Framing of Quality Assessments is an essential part of any risk management strategy. Quality of Assessments is being used as one of the most important indicator to judge the performance of tax department. Therefore, it is imperative that various authorities in the hierarchy of Income-tax Department discharge their respective roles in the process of assessment work with sincerity and utmost devotion. In order to ensure the quality in assessment work a strategy needs to be devised at different level in the department keeping in mind some suggestions given hereunder in this chapter.

2. Statement on Strategy of Assessment:

Cognizance has been taken of the fact that in different regions and in different trade and industry areas assessees follow different practices. At the same time it is also noted that assessment workload and nature of assessees is also different in various Pr.CIT/CIT charges. Thus a common hard and fast strategy for all the Pr.CIT/CIT charges is not desirable. In view of this, each Pr.CIT/CIT having assessment charge, in consultation with his CCIT, should prepare and regularly review and update “Statement on Strategy of Assessment” for his charge to achieve the various targets assigned in the Central Action Plan and in line with various circulars and notifications etc. issued by the CBDT. The assessment strategy should lay emphasis on achieving all the targets mentioned in the Central Action Plan with special stress on (i) Overall Budget Target including targets of cash collection out of arrear and current demand of the charge, (ii) Work load of assessment with each AO and (iii) Quality of Assessment. This strategy is to be followed by the AOs and compliance ensured by the Range Heads.

(A) Overall budget Target including targets of cash collection out of arrear and current demand of the charge:– The Pr.CIT/CIT should select time-barring and non-time-barring cases for priority completion keeping in mind the potential of tax collection which could help in achieving the budget target. Assessment of such cases or reference to TPO should be expedited.

(B) Work Load of assessment:- The work load of assessment should be assessed in the beginning of the year itself and cases should be distributed among AOs to rationalize the workload keeping in view the manpower available.

(C) Quality of assessment:- The Pr.CIT/CIT should organize in-house conference / meeting at least one in every quarter wherein the Assessing Officers are to be guided about how the investigation is required to be carried out on various CASS issues. This may include issue wise and industry wise strategy / approach of investigation. First of such meeting should be held on or before 30 June 2016.

• Issues for investigation have been highlighted in the cases selected under CASS criteria in the form of reasons for selection of cases for scrutiny. However, in respect of full scrutiny cases, the same, in any way, is not intended to replace the investigation capabilities of the Departmental Officers. The Assessing Officers, under the guidance of the Range Heads, must identify relevant issues other than CASS issues while the assessment proceedings are going on. The intention is that all the relevant issues in such cases should get captured by utilizing the capabilities of the AOs and Range Heads. The Assessing Officers must follow the Board’s Instructions/guidelines issued from time to time for completing the limited scrutiny cases.

• Pr.CIT/CIT should, in consultation with his team, form an overall strategy and mechanism for (i) effective and (ii) timely identification of the case specific relevant issues. Pr.CIT / CIT or Range heads should refrain from giving case specific directions except where he/she invokes his/her jurisdiction under specific provisions of the Act.

• The statement on strategy should ensure that within the limited time and resources the assessment orders framed by the AOs should be: (i) speaking orders, (ii) error-free from audit point of view, (iii) adhering to the principles of natural justice, (iv) having appropriate detailing and marshalling of facts and relevant legal provisions wherever additions / disallowances are being made, (v) be avoiding frivolous additions or disallowances leading to high pitched assessment.

• It should be emphasized that in most of the cases where revenue potential is not seen, the AO/Range Officers must see to it that without many adjournments such cases should be completed on the principle of zero error assessment so that unnecessarily time is not wasted and the time is utilized gainfully in the revenue potential cases.

• All proposals for additions/disallowances of Rs. 5 lakh and above in Non-Metro charges and Rs. 10 lakh and above in Metro charges should be monitored by the Range Officers to prevent infructuous additions and consequent infructuous demand of taxes. The range heads, wherever necessary, must invoke their powers u/s144A to ensure quality of the assessment order framed.

