Guidelines for compulsory selection and procedure of selection during the Financial Year 2023-24

Guidelines for compulsory selection and procedure of selection during the Financial Year 2023-24

The Central Board of Direct Taxes (CBDT) has recently issued comprehensive guidelines for the procedure of compulsory selection of income tax returns for thorough scrutiny during the financial year 2023-24. Guidelines are issued through F. No. 225/66/2023ITA-II dated 24th May, 2023

These guidelines specify the procedure of selection of return for compulsory scrutiny under various circumstances such as Survey, Search, seizure, etc. By outlining instructions for administrative approval, case transfers, and notice timelines, the CBDT intends to enhance the efficiency of scrutiny processes and promote compliance to tax regulations.

The guidelines for mandatory selection of tax returns for thorough examination during the Financial year 2023-24, along with the procedure for such compulsory selection, are outlined as follows, presented in simplified terms:

1. Cases Related to survey u/s 133A of the Income-tax Act,196t(Act) 

Scenario: Return filed for the financial year during which the survey was conducted u/s 133A of the Income tax act shall be selected for compulsory scrutiny.

Procedure for Compulsory Selection: Assessing officer shall follow the following procedure for scrutiny:

  1. The cases shall be selected for scrutiny with prior administrative approval of the Pr. CIT/ Pr. DIT/ CIT/ DIT (“Proper officer”).
  2. The proper officer shall ensure that cases are transferred to Central Charges u/s 127 within 15 days of service of notice u/s 143(2) by the Jurisdictional AO.

Exclusions: The cases that meet the following conditions are excluded for compulsory scrutiny:

  1. Books of accounts, documents, etc. were not impounded.
  2. Returned income is equal to or higher than the returned income of the previous assessment year (excluding any new disclosures made during the Survey).
  3. Assessee has not retracted the disclosure made as mentioned in point B. 

2. Cases Related to Search and Seizure 

I. Scenario :1 Search & Seizure made prior to 01.04.2021:

  1. Financial Year shall be picked for compulsory scrutiny in which search was conducted u/s 132 or Requisition is made u/s 132A of Income Tax Act
  2. Assessment to be made u/s 153A or 153C read with Section 143(3)

Procedure of selection of Compulsory Scrutiny:

  1. The cases shall be selected for scrutiny with prior administrative approval of proper officer.
  2. Proper officer shall ensure that in:
    1. centralized case: Cases are transferred to Central Charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)/142(1) of the Act by the Jurisdictional Officer.
    2. non-centralized cases:
      1. If return of Income is filed in response to notice u/s 153C then Jurisdictional AO shall issue the notice/s 143(2) of the Act.
      2. However, where no Return of Income is filed, the Jurisdictional Officer concerned shall serve notice u/s 142(1) of the Act calling for information.

II. Scenario: 2 Assessments in search & seizure or requisitions cases conducted on or after 01.04.2021 

Procedure of Compulsory Scrutiny:

  1. The cases shall be selected for scrutiny with prior administrative approval of the proper officer.
  2. Proper officer shall ensure that cases are transferred to Central Charges u/s 127 within 15 days of service of notice u/s 143(2)/142(1) by the Jurisdictional AO.

3. Cases in which notices u/s 142(1) has been issued & no ITR has been furnished 

Parameter: Cases, where ITR has not been filed in response to notice, issued u/s 142(1) of the income tax Act shall be selected for compulsory Scrutiny.

Procedure of Compulsory Scrutiny:

  1. The Jurisdictional Assessing Officer (JAOs) shall upload the underlying documents, for the notice issued u/s 142(1) on ITBA,  for access by National Faceless Assessment Centre (NaFAC).
  2. The Directorate of Income-tax (Systems) will send these cases to NaFAC for further action.
  3. The notice requesting information u/s 142(1) will be delivered to the taxpayer via NaFAC.

Exclusion:

If return is furnished in response to notice issued u/s 142(1) of the Act and notice was issued due to information given in NMS Cycle/ AIS/ Statement of Financial transactions (SFT)/ CPC-TDS Information/ Information received from Directorate of I&CI then such return shall not be taken up for compulsory scrutiny.

However, such return may be taken up for scrutiny through CASS Cycle.

4. Cases in which notices u/s 148 have been issued

Parameter: Financial year where notice has been issued u/s 148 shall be selected for compulsory scrutiny whether ITR has been filed or not.

Procedure of Compulsory Scrutiny:

  1. Notices u/s 148 of the Act have been issued in cases where search and seizure or survey actions were conducted on or after 01.04.2021.
    1. The cases shall be selected for compulsory scrutiny with the prior approval of Proper officer.
    2. Such proper officer shall ensure that such cases,  if lying outside central charges, are transferred to Central Charges u/s 127 within 15 days of service of notice u/s 143(2)/142(1) by the Jurisdictional AO. 
  1. Notice u/s 148 has been issued in cases other than search & seizure/survey:
    1. For cases to be completed by NaFAC on or before 31.03.2024, The Jurisdictional officer shall upload the underlying documents, basis on which notice is issued u/s 148,  on ITBA for access by National Faceless Assessment Centre (NaFAC).
    2. The Directorate of Income-tax (Systems) will send these cases to NaFAC for further action.
    3. Further notices shall be issued to the taxpayer via NaFAC.

5. Cases related to registration/approval under various sections of the income tax act 

Parameter: Following cases shall be selected for compulsory scrutiny:

  • Where approval or registration u/s 12A, 12AB, 35(1)(i)(ii)/(iia)/(iii), 10(23C) etc has:
    • not been granted; or 
    • has been canceled; or
    • Has been withdrawn by the competent authority
  • However, assessee has still claimed such exemption or deduction.

Procedure of Compulsory Scrutiny:

  1. The Jurisdictional Assessing Officers (JAOs) shall prepare a list of cases falling under this criteria, with prior administrative approval from the proper officer. 
  2. The list of such cases shall be submitted by the proper officer to the concerned Principal Commissioner of Income Tax.
  3. Pr. CCIT shall forward this list to the Directorate of Income-tax (Systems).  
  4. Notice u/s 143(2) of the Act will be sent to the assessee through NaFAC.
  5. JAOs shall upload the relevant documents containing specific information related to this criteria immediately.

Exclusion: Following cases shall not be selected for compulsory scrutiny:

Where withdrawal of registration/approval has been reversed or set aside in appellate proceedings.

6. Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact and/or law and fact 

Parameter: Cases satisfying following criteria shall be selected for compulsory scrutiny:

If there is any addition in earlier assessments due to recurring issues of law or fact (including transfer pricing matters) and addition exceeds INR 25 lacs in metro cities and INR 10 Lakhs in other cities and such addition:

  1. has become final, as no further appeal has been preferred against the assessment order; or
  2. has been upheld by the Appellate Authorities in favor of Revenue; even if further appeal of the assessee is pending, against such order.

Procedure of Compulsory Scrutiny:

  1. The JAOs shall prepare a list of cases falling under this criteria, with prior administrative approval from the proper officer.
  2. The list of such cases shall be submitted by the proper officer to the concerned Principal Chief Commissioner Of Income Tax (Pr. CCIT).
  3. Pr. CCIT shall forward this list of cases to the Directorate of Income Tax (System).
  4. Notice u/s 143(2) of the Act will be sent to the assessee through NaFAC.
  5. JAO shall upload the relevant documents containing specific information related to this criteria.

7. Cases related to specific information regarding tax-evasion

Parameter: Compulsory Scrutiny shall be carried out in case where:

  1. Information about tax evasion has been received from any law-enforcement agency, (investigation wing/ intelligence/ regulatory authority/ statutory agency, etc.); and
  2. The return for the relevant assessment year is furnished by the assessee.

Procedure of Compulsory Scrutiny:

  1. The Jurisdictional Assessing Officers (JAOs) shall prepare a list of cases falling under this criteria, with prior approval from the proper officer. 
  2. The list of such cases shall be submitted by the proper officer to Pr. CCIT. 
  3. Pr. CCIT shall forward this list of cases to the Directorate of Income-tax (Systems).
  4. Notice u/s 143(2) of the Act will be sent to the assessee through NaFAC.
  5. JAOs shall upload the relevant documents containing specific information immediately.

8. Other Clarification

  • The information related to Compulsory Scrutiny will not be transferred to NaFAC unless the case itself is transferred.
  • Additionally, It is also clarified that communication with NaFAC for access or further action will not apply to the International Taxation and Central charges. 
  • The cases that are chosen for compulsory scrutiny by the International Taxation and Central Circle charges will continue to be managed by the respective International Taxation and Central Circle charges, as they were handled previously.
  • The Finance Act 2021 has reduced the time limit for serving notice u/s 143(2) of the Act to 3 months from the end of the Financial Year in which the return is filed. Accordingly, following is the last date:
ActionDue date
Selection and transfer of case, where assessment has to be completed in faceless manner9th June, 2023
Service of notice u/s 143(2) in cases selected for compulsory scrutiny30th June, 2023

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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