The tax authorities are set to scrutinize high-risk refund cases for the financial year 2023-24 (Assessment Year 2024-25) using statistical analysis. Tax officers were informed of this initiative through an internal advisory issued on October 3, 2024, which is not publicly accessible. As a result, even if you have already received a tax refund for the financial year 2023-24, your case may still be selected for investigation if the tax department suspects any irregularities.
The Income Tax Department has identified “suspicious clusters” of Income Tax Returns (ITRs) linked to common email addresses based on specific criteria. Information regarding these high-risk clusters is being shared with the relevant nodal officer at the Central Registry Unit (CRU) for further verification. This is aimed at examining the suspicion of fraudulent refund claims made in an organized manner or through a single individual.
Implications for Taxpayers
Experts indicate that this internal notification primarily impacts those taxpayers who have filed their income tax returns (ITRs) and claimed refunds that may appear questionable to the tax authorities. However, it’s important to note that not all refund claims will face extensive review; the circular specifies that only cases deemed ‘High Risk Refund (HRR)’ will undergo investigation by the tax officers.
The Income Tax Department is actively identifying instances where individuals have erroneously claimed refunds for AY 2024-25 (FY 2023-24). Taxpayers involved will receive notices via email and registered post, regardless of whether a tax refund has already been processed. If a taxpayer fails to respond or provides an unsatisfactory response, the department retains the right to summon the taxpayer for a personal appearance, during which their statement may be recorded.
This internal directive also applies to taxpayers who may have previously received a tax refund for AY 2024-25. The tax department may still classify these cases as high-risk and initiate investigations.
The circular highlights previous incidents where improper refunds were claimed through various methods, including incorrect TDS credit claims, underreported income, inflated deductions, and bogus expenses. Consequently, certain cases have been flagged based on established criteria.
How will the tax department identify high-risk refund cases to investigate
The Income tax department has said the following in the internal circular:
- Kind reference is invited to the subject- High Risk Refund Cases A.Y. 2024-25 disseminated for investigation wing users at Insight-reg
- Email based clusters of High Risk refund ITRs for AY 2024-25, identified based upon certain rules are being disseminated to the PDsIT (investigation) for the purpose off verification of suspicion that false claims of refunds have been made in an organised manner or through a single key person.
- Upon receiving the cluster, the jurisdictional PDIT (Inv.)-1 may preferably allocate one or more cluster to a particular DDIT (Inv.)/ADIT(Inv.) for integrated and comprehensive inquiries.
How will the tax department’s investigation team identify false refund cases
The tax department, in the internal circular, said, “While investigating, the investigating officer (IO) will take care of the following aspects:
- The IO concerned, who has been assigned the case, should first attempt to ascertain the identity of the natural person (Hereinafter referred to as the KEY PERSON) associated with the common email ID identified, by making use of the internal database available with the Department like Insight/ITBA/e-filing portals, etc
- If such KEY PERSON could not be identified from the internal database, the IO may call for information under section 131 (1A) or by issuance of letter…requesting to furnish:
1. The details and identity of the KEY PERSON whose e-mail id has been furnished in their respective ITRs (including contact details and address of the person), and
2. Submit supporting documents to substantiate the genuineness of claim made on account of exemption, deduction, expenses, etc.
- The information called for under section 131 (1A) or through the letter issued should mandatorily be delivered through registered post along with service of the same on all the registered e-mail ids. These details should initially be called for without requiring personal appearance of the taxpayers in office.
- If no compliance is observed and no reply is received, their personal attendance may be ensured, and identity of the KEY PERSON associated with the common e-mail ID may be identified.