The “Statement on Strategy of Assessment” of the Pr.CIT/CIT should be forwarded to the concerned CCIT by 30th of June 2016 who would review the same from time to time. The respective CCIT should also prepare his Statement on Strategy of Assessment for his CCIT region and forward the same to the Pr. CCIT.

3. Initiatives taken by the Board to improve upon quality of assessments:

With the objective of bringing improvement in quality of assessments being framed, in recent years, Board has taken a number of initiatives. These are summarized as under:

i. Selection of revenue potential cases for scrutiny has brought overall improvement in assessments as unimportant cases are filtered out in the selection process. Over the years, Board has devised system based methods for selecting cases for scrutiny which has substantially reduced the manual intervention in this process. As of now, bulk of the cases are selected through Computer Aided Scrutiny Selection (‘CASS’) after applying broad based selection filters and 360 degree data profiling while only a small numbers of cases are selected under the criteria – ‘Manual-Compulsory’ on the basis of predetermined parameters. Board has eliminated ‘Manual-discretionary’ method of scrutiny selection also, which had in the past led to complaints of harassment of tax-payers.

ii. Board has laid emphasis on improving the quality of assessments by incorporating the strategy for ensuring quality in scrutiny assessment cases in the Central Action Plan document. Post-assessment, practice of review and inspection has been standardized. Each CCsIT/DGsIT is required to forward to the concerned Zonal Member analysis of 50 quality assessments of his charge along with suggestions for improvement. Further, quality cases are being compiled and published annually which provides valuable guidance to the Assessing Officers.

iii. To discourage Assessing Officers from making high-pitched assessments, Member (IT) issued a communiqué in November, 2012 to all Cadre Controlling Authorities wherein supervisory officers were advised to deal with such instances in an effective manner. Besides this the Board has issued Instruction No. 17/2015 dated 9/11/2015 directing Pr.CCsIT to constitute a committee at his Headquarter consisting of PrCsIT and CsIT to deal with grievances related to the high-pitched assessments.

iv. CBDT has vide Instruction No. 6/2009 directed that Range heads are required to effectively monitor cases during the progress of scrutiny assessment and in appropriate cases, may invoke provisions of section 1 44A of the I .T. Act to issue suitable directions to the Assessing Officer to enable him to frame a judicious order. Board vide Instruction dated 07.11.2014 in F. No. 279/Misc./52/2014- (ITJ) has reemphasized the fact that Range Heads are required to follow the said Instruction in letter and spirit and are also required to ensure that frivolous additions or high-pitched assessments are not made. Further, Principal Commissioners of Income-tax/ Commissioners of Income-tax are also required to supervise the work of their subordinates in this regard.

v. System of Review (Instruction No. 15 of 2008) and Inspection (Instruction No. 16 of 2008) by the supervisory officers, post-assessment, is also used as an effective tool to monitor the quality of scrutiny-assessments being framed. Vide Instruction of the Board dated 07.11.2014, supervisory officers have been directed to ensure due follow up of these Instructions which have a vital bearing on capacity building of tax-administrators and improving quality of work.

vi. Keeping in view the intent of the Government to usher in a non-intrusive system of tax administration, Board vide Instruction No. 7/2014 dated 26.09.2014 had directed that in cases selected for scrutiny assessment during the F.Y. 2015-16 under CASS on basis of AIR/CIB data/26AS mismatch, only those specific aspects would be examined during scrutiny and wider scrutiny would be possible in such cases in exceptional circumstances only. This initiative reduced the instances of issuing non-specific queries in course of scrutiny proceedings and making frivolous additions. This initiative has been continued in the current year also.

vii. It has been decided that for the financial year 2016-17, the quarterly targets for the disposal of scrutiny assessments are to be fixed by the Pr. CCsIT/CCsIT/ Pr.DsGIT/DsGIT concerned keeping in view the need to dispose of the cases in a staggered manner and ensuring quality in assessments as well as timely collection of regular assessment tax. The Pr.CCsIT/CCsIT are required to redistribute the workload wherever necessary

viii. In order to ensure greater accountability of Assessing Officers in assessment work, Board has revised the format of Annual Performance Appraisal Report (APAR) in which substantial weightage has been given to the handling of various aspects of assessment work by an Assessing Officer. These are required to be carefully and objectively filled by the supervisory authorities.

