Limited Scrutiny - A taxpayer friendly move

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Customer Care No. 91-11-45562222
Limited Scrutiny - A taxpayer friendly move
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• As it is said, a fine is a tax for doing wrong, a
  tax is a fine for doing well. In connotation to
  that, it may be said that scrutiny is the
  punishment for this well doing and consequent
  filings with tax authorities.
• A scrutiny has thus far been a matter of concern
  for assessees because of multitude of hearings
  and voluminous documents required to be submitted
  before an Assessing Officer (AO). Many a times,
  an assessee's return of income was selected for
  scrutiny for minor issues. To add to the plight,
  some AOs conduct scrutiny proceedings by issuing
  a routine notice. Further, in certain cases, the
  core issues which formed the basis for selection
  of a case for scrutiny were not examined in the
  right context and spirit. This caused undue
  harassment to assessees which in turn drew a lot
  of criticism for the AOs. In this regard,
  representations were made by various industrial
  bodies before the Central Board of Direct Taxes
  (CBDT).

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• To put the criticism at rest, the CBDT came up
  with certain criteria, on the basis of which, an
  electronic platform, i.e., Computer Aided
  Scrutiny Selection (CASS) was set up for
  selection of return of income for scrutiny. CASS
  is a risk based system which selects a return of
  income for scrutiny, on following criteria
  (illustrative)
• ? multiple cash transactions in quick time
• ? transactions of large unexplained sums and
• ? credit or debit of money from assessees account
  to overseas location
• Through CASS, selection of return of income for
  scrutiny has become a non-intrusive and
  non-discriminatory affair. On account of CASS,
  the focus has shifted on quality selection of
  cases with revenue potential, thus increasing the
  revenue and reducing the work load.
• To further simplify the scrutiny process and to
  allay the fear of assesses, the CBDT by virtue of
  its powers under section 119 of the Income-tax
  Act (IT Act), issued instruction introducing the
  concept of limited scrutiny. CBDT directed that
  cases selected for scrutiny under CASS on
  following basis shall fall within the ambit of
  limited scrutiny

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• 1. Annual Information Report (AIR)
• 2. Central Information Branch (CIB) information
• 3. Non-reconciliation with Form No. 26AS data
• In such cases, the scope of enquiry shall be
  limited to verification of particular aspects
  only. With respect to cases selected on above
  basis, the instruction directs an AO to confine
  the questionnaire, enquiry, investigation, etc.
  only to relevant parameters which formed the
  basis for selecting the case for scrutiny.
  Accordingly, the AO while issuing notice under
  section 142(1) of the IT Act would proceed to
  seek information/documents only for the specific
  aspects, which are identified under CASS.
• Prescription of a notice format for limited
  scrutiny
• The CBDT issued letter prescribing format for
  issue of notice for limited scrutiny. As per the
  notice, an assessee shall be provided an
  opportunity to produce evidence which is deemed
  necessary in support of the return of income
  filed. If the assessee does not seek to furnish
  any evidence, a communication in this regard,
  would be considered as a sufficient compliance.
  The format further provides that the scrutiny
  could be conducted by communicating through
  e-mail ID mentioned in the return of income.
  Additionally, an opportunity is given to the
  assessee to opt out of the scheme at any
  subsequent stage on account of technical
  challenges, if any, faced by the assessee.

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• Concern areas
• It may be noted that limited scrutiny assessment
  proceedings is confined only to issues listed in
  the section 143(2) notice. If at the time of
  issue of such notice the AO does not provide
  reasons, the assessee could request the AO to
  provide such reasons for initiating limited
  scrutiny.
• It was noticed that in certain cases selected for
  limited scrutiny, the AOs have not been following
  the instructions issued by CBDT. Even though
  notices are issued for limited scrutiny, the AOs
  conduct a detailed scrutiny. Even appellate
  authorities do not interfere in cases where
  assessment is made in violation of instructions.
  It has been held in various judicial
  pronouncements that the instructions issued by
  CBDT are binding on AOs subordinate to it.
  Amongst others, one may refer to the following
  judicial precedents
• ? Varghese (KP) v. ITO 131 ITR 597 (SC)
• ? C.C.E v. Dhirendra Chemical Industries 2002
  254 ITR 554 (SC)
• ? Navnit Lal C. Javeri v. K.K. Sen, Appellate
  Asstt. Commissioner of Income-tax 65 ITR 198 (SC)

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• To ensure that the sanctity and spirit of
  introducing limited scrutiny is kept, the
  Department may resort to the following
• ? adherence to instructions issued to AOs in
  letter and spirit to be ensured by appellate
  authorities
• ? no standard questionnaire to be issued. The AO
  ought to go through the records of an assessee
  and then seek further details/documents
• ? the AO ought to avoid undertaking actual
  assessment proceeding at the far end of the
  limitation period
• ? reason for selection of a case under limited
  scrutiny should be provided in the section 143(2)
  notice and section 142(1) of the IT Act
• ? AOs must ensure that a limited scrutiny case is
  not subjected to a detailed scrutiny, unless, the
  procedure as prescribed by the CBDT is adhered
  to.

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