Issuing new guidelines, the income tax department has said that complete scrutiny of tax returns

Issuing new guidelines, the income tax department has said that complete scrutiny of tax returns would be applicable in cases where information about tax evasion is available from any other authority.

It also added an additional limb of obtaining prior administrative approval of the principal commissioner/principal director/commissioner/director in certain cases, for selection of such cases for complete scrutiny.

For instance, cases pertaining to survey, search and seizure and cases where charitable trusts have claimed exemption without a valid approval have been made subject to prior approval before transmission to the National Faceless Assessment Centre (NaFAC) for serving necessary scrutiny notices.

What is complete scrutiny?

Under complete scrutiny, a detailed scrutiny of the return of income is carried out by tax officers to confirm the genuineness of various claims, deductions, etc made by the taxpayer.

The objective of this is to confirm that the taxpayer has not understated the income, computed excessive loss or underpaid the tax in any manner.

Cases where complete scrutiny will be applicable 

According to Nangia Andersen LLP Partner Sandeep Jhunjhunwala, cases involving recurring issues of law and/or fact would be subject to complete scrutiny only where additions in previous assessments exceeded the threshold of ₹25 lakh for taxpayers in eight metro cities and ₹10 lakh in other cities, with prior approval.

“Cases pertaining to tax-evasion where information is available from enforcement agencies have also been brought within the net of compulsory complete scrutiny under Income tax provisions,” he said. 

“The insertion of the need to obtain a prior approval and ascribing thresholds could be seen as a right step towards the efforts to reduce litigation and channelisation of taxman’s efforts towards more critical cases,” added Jhunjhunwala. 

AKM Global Partner-Tax Sandeep Sehgal said the cases where any information about tax evasion is available from any authority will also be subject to complete scrutiny.

AMRG & Associates Director Corporate and International Tax, Om Rajpurohit said CBDT publishes internal rules for scrutiny selection every year.

It has been clarified that where a return has been furnished as a result of a notice based on SFT (Statement of Financial Transactions) information, such return will not be selected for compulsory scrutiny.

“These instructions will provide additional clarity to both the government vis-à-vis assessee in terms of understanding the actual basis for scrutiny selection,” Rajpurohit added.

With inputs from agencies.