been filed pursuant to a notice u/s 148.

b) Cases pertaining to survey under section 133A - If the income tax department has conducted a survey under Section 133A on the basis of the tax return filed. However, there are certain exclusions as well such as where the book of accounts, documents etc. were not collected.

c) Cases pertaining to Search and Seizure - Where the income tax authorities have done search & seizure either prior to April 1, 2021 or after that will be picked for complete scrutiny.

d) Cases where notice under section 142(1), calling for return, have been issued or no returns have been furnished.

e) Cases related to registration/approval under sections 12A, 35, 10(23C), etc. - If the income tax department has not granted or cancelled registration/ approval under section 12A, 12AB, 35(1)(ii)/(iia)/(iii), 1023(C) etc. and yet the taxpayer is found to be claiming tax exemption/deduction, their ITR will be picked for scrutiny. However, if the order of withdrawal/approval has been reversed or set aside in appellate proceedings, then such cases will be excluded under this clause.

f) Cases involving additions in earlier AYs on a recurring issue of law and/or 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: a) exceeding Rs 25 lakh in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune; b) exceeding Rs 10 lakh in charges other than eight metro charges. In addition to that, (i) has become final, as no further appeal has been preferred against the assessment order or (ii) has been upheld by the Appellate authorities in favour of revenue; even if further appeal of assessee is pending against such order.

Important to note is that where return has been furnished in response to notice u/s 142(1) of the Act and such notice u/s 142(1) of the Act was issued due to the information contained in NMS Cycle/ AIS/ Statement of Financial Transactions (SFT)/CPC-TDS information/ information received from Directorate of I&CI, such return will not be taken up for compulsory scrutiny. Selection of such cases for scrutiny willbe done through CASS cycle.

Earlier there was a criteria that there would not be compulsory scrutiny for those assessees also who declared a total income for the impugned assessment year which was more by a certain % of the total income returned for the earlier AY subject to certain conditions. Now the question arose that if the above requirements were fulfilled by the assesse, could the case not be taken up for sample scrutiny even incase the other balance sheet items were of high financial value and where the revenue would have doubts. It was held that If these criteria were fulfilled, then even if genuineness of Share application money, loans and advances taken or made, etc are prevalent, the case cannot be taken up for sample scrutiny – COMMISSIONER OF INCOME TAX, ROHTAK VERSUS M/S. CRYSTAL PHOSPHATES LTD. - 2023 (4) TMI 817 - PUNJAB AND HARYANA HIGH COURT. Since last few years this criterion is no more there.