Guidelines For Selection Of Income Tax Scrutiny Cases

The Ministry of Finance released the Guidelines For Selection Of Income Tax Scrutiny Cases for the financial year 2019-20 on 5th September 2019. The guidelines shall evaluate the under-reporting income and loss of taxes with an unbiased view. The assessing officers from the Central Board of Direct Taxes (CBDT) shall evaluate the assessments. The primary aim of the guidelines is to ease the pressure and make the rules less aggressive for assessing officers. Click here to read about

Income Tax Scrutiny The instructions for manually selecting the returns have been divided into two sections.

First Section: Parameters of the Manual Selection

Threshold for Metro Charges

The CBDT regulated the threshold norms as Rs.25 lakhs as assessment value from Rs.10 lakh. The threshold norms shall apply for the following eight states. They are:

S. No.	States
1	Chennai
2	Bengaluru
3	Hyderabad
4	Kolkata
5	Pune
6	Mumbai
7	Ahmedabad
8	Delhi

For example, an assessing officer identifies an income should have been included in the previous year. The assessing officer can open the file of the individual, however, the tax should exceed Rs.25 lakh.

Threshold for Transfer Pricing

The threshold for Transfer Pricing has been set to Rs.10 crore. It applies in particular to any goods paid by the parent company to the subsidiary company. The assessing officer should open the file of the previous year if it exceeds Rs.10 crore.

Other scenarios added for threshold

Tax file has become final and has no place for further appeal against the assessment order
If the Tax file is subjected to a legal process
If the tax file has been confirmed at the 1st stage of appeal in favour of revenue

Implementing Section 133A

The Income-tax officials conduct the survey in particular to Section 133A of the Income-tax Act, 1961 for scrutiny process. The officials should not remove or force to remove any books of accounts including documents or files. For this reason, the officers can scrutinize the assessee upon refusal or avoiding the survey.

Search and Seizure

The assessing officers shall record the assessments as per Section(s) 158BC, 158BD, 153A, 153C and 158BA of Section 143(3). The officer can conduct the scrutiny for the previous year as per Section 132 or 132A in addition to others.

Tax-Exemption

If the assessee still claims

tax benefits that stand cancelled or not granted by the authority under Section(s) 12A, 35(1)(ii)/(iia)/(iii), 10(23C), the assessing officer shall record the justifications. Any further scrutiny shall be decided by the jurisdictional Pr. CCIT or Pr. DGIT.

Second Section: Computer-Aided Scrutiny Selection (CASS)

An electronic scrutiny (e-scrutiny) method has been introduced to identify tax evaders and segregate the broad list of taxpayers. The scrutiny process shall adopt the Computer-Aided Scrutiny Process (CASS) that sends emails to the taxpayers by probing tax details. To CASS in detail, it has been divided into two categories:

Limited Scrutiny and
Complete Scrutiny

Reopening the Case

The assessing officers are permitted to open the case if the tax file has been scrutinised by CASS but not by the assessing officer. Hence, this process shall be subjected under Section 148 of the Act. Click here to read about

Income Tax Efiling

Approval from Principal CIT/CIT

The assessing officer shall implement the norms of Broad's letter dated on 28.11.2018 issued vide F.No.225/402/2018/ITA-II. To conduct any enquiry, legal action or investigation for the cases recorded under Limited Scrutiny, the assessing officer should seek approval from the Principal CIT/CIT. To know more on guidelines for manual selection of returns,

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Frequently Asked Questions

Common questions about Income Tax Scrutiny Guidelines 2019.

The main purpose of the guidelines is to establish an unbiased and standardized process for evaluating cases of under-reported income and loss of taxes. The guidelines aim to ease the pressure on assessing officers and make the rules less aggressive, while ensuring thorough assessments are conducted by the Central Board of Direct Taxes (CBDT).

The CBDT has set the threshold norms for manual selection of cases in eight metro cities (Chennai, Bengaluru, Hyderabad, Kolkata, Pune, Mumbai, Ahmedabad, and Delhi) at Rs.25 lakhs as the assessment value, which is higher than the previous threshold of Rs.10 lakh. Assessing officers can open a case for scrutiny if the potential under-reported income exceeds Rs.25 lakh in these metro cities.

The guidelines have set the threshold for Transfer Pricing cases at Rs.10 crore. This applies specifically to transactions involving transfer of goods or services between a parent company and its subsidiary, where the assessing officer can scrutinize the case if the potential under-reported value exceeds Rs.10 crore.

Assessing officers can conduct scrutiny without considering the threshold limits in the following scenarios: if the tax file has become final and has no place for further appeal, if the tax file is subjected to a legal process, or if the tax file has been confirmed at the first stage of appeal in favor of revenue.

Section 133A of the Income-tax Act, 1961 allows income-tax officials to conduct surveys for the scrutiny process. However, the guidelines state that during these surveys, the officials should not remove or force the removal of any books of accounts, documents, or files. If the assessee refuses or avoids the survey, the officers can scrutinize them.

Assessing officers are permitted to reopen a case scrutinized by CASS but not by the assessing officer themselves. In such cases, the reopening of the case shall be subjected to Section 148 of the Income-tax Act.

For cases identified through Limited Scrutiny by CASS, the assessing officer must seek approval from the Principal Commissioner of Income Tax (CIT)/CIT before conducting any inquiries, legal actions, or investigations. This process follows the norms outlined in a letter issued by the CBDT in November 2018.

Assessing officers can scrutinize cases where the assessee claims tax benefits that have been cancelled or not granted by the authority under Sections 12A, 35(1)(ii)/(iia)/(iii), or 10(23C) of the Income-tax Act. However, any further scrutiny in such cases shall be decided by the jurisdictional Pr. CCIT or Pr. DGIT.

The guidelines state that assessing officers shall record assessments as per Sections 158BC, 158BD, 153A, 153C, and 158BA of Section 143(3) of the Income-tax Act. Additionally, they can conduct scrutiny for the previous year as per Section 132 or 132A, which pertain to search and seizure operations.

The Computer-Aided Scrutiny Selection (CASS) system, which is an electronic scrutiny method, has two categories: Limited Scrutiny and Complete Scrutiny. CASS is designed to identify potential tax evaders and segregate a broad list of taxpayers for further assessment.