CBDT Guidelines for Scrutiny: Combating Tax Evasion

The Central Board of Direct Taxes (CBDT) has issued guidelines for the compulsory selection of income tax returns for scrutiny for the fiscal year, outlining specific cases to be taken up. While these guidelines align with previous years, experts highlight the CBDT’s continued focus on cases of potential tax evasion, particularly where taxpayer information is shared by other law enforcement agencies.

In cases where specific information pointing to tax evasion is provided by law enforcement agencies and the taxpayer has filed returns for the relevant assessment year, the jurisdictional assessing officer prepares a list of such cases with prior approval. This list is forwarded to the Directorate of Income Tax (Systems), and notices under Section 143(2) of the Income Tax Act for scrutiny are issued accordingly.

The CBDT has specified various cases for scrutiny, including those related to search and seizures, non-filing of returns despite notices, approvals and registrations under the Income Tax Act, and cases with recurring additions made in previous assessment years.

The tax department’s approach of issuing scrutiny notices based on information shared by regulatory and investigating bodies has led to an expansion of the tax base, as more taxpayers file returns fearing scrutiny.

Moreover, information collected by the tax department is cross-referenced with returns, and notices are issued in cases of discrepancies. For instance, if a taxpayer sells property but fails to file a tax return, their case may be selected for complete scrutiny based on information received from the land registrar office.

Complete scrutiny involves verifying all particulars of the income tax return to ensure accurate income reporting.

Recent amendments by the Finance Act 2021 have reduced the time limit for serving notices under Section 143(2) of the Act 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.

Overall, these guidelines underscore the CBDT’s commitment to combating tax evasion and ensuring compliance with tax regulations. They also highlight the importance of timely and accurate reporting by taxpayers to avoid scrutiny and penalties.

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