India Guidelines for Full Review of Tax Returns for FY 2022-23

We note the parameters and related procedures for the mandatory review of tax returns for the financial year 2022-23 as issued by India’s supreme direct tax authority, the CBDT. Mandatory screening for a full examination of tax returns is applicable in certain listed scenarios, for example when information is available on tax evasion from any other authority. Under scrutiny, a detailed inspection of tax returns is carried out by tax officials to confirm the authenticity of various claims, deductions, etc. made by the taxpayer. The guidelines include a new clause which requires the approval of relevant authorities such as the Chief Commissioner/Director etc. before the tax officials can initiate control measures such as investigation, search and seizure, etc.


On May 11, 2022, the Central Board of Direct Tax (CBDT), the supreme statutory body for direct tax in India, issued Guidelines for the Screening of Income Tax Returns (ITRs) and Procedures for Thorough Review at the during the 2022-23 financial year.

According to the new guidelines, such control would be applicable in cases where information on tax evasion is available from any other authority. In addition, it has also been clarified that, in some cases, the review must be conducted with the prior administrative approval of the Senior Commissioner/Senior Director/Commissioner/Director.

For example, in cases relating to investigation, search and seizure, it is mandatory to obtain prior approval before forwarding them to the National Faceless Assessment Center (NaFAC) to serve the necessary review notices. .

The new guidelines, issued under Instruction No. F.No.225/81/2022/ITA-II, specify the necessary parameters for the compulsory selection of the ITR for a comprehensive examination and simultaneously prescribe the compulsory selection procedure in such cases.

Here we list the specified parameters and their selection procedure.

Parameters and Procedures Specified for Compulsory Examination of Tax Returns in India

Case-Specific Parameters and Procedures for Mandatory Review

Case

Settings

Compulsory selection procedure

Cases relating to Inquiry u/s 133A of the Income Tax Act, 1961

Returns filed for the tax year relevant to the preceding year in which the investigation was conducted under Section 133A of the Act subject to the exclusion below:

Exclusion:

Cases, where the following conditions are fulfilled, are excluded from the selection for the compulsory control:

  1. Account books, documents, etc. were not confiscated;
  2. The returned income (excluding any disclosure of heretofore undisclosed income made during the investigation) is not less than the returned income from the previous tax year; and
  3. The person evaluated has not withdrawn from the disclosure referred to in the clause mentioned above.

Cases shall be selected for mandatory review with prior administrative approval from the appropriate authorities (Senior Commissioner/Senior Director/Commissioner/Director) concerned, who shall ensure that such cases are transferred to the central u/s 127 charges of the Income Tax Act within 15 days of service of notice u/s 143(2) of the Act by the relevant Assessing Officer (AO).

Search and seizure cases

Valuations in cases of search and seizure to be made under Sections 153A, 153C are read together with Section 143(3) of the Income Tax Act and also for the return filed for the year of relevant taxation to the preceding year in which the search was made under section 132 or a requisition was made under section 132A of the Act.

Cases will be selected for mandatory review with prior administrative approval from the relevant competent authorities, who will ensure that such 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 relevant AO.

Where such cases are not centralized and an ITR is filed in response to notice u/s 153C, the relevant AO will serve notice u/s 143(2) of the Act.

Where such cases are not centralized and no ITR is filed in response to the u/s 153C notice, the relevant AO must serve a u/s 142(1) notice of the Act requesting information.

Cases in which notices u/s 142(1) of the Income Tax Act, calling for a return, were issued and no return was provided

Cases where no statement was provided in response to a notice u/s 142(1) of the Act.

The AO must upload the underlying documents, on the basis of which the u/s 142(1) notice was issued, to ITBA, for access by the National Faceless Assessment Center (NaFAC).

The Department of Income Tax (Systems) will forward these records to NaFAC, which will take the necessary action.

The u/s 142(1) Act notice requesting information must be served on the assessee through NaFAC.

Cases in which Income Tax Act u/s 148 notices were issued

Whether return is provided or not provided in response to u/s notice 148 of the law.

Cases where u/s 148 law notices were issued as a result of search and seizure/investigation actions conducted on or after April 1, 2021

These cases will be selected for mandatory review with prior administrative approval from the relevant competent authorities who will ensure that these cases, if not under central charges, are transferred to central charges u/s 127 of the law within 15 days after service of notice u/s 143(2)/142(1) of the Act requesting information by the relevant AO.

Cases not covered by the clause above:

  1. The AO shall upload the underlying documents, on the basis of which the u/s 148 notice was issued, to ITBA, for access by NaFAC.
  2. The Department of Income Tax (Systems) will forward these records to NaFAC, which will take the necessary action. Notice u/s 143(2)/142(1) of the Act requesting information must be served on the assessee through NaFAC.

Cases related to registration/approval under various sections of the Income Tax Act

Cases where registration/approval under various sections of the law, such as Section 12A, 35(1)(ii)/(iia)/(iii), 10(23C), etc. were not granted or were cancelled/withdrawn by the competent authority, but the assessee was found to be claiming a tax exemption/deduction in the declaration.

However, where such deregistration/approval orders have been rescinded/cancelled under appeal, such cases will not be selected under this clause.

The AO should prepare a list of cases under this parameter with prior administrative approval from the relevant authorities.

The list of such cases shall be submitted by such competent authorities to the Principal Chief Commissioner of Income Tax concerned for onward transmission to NaFAC with a marked copy to DGIT (Systems).

Notice u/s 143(2) of the Act must be served on the assessee through NaFAC.

Cases involving an addition in one or more prior valuation years on a recurring question of law or fact and/or law and fact

Where the addition in one or more prior taxation years on a recurring question of law or fact and/or law and fact (including the question of transfer pricing) is:

  • exceeding INR 2.5 million in eight metro charges in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune; or
  • exceeding INR 1 million in charges other than eight metro charges.

When such an addition:

  • became final, as no further appeal was filed against the assessment order; or
  • was confirmed by the appeal authorities in favor of Revenue; even if a new appeal by the assessed person is pending, against this order.

The AO should prepare a list of cases under this parameter with prior administrative approval from the relevant authorities.

The list of such cases shall be submitted by such competent authorities to the Principal Chief Commissioner of Income Tax concerned for onward transmission to NaFAC with a marked copy to DGIT (Systems).

Notice u/s 143(2) of the Act must be served on the assessee through NaFAC.

Cases related to specific information regarding tax evasion

Cases for which:

  • specific information indicating tax evasion for the relevant tax year is provided by any law enforcement agency (investigative/intelligence/regulatory/statutory body, etc.); and
  • the declaration for the tax year concerned is provided by the assessee.

The AO should prepare a list of cases under this parameter with prior administrative approval from the competent authorities concerned.

The AO must upload underlying documents containing specific information regarding tax evasion, for access by NaFAC.

The list of such cases shall be submitted by the relevant authorities to the relevant Chief Commissioner of Income Tax for onward transmission to NaFAC with a marked copy to DGIT (Systems).

Notice u/s 143(2) of the Act must be served on the assessee through NaFAC.


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