The Central Board of Direct Taxes (CBDT) has expanded the scope of limited scrutiny. CBDT is the apex policy making body for direct taxes, that is, personal income tax and corporate tax.

According to a directive issued on Wednesday, the board said the tax officers have been authorised to scrutinise an issue which may arise after going through any credible material/ information received by the tax officer from any law enforcement/intelligence/regulatory authority or agency regarding tax-evasion by a tax payer. However, the tax officer has to obtain approval of Pr. CIT/CIT concerned beforehand and follow the prescribed procedure. However, limited scrutiny cases under CASS (Computer Aided Scrutiny Selection) cycles of 2017 and 2018 will not be picked up for complete scrutiny.

The CBDT had introduced the concept of limited scrutiny wherein the tax officers were restricted to undertake the assessment proceedings in respect of only specific issues communicated to the tax payer. The idea behind such stipulations was to enforce checks on the tax officers doing fishing and roving inquiries in cases selected for scrutiny. However, it led to distress among the tax officers as they were not able to scrutinise the cases of possible tax evasion despite the availability of information received by them from different sources. Such concerns, experts feel, can now be addressed.

Identifying tax evaders

Rakesh Nangia, Managing Partner at Nangia Advisors, said such an instruction will strengthen the quality of the assessment proceedings and ensure that the ultimate purpose of the same which is identifying tax evaders and taking actions against them, does not get defeated. Such expansion in scope of the tax officers shall ensure effective utilisation of the information available against the tax evaders.

The board said it received “several” representations by field officials of the I-T Department in ‘limited scrutiny’ cases where they pointed out “specific” instances of tax evasion for the relevant year (2017-18) which was provided to them by other law enforcement, intelligence or regulatory agencies like the CBI, Enforcement Directorate (ED), DRI, Intelligence Bureau or markets regulator SEBI.

A ‘limited scrutiny’ exercise in tax parlance indicates to cases where the taxman has suspicion that some income of an assessee has escaped the tax net in lieu of a specific instance. The assessing officer (AO) then issues notice to the assessee for production of additional documents and proofs to review the case and such an exercise is to be completed in quick time and the taxman “cannot travel beyond” the specific issue under scrutiny.

The larger version of such an enquiry is known as ‘complete scrutiny’ and all such cases are picked by a computer-enabled system that flags certain cases based on their unique transactions profile. The CBDT has said that it only picks less than 1 per cent cases, out of the total returns filed, for scrutiny every year.