Given that the Income-tax Department has moved to a governance model based on automation of data matching, risk assessment using Artificial Intelligence and verification using automated system, what taxpayer puts in ITR has to necessarily match with what Department already has in its records.
The tool to check income tax scrutiny i.e. Annual Information Statement (AIS) aggregates information related to a taxpayer from banks, stock brokers, depositories, mutual fund, registrars and GST / other Central / State Government statistics / returns and thus forms the basis of a ‘compliance view’ created by ITD for scrutiny of a taxpayer’s return of income.
Even then, a tax expert said, “The AIS should not be treated as the sole basis of taxation while filing returns. There could be instances of incomplete information in AIS; there could be instances of data getting duplicated in AIS; there could be errors in reporting as well. So, all the information appearing in the AIS should be cross-checked with the books of accounts and also with the bank statements and other relevant documents and then only such information should be entered while filing the return of income. If any discrepancy is found while cross-checking, the same should be looked into and disclosed in the ITR with adequate support of documents wherever required to avoid scrutiny or issues from tax department later on.
“Thus, all the details reflected in the AIS have to be reconciled with the books of accounts and other documents such as bank statements, Form 26AS, Form 16/16A, investment accounts etc. and only after such reconciliation, the correct details should be entered into ITR to avoid scrutiny or notice from ITD,” the expert added.
Such errors during matching have to be identified and declared in the ITR with supporting documentation wherever required to rule out scrutiny or notices from Income-tax Department.
“With partial disclosure now being automatically picked up through data analytics on AIS, no longer can a taxpayer rely on ‘I haven’t included this’ approach. Any discrepancy in reported income and spending habits, investments and transaction reporting would result in post-filing scrutiny and notices from the ITD,” said another expert.
Some of the common mismatch cases are also listed below. Such mismatches may attract scrutiny or even result in post-filing actions from the Income-tax Department.
Salary income mismatch: Income from salary as reported in ITR would differ from the salary reported in Form 16 (return of TDS) filed by employer, returns of TDS filed by employer and such under reporting may invite Income Tax Department to investigate why such under reporting has been done and confirmed in AIS-based data analytics.
Interest income not reported: Many taxpayers do not include the interest earned on their savings bank accounts, fixed deposits, recurring deposits, income tax refunds etc. which are reported in AIS through the banks’ and financial institutions’ data. Such non-disclosure or partial disclosure of income in ITR may result in mismatch notice.
TDS/TCS Mismatch: If there is any excess TDS/TCS claimed and not credited in return, the same would not get reflected in return and would result in deduction/adjustment of refund and Department may also issue a notice seeking justification for excess TDS/TCS claimed.
Some other discrepancies that may also lead to scrutiny or post-filing notices of taxpayer are in relation to financial transaction of high value which are required to be recorded and are subject to tax and reporting under the Act. Such large value transactions are made through various intermediaries like for instance, transactions of purchase or sale of immovable property, large credit card spends, foreign remittances etc. recorded in AIS but no evidence of existence of income from which such tax and reporting are required to be deducted or paid by any person.
Capital gains not reported correctly: As already explained above, transactions such as sale of shares, mutual funds, properties, etc. are reported by the intermediaries to the Department through AIS. Mis-computing of capital gains while computing the same in return of income or entirely omitting the capital gains while computing the income would invite scrutiny from the Department.