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CBDT issues guidelines for selection of cases for scrutiny, focus on tax evasion

The Central Board of Direct Taxes (CBDT) has issued the guidelines for compulsory selection of income tax returns for scrutiny for the fiscal year under which it has outlined a number of cases that would be taken up.
While the guidelines are largely in line with those of previous years, experts noted that the CBDT continues to focus on cases of possible tax evasion where taxpayer’s information is shared by other law enforcement agencies.
In a recent missive to field formations, the CBDT said that in cases, in respect of which specific information pointing out tax-evasion for the relevant assessment year is provided by any law-enforcement agency, including Investigation Wing, Intelligence, Regulatory Authority, Agency and the return for the relevant assessment year is furnished by the assessee, the jurisdictional assessing officer would prepare a list of cases with prior approval. A consolidated list of such cases would be given to the Principal Commissioner of Income Tax who would then forward it to the Directorate of Income Tax (Systems). A notice under Section 143 (2) of the Income Tax Act for scrutiny would then be issued.

The CBDT has also said cases relating to search and seizures, cases where no returns have been filed despite a notice for filing the returns, cases where approvals and registrations have been taken under various sections of the Income Tax Act and cases where additions are made in earlier assessment years on a recurring basis.
In the last two to three years, the tax department has issued scrutiny notices to various taxpayers relying on the information shared with them by other regulatory and investigating bodies. This approach has helped the tax department to widen the tax base as increasing number of taxpayers are filing tax returns in the fear of getting a notice by the tax department,” said Manish Garg, Lead Transfer Pricing and Litigation, AKM Global, a tax and consulting firm.
Further, the information collected by the tax department is tallied with the returns and notices are issued in case of mismatch. For example, if you have sold a property and not filed any tax return, the tax department may select your case for complete scrutiny on the basis of the information received from land registrar office about the property sale.”
Complete scrutiny is a mechanism where tax department verifies all the particulars of income tax return to make sure that correct income has been offered to tax.
“As per the amendments brought by Finance Act 2021, the time limit for service of notice u/s 143(2) of the Act has been reduced to three months from end of the Financial Year in which the return is filed,” the CBDT said, adding that for the ITRs filed in the the last fiscal, the time limit for service of notice is June 30.

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