03 Jun Decoding Income Tax Scrutiny Process
The Income Tax department recently released guidelines clarifying the process for selecting tax returns for scrutiny in the financial year 2024-25. This development offers taxpayers valuable insight into why their returns may undergo closer examination.
Every year, the I-T department employs Computer Assisted Scrutiny Selection (CASS), utilizing computer algorithms to flag returns for potential tax evasion based on risk parameters such as high refund claims, discrepancies in income, or unusual transactions.
Additionally, the CBDT has specified criteria for selecting returns for scrutiny. Here’s an overview of the key areas:
- Mismatched Information: Discrepancies between the taxpayer's return and information from other agencies may trigger scrutiny, indicating possible undeclared income or suspicious transactions.
- Tax Evasion Red Flags: Returns may be selected if there are indications of underpayment of taxes, such as high expenses compared to declared income.
- Surveys under Section 133A: Returns resulting from surveys revealing potential tax evasion will be subject to compulsory scrutiny, requiring administrative approval for further assessment.
- Non-Response to Notices: Failure to respond to notices issued under Section 142(1) of the Act may lead to scrutiny to assess outstanding taxes.
- Search & Seizure Operations: Returns arising from search and seizure operations conducted before April 1, 2021, will also undergo scrutiny, especially if discrepancies are found in financial records.
Additionally, specific scenarios outlined for compulsory scrutiny include cases involving information sharing by law enforcement agencies, unfiled returns despite notices, and instances of tax exemptions without proper registration.
The scrutiny process will mainly be conducted in a faceless manner, with initial notices issued by jurisdictional Income Tax officers and assessments carried out by the National Faceless Assessment Centre. However, certain cases, such as those involving non-resident assesses or international transactions, will undergo e-proceedings with jurisdiction disclosed in notices.
The guidelines aim to achieve targeted scrutiny, streamline the process, and ensure transparency and fairness for taxpayers. By providing clear parameters for selection, leveraging digital platforms, and emphasizing transparency, the new guidelines aim to enhance the efficiency and integrity of the scrutiny process.
Source: Business Standard
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