Mandatory Scrutiny of ITR: Income Tax Department Reveals Criteria for Selection

The Income Tax Department has recently unveiled detailed criteria for the mandatory scrutiny of Income Tax Returns (ITRs). These guidelines, released by the Central Board of Direct Taxes (CBDT) on May 3, 2024, specify how ITRs will be selected for close examination for the financial year 2024-25. These annual circulars have been a consistent effort by the CBDT to ensure transparency and clarity in the scrutiny process.

Specified Cases for Complete Scrutiny

The CBDT has outlined specific scenarios where an ITR will be subject to complete scrutiny based on predefined parameters. Here are the key cases and their corresponding procedures:

1. Non-filing of ITR after Section 142(1) Notice:
   • Parameters: Notices issued under section 142(1) request the filing of an ITR, but no ITR is subsequently filed.
   • Procedure: The jurisdictional assessing officer (AO) is required to upload the underlying documents that led to the issuance of the section 142(1) notice. These documents will be accessible by the National Faceless Assessment Centre (NaFAC).
2. Cases Resulting from Survey under Section 133A:
   • Parameters: Assessments arising from surveys conducted under section 133A, excluding those under section 133(2A), which uncover specific information indicating tax evasion.
   • Procedure: Such cases must receive prior administrative approval from senior tax officials, including the Principal Commissioner of Income Tax or equivalent. These cases are to be transferred to central charges within 15 days of the issuance of a notice under section 143(2).
3. Search and Seizure Cases:
   • Prior to April 1, 2021:
     • Parameters: Assessments in these cases are conducted under section 153C, read with section 143(3), for the relevant assessment year in which the search or requisition was made.
     • Procedure: These cases require prior administrative approval and must be transferred to central charges within 15 days of serving the notice.
   • On or after April 1, 2021:
     • Parameters: Assessments for searches and requisitions conducted on or after April 1, 2021, follow similar guidelines.
     • Procedure: These also need to be transferred to central charges within 15 days of notice issuance, following approval from senior tax officials.
4. Cases with Notices under Section 148:
   • Parameters: Includes cases where the ITR is either filed or not filed in response to a section 148 notice.
   • Procedure:
     • Post-April 1, 2021 Searches/Surveys: These cases require scrutiny and must be transferred to central charges within 15 days.
     • Other Cases: The scrutiny must be completed by NaFAC by March 31, 2025, with the jurisdictional AO uploading the underlying documents and serving notices through NaFAC.
5. Specific Information Regarding Tax Evasion:
   • Parameters: Involves cases where specific information indicating tax evasion is provided by law enforcement agencies, and the ITR for the relevant year has been filed by the taxpayer.
   • Procedure: The jurisdictional AO prepares a list of such cases with prior approval from senior tax officials. This list is then submitted to the Directorate of Income-tax (Systems).

Transparency and Data-Driven Approach

These scrutiny guidelines are designed to enhance transparency in the Income Tax Department’s operations. By relying increasingly on a data-driven approach, the department aims to minimize the use of discretionary powers in selecting cases for scrutiny. This shift is expected to foster greater trust and clarity in the tax assessment process.

According to Dr. Suresh Surana, Founder of RSM India, and Ramakrishnan Srinivasan, former Chief Commissioner of Income Tax, the detailed criteria and structured procedures underscore the department’s commitment to fairness and transparency. The use of advanced data analytics and inter-departmental collaborations further strengthens the robustness of the scrutiny process.

In summary, the latest guidelines by the CBDT for the financial year 2024-25 provide taxpayers with clear insights into why their ITR might be selected for scrutiny, ensuring a more transparent and systematic approach to tax assessments.

Read More : E-assessment scheme for faceless scrutiny of income tax returns notified.

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