CBDT lays out guidelines for manual scrutiny of income tax returns

Income-tax (I-T) authorities will manually select those tax returns (ITR) for complete scrutiny where reassessment notices have been issued pursuant to search or survey action carried out on or after April 1, 2021.

For preceding years in which reassessment notices have been issued, the matter may not be manually selected for scrutiny and will instead be taken up by a faceless authority, according to an instruction note for the current fiscal year (2022-23, or FY23) issued by the Central Board of Direct Taxes (CBDT) to tax officials on Thursday.

This is the part of direct tax board’s seven broad parameters prescribed for compulsory selection of ITR for complete scrutiny for FY23.

Manual selection of cases is different from those selected by computer-aided scrutiny selection where tax returns are picked up randomly for limited scrutiny. Manual selection is based on the parameters set by the apex tax body.

Other than reassessment, taxmen will also scrutinise those taxpayers (both individual and corporate) who have made an addition in excess of Rs 25 lakh to income declared during an earlier assessment for similar or recurring issue of fact or law. This threshold is for the eight metros — Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Ahmedabad, Pune, and Hyderabad. For other cities, it is Rs 10 lakh. Similar thresholds apply to transfer pricing matters as well.

CASE STUDY

• Income-Tax department selects cases manually for comprehensive scrutiny
• They are selective and different from computer-aided scrutiny selection
• Those selected by the system typically face limited inspection
• Central Board of Direct Taxes sets parameters every year for manual selection of cases
• Taxmen examine minutiae of manual-scrutiny cases

These cases will be selected for scrutiny where tax addition to income in the earlier years was finalised during the appeal stage and taxpayers had accepted the addition. However, if a decision is in favour of the tax department, albeit an appeal pending by the taxpayer, the tax return will be taken up for scrutiny.

Recurring issues are mainly exemptions, expenses claimed, undisclosed income during searches and seizures, etc. Other parameters include charitable trusts that have been denied registration for tax exemption or the registration has been withdrawn, entities availing of tax benefits notwithstanding.

The apex body has clarified different situations and accordingly issued directives for manual selection. It has specified when scrutiny will be conducted by a faceless authority or transferred to central charge. CBDT clarified that the tax officer requires prior permission from a senior official of the department concerned.

‘No fresh reassessment notices to small taxpayers’

Issuing an instruction on implementation of a judgment by the Supreme Court on notices, the I-T department has asked its field offices to not issue reassessment notices for 2012-13, 2013-14 and 2014-15 fiscal years to small taxpayers wherein the income escaping from tax is less than Rs 50 lakh.