Income Tax Notice for Scrutiny Assessments under Income Tax Act 1961 are made u/s 143(3) if the Assessing Officer considers it necessary or expedient to ensure that-
(a) the assessee has not understated the income or has not computed excessive loss; or
(b) has not underpaid he tax in any manner.
If a case is selected for comprehensive scrutiny, the notice u/s 143(2) must be served on the assessee before the expiry of 6 months from the end of the financial year in which return was furnished. So for a return filed for AY 2014-15 scrutiny notice has to be served before 30-Sep-2015.
Approaches for Scrutiny Case Selection
Selection for scrutiny is generally made using two distinct approaches:
(1) Centrally through CASS
(2) Manual selection by the Assessing Officers
At present, the income tax department (ITD) carries out scrutiny of up to 2% of the total number of income tax returns. The computer aided scrutiny selection (CASS) system selects the cases at random based on intelligence and annual information return (AIR) parameters.
ITD is assisted by an Integrated Tax Payer Data Management System (ITDMS) in generating a 360 degree profile of a person. It compiles data and information from all available data sources like, PAN, e-TDS, OLTAS, AIR, CIB etc. These information are then linked and extensively mined to generate a complete profile of the person concerned. In case of an individual, the family tree can be created with links to all related entities.
Basically scrutiny is based on risk-analysis conducted through computer- assisted programme and also manually with reference to broad parameters decided every year for the entire tax-payer population, inter-alia, considering factors like gross income, deductions and exemptions claimed, legal issues involved in litigation, quantum and nature of specific transactions, status of assessees , etc.
Mismatch in income and investments (Annual Information Return)
Banks, mutual funds, credit card companies and other establishments are supposed to report certain high-value transactions to the Income Tax Department in their annual information return (AIR).
These establishments have your PAN and other details, so there is virtually no way one can sneak past them. If the system detects a mismatch in income, investments and expenses, it will automatically pick the return for scrutiny. Nearly 62 lakh investors put more than Rs 2 lakh in mutual funds or over Rs 1 lakh in stocks in 2010-11. Almost 27.5 lakh account holders deposited Rs 10 lakh in their savings bank account that year.
Information of below high value transactions are reported to Income Tax Department:
- Cash deposits aggregating to ten lakh rupees or more in a year in any savings account of a person maintained in a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act).
- Payment made by any person against bills raised in respect of a credit card aggregating to two lakh rupees or more in a year.
- Receipt from any person of an amount of two lakh rupees or more for purchase of units of a Mutual Fund.
- Receipt from any person of an amount of five lakh rupees or more for acquiring bonds or debentures issued by a company or institution.
- Receipt from any person of an amount of one lakh rupees or more for acquiring shares issued by a company.
- Purchase by any person of immovable property valued at thirty lakh rupees or more.
- Sale by any person of immovable property valued at thirty lakh rupees or more.
- Receipt from any person of an amount of five lakh rupees or more in a year for investment in bonds issued by Reserve Bank of India.
The CBDT has already exempt taxpayers from personal attendence if they are selected for scrutiny on the basis of a transaction reported in the annual information return.
Form 26 AS – Sources of Income, Taxes paid
Form 26AS contains details of income earned and Tax Deducted for the same. All Self Assessement Tax, Advance Tax ,TDS details are found in Form 26 AS. The department will be able to identify undeclared sources of income and verify details of taxes paid using this source of information.
Central Information Branch (CIB)
CIB formed in 1975 is the nodal agency of ITD of strengthening tax data base. Its key function areas are
(i) collection, collation of information from internal as well as external sources and its dissemination to Assessing Offices (AOs) and other users in ITD;
(ii) widening of tax base through identification of stop – filers and non filers
(iii) deepening of tax base by providing information for proper selection of cases for scrutiny assessments
Scope of enquiry in scrutiny cases in FY 2014-2015 on basis of AIR/C1B /26AS mis-match
CBDT has vide circular 7/2014 instructed that the scope of enquiry under cases selected for scrutiny through CASS on the absis of either AIR or CIB or Form 26AS should be restricted to verification of these particular aspects only. Therefore, in such cases, an Assessing Officer hall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.
In case, during the course of assessment proceedings it is found that there is potential escapement of income exceeding Rs. 10 lakhs (f non metro charges, the monetary limit shall be Rs. 5 lakhs) on any other iss e(s) apart from the AIR/CIB/26AS information based on which the case was elected under CASS requiring substantial verification, the case may be taken u for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satilied i about merits of the issue(s) necessitating wider and detailed scrutiny in the case.
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