Scrutiny of income tax cases on the decline, says Finance Ministry

The Income Tax Department has claimed that the percentage of cases out of returns filed selected for scrutiny has come down to as low to 0.25 per cent.

In a series of tweets, the Finance Ministry said: “IT Dept is changing - from just enforcement to facilitating better taxpayer services. In continuation of the same, the number of cases selected for scrutiny has reduced drastically over the years.”

As a percentage of returns filed, it was 0.71 for Assessment Year (AY) 2015-16, which dropped to 0.25 at the end of AY 2018-19. During this period, the number of returns surged from 4.04 crore to 6.87 crore.

The Finance Ministry has termed this development as ‘Ease of Compliance.’

When any assesse files Income Tax Return for a particular assessment year (previous to that is fiscal year; AY 2018-19 means FY 2017-18), it is assessed by the Department to see whether income is properly stated or not. In case of any doubt, returns are picked up for further questioning and notice issued. This exercise is known as scrutiny. Earlier, it was a manual exercise but now it is through Computer Aided Scrutiny Selection (CASS). It may be noted that the particular class of tax cases involving Search, Survey and Reopening of Assessment etc. fall under Compulsory Scrutiny

According to the Income Tax Act, 1961, where a return has been furnished under Section 139, or in response to a notice under sub-section (1) of Section 142, the Assessing Officer (AO) or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. There is one condition however, that no notice will be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.

The conventional system of scrutiny assessment involved a high level of personal interaction between the tax payer and the Income Tax Department officials. But under the faceless e-assessment system, physical interface between AO and assessee has been eliminated. Here, the tax payer would not know by whom his /her return is being assessed or in which city. Eight cities – Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad and Pune – are covered under the scheme.

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