CBDT Issues New Tax Scrutiny Guidelines: Ensuring Compliance

Overview: The Central Board of Direct Taxes (CBDT) has issued new guidelines for the scrutiny of income tax returns (ITRs) for the financial year 2024-25. The guidelines outline the selection criteria, procedures, and parameters for scrutinizing ITRs, emphasizing a focus on potential tax evasion through enhanced information sharing with other agencies. This notification is part of CBDT’s ongoing efforts to ensure tax compliance and combat tax evasion.

Key Points from the Notification:

1. Focus on Potential Tax Evasion:

   • The new guidelines aim to identify cases of tax evasion by leveraging information from various agencies. This aligns with CBDT’s past guidelines and reflects a proactive stance in enforcing tax compliance.

2. Selection Criteria for Scrutiny:

   • Taxpayers will be informed of the reasons their ITRs have been shortlisted for scrutiny. The selection criteria include:
     • Evidence of tax evasion.
     • Cases where a notice calling for returns has been issued and no returns have been furnished.
     • Instances where income has escaped assessment.

3. Specific Cases for Scrutiny:

   • Search and Seizure Cases: These assessments will be made under section 153C, read with section 143(3), for ITRs filed for the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132.
   • No Return Cases: Instances where no return has been furnished in response to a notice under section 142(1). Jurisdictional Assessing Officers (JAOs) will upload underlying documents on the ITBA for access by the National Faceless Assessment Centre (NaFAC).
   • Specific Information on Tax Evasion: Cases selected based on specific information pointing to tax evasion provided by any law enforcement agency. The jurisdictional AO will prepare a list of such cases with prior approval and submit it to the Directorate of Income-tax (Systems).

4. Procedure for Scrutiny:

   • Cases selected for scrutiny will require prior administrative approval from the Principal Commissioner of Income Tax/Principal Director of Income Tax/Commissioner of Income Tax/Director of Income Tax. These cases will be transferred to Central Charges under section 127 within 15 days of serving notice under section 143(2)/142(1) by the jurisdictional assessing officer.
   • Notices under section 143(2) will be issued if these cases are not centralized, and ITR is filed in response to a notice under section 153C. If no ITR is filed in response to the notice, a notice under section 142(1) will be issued.

5. Compliance and Impact on Taxpayers:

   • Increased Transparency: Taxpayers will have clearer insights into why their ITRs are selected for scrutiny, reducing uncertainty and aiding in preparation.
   • Reduction in Arbitrary Scrutiny: Specific guidelines are expected to reduce arbitrary selection, leading to a fairer and more consistent scrutiny process.
   • Preparation for Scrutiny: Taxpayers will be better prepared to provide necessary documentation or explanations, knowing the specific reasons for scrutiny.
   • Compliance Incentives: Knowing that returns could be scrutinized based on specific criteria may encourage taxpayers to ensure accurate and compliant tax filings.
   • Deterrence of Tax Evasion: Clear scrutiny criteria may deter tax evasion, as taxpayers understand the well-defined guidelines governing the scrutiny process.

Expert Insights:

• Amarpal S. Chadha, Tax Partner and Mobility Leader, EY India: Emphasizes the need for taxpayers to evaluate and ensure adherence to tax laws to avoid severe consequences of non-compliance.
• Dr. Suresh Surana, Founder, RSM India: Highlights the benefits of increased transparency, reduced arbitrary scrutiny, and the importance of preparing for scrutiny to ensure compliance with tax regulations.

Conclusion:

The CBDT’s new guidelines for the scrutiny of income tax returns underscore the importance of compliance and transparency in tax filings. Taxpayers are encouraged to stay informed about these updates and seek professional advice if necessary to ensure their returns are accurate and complete. The proactive measures by the CBDT aim to enhance the effectiveness of the tax scrutiny process, thereby reinforcing the integrity of the tax system.

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