CBDT highlighted that, the recent amendments, introduced by the Finance Act 2021, have reduced the time limit for serving notices under Section 143(2) to three months from the end of the financial year in which the return is filed.
The Central Board of Direct Taxes (CBDT) has recently released its guidelines for selecting income tax returns for scrutiny under Section 143(2) of the Income Tax Act. These guidelines highlight specific cases that will be subject to scrutiny for the fiscal year.
While the guidelines largely mirror previous years’ directives, experts have observed a continued emphasis by the CBDT on cases potentially involving tax evasion, particularly those where taxpayer information is shared by other law enforcement agencies.
In a recent communication to field formations, the CBDT outlined a process where cases flagged for potential tax evasion by any law enforcement agency would be subject to scrutiny. The assessing officer, with prior approval, would compile a list of such cases, which would then be forwarded to the Directorate of Income Tax (Systems) for further action. Subsequently, notices under Section 143(2) of the Income Tax Act would be issued for scrutiny.
The CBDT’s scrutiny extends to various scenarios, including cases related to search and seizures, non-filing of returns despite notices, approvals and registrations under different sections of the Income Tax Act, and instances of recurring additions in previous assessment years.
Manish Garg, Lead Transfer Pricing and Litigation at AKM Global, a tax and consulting firm, commented on the effectiveness of the tax department’s approach in widening the tax base. He noted that relying on information shared by regulatory and investigating bodies has prompted more taxpayers to file returns, fearing potential notices from the tax department.
Moreover, the tax department cross-references information collected with filed returns, issuing notices in case of discrepancies. For instance, if a property sale is not reported in a tax return, the tax department may select the case for thorough scrutiny based on data received from the land registrar’s office.
Complete scrutiny involves a meticulous verification of all income tax return particulars to ensure accurate income reporting. The CBDT highlighted that, the recent amendments, introduced by the Finance Act 2021, have reduced the time limit for serving notices under Section 143(2) to three months from the end of the financial year in which the return is filed. For returns filed in the last fiscal year, the deadline for notice service is June 30.
In summary, the CBDT’s guidelines aim to streamline the scrutiny process, focusing on potential tax evasion cases and ensuring compliance with tax regulations.
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