I-T Dept’s Criteria For Selecting ITRs For Scrutiny: Check Details To Avoid Penalties

Every year, the I-T department selects some ITRs for scrutiny, these selections are done mostly based on Computer Algorithms known as Computer Assisted Scrutiny Selection (CASS).

Taxpayers can now understand why their income tax return (ITR) has been selected for scrutiny by the Income Tax Department (I-T) starting this financial year. The Central Board of Direct Taxes (CBDT) recently released guidelines on May 3, 2024, which, the board says, have to be followed for compulsory selection of ITRs in regards to complete examination for the financial year 2024-25. Every year, the I-T department selects some ITRs for scrutiny, these selections are done mostly based on Computer Algorithms known as Computer Assisted Scrutiny Selection (CASS). ITRs filed by taxpayers are picked by the algorithm for any possible tax evasion, among other reasons.

 

CASS scrutinises the ITRs using risk parameters such as:

- Discrepancies in Reported Income

- High refund claim

- Decline in gross profit or net profit

- High deduction claimed

- Foreign transactions

- Non-matching of opening stock with the previous year's closing stock

- Transactions with non-ITR filers, etc.

The circulars issued by CBDT provide guidelines for the compulsory selection of ITRs for complete scrutiny as well as for the procedure for compulsory selection in such specified cases. Moreover, certain cases are selected manually for scrutiny examination, and parameters for such ‘Compulsory Manual Scrutiny’ selection are issued by the CBDT every year.

What can trigger scrutiny of an ITR by the IT dept in FY 2024-25?

“The cases identified in the guidelines where the IT department will be scrutinising the tax returns are survey cases, Search cases, Reassessment cases and where addition in earlier assessment years on the recurring issue of law or fact has become final and no further appeal is preferred against the order,” surmises Rony Antony, Partner & Leader, Corporate Tax (South), Tax and Regulatory Services, BDO India.

Chartered Accountant Manas Chugh, Head Regulatory Services, Osgan Consultants (Delhi-based business and tax consultancy firm) explains in detail the parameters for the compulsory selection of returns for complete scrutiny during FY 2024-25:

1. Search and seizure: In a case where Survey/ Search and Seizure has been conducted on one person by the Income Tax Department and it has been found out that he has entered into transactions with another person, then such other person’s return would be selected for complete scrutiny.

2. Cases of no returns: