CBDT allows taxman to widen certain 'limited scrutiny' cases; orders no roving enquiries

New Delhi: The CBDT has issued a fresh directive on 'limited scrutiny' assessment cases allowing the tax officials to widen the scope of such probes if they receive "credible" information of tax evasion by assessees.

The policy-making body for the Income Tax Department, however, made it clear in its directive issued on Wednesday that such an enquiry will be specific to the allegation of tax theft that was flagged to the taxman by any other probe agency, in order to ensure that the assessing officer does not undertake a "fishing or roving" exercise resulting in harassment of the taxpayer.

The Central Board of Direct Taxes (CBDT), as per the directive, 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 percent cases, out of the total returns filed, for scrutiny every year.

As per the latest directive of the CBDT, accessed by PTI, it has allowed the taxman to examine issues arising from such information (provided by other probe agency) during the conduct of assessment proceedings in 'limited scrutiny' cases but only after prior administrative approval of their boss (concerned Principal Commissioner or Commissioner of the I-T Department).

It said such a decision was being made as the rules to undertake 'limited scrutiny' strictly "restricted" the taxman from undertaking a large enquiry or investigation except the specific issues concerned.

The CBDT also made it clear to tax officials across the country that this exemption does not mean that they can widen the scope of a 'limited scrutiny' case to a 'complete scrutiny' one and the latest directions were only to "facilitate consideration of those issues wherein specific information of tax evasion has been furnished by any law enforcement, intelligence or regulatory authority or agency."

"Therefore, in such 'limited scrutiny' cases assessing officer shall not expand the scope of enquiry/investigation beyond the issues(s) on which the case was flagged for 'limited scrutiny'...," the CBDT directive said.

It further asked the taxman to "duly record the reasons for expanding the scope of 'limited scrutiny' and this shall be approved by the Principal Commissioner or Commissioner-rank officer."

"The assessing officer shall issue an intimation to the assessee concerned that additional issue would also be considered during the course of pending assessment proceeding," the directive added.

It also asked the supervising officers to "invariably pick up such cases" for review and inspection so that the taxpayer is not harassed and no roving or fishing enquiry takes place against them.