4. In addition to the above orders and directions of the Board, it is suggested that during the F.Y. 2016-17, adequate attention should be given to the following procedural aspects of assessment related work.

• All statutory notices and questionnaires should be served on the assessee in a timely manner in accordance with the prescribed procedures. Evidence of issue and service of all important notices must be placed on the assessment record. It is imperative that detail of notices issued earlier should be mentioned in the subsequent notices and assessment order.

• The first detailed questionnaire under section 142(1) of the Income Tax Act, 1961 (Act) comprising relevant and case specific issues in scrutiny cases must be issued preferably by 30.06.2016 (in time-barring cases) and by 31.07.2016 (in non time-barring cases). It must be ensured that only relevant queries are made in the questionnaire. In the cases selected for limited scrutiny the AOs must follow the Board guidelines scrupulously. Further, the assessment proceedings should be conducted in a non-adversarial manner in accordance with guidelines issued by the Board vide its instruction dated 7.11.2014 in F. No. 279/Misc./52/2014-15-(ITJ). During the course of scrutiny assessment proceedings, information regarding immovable and movable assets (including all types of Bank Accounts, deposits as well as Credit Cards) of the assesssee concerned should be taken on record in accordance with Instruction No. 1937 dated 25.03.1996 of the Board. The supervisory authorities are required to ensure that the aforesaid Instruction is strictly implemented.

• Adjournment of hearing should be granted only for bona-fide reasons and in cases where there is deliberate non-compliance on the part of the assessee with the statutory requirements of assessment proceedings, appropriate action as per provisions of the Act must be taken.

• In order to reduce the time gap between the conduct of search and seizure operation and conclusion of assessments, the proceedings related to the search assessments must be initiated within one month from the date of receipt of the seized material/appraisal report by the Assessing Officer. Monthly review of the search assessment cases by the supervisory authorities may be made to expedite the completion of assessments in these cases. Further, as a general practice, efforts should be made to stagger passing of search assessment orders. The orders pertaining to the earlier six years should be completed in a phased manner while the assessment pertaining to the financial year in which search was conducted may be finalized subsequently.

• The cases for survey should be selected after due-diligence and the surveys must be conducted professionally in a transparent manner. It is imperative that survey reports are submitted in a timely manner and should clearly identify the issues requiring further examination in assessment proceedings. It is suggested that regular feedback between assessment charges and TDS charges will be helpful in identifying the potential cases.

• In the cases of revenue audit objections the Circular No. 8/2016 dated 17/03/2016 modifying Instruction No.9/2006 should be strictly followed and wherever required remedial actions should be taken strictly as per the timelines given therein and all efforts should be made for early completion of these cases and recovery of taxes within the Financial Year itself. In the cases of internal audit objections, the existing guidelines should be scrupulously followed.

• While disposing of objections to notice u/s 148 seeking to re-open an assessment, the Assessing Officer should pass order while keeping in mind various judicial pronouncements in this regard and indicating due consideration of the issues involved including the objections with reasons in support of his/her conclusions.

• References for special audit u/s. 142(2A), Valuation etc. should be made by 31.08.2016 in respect of time-barring cases so as to ensure proper followup in such cases.

5. General guidelines vis-a-vis assessments related to search assessments.

i. The assessments relating to/arising out of search operations (hereinafter referred as Search Assessments) be initiated within one month from the date of receipt of seized material/appraisal report.

ii. The pendency of search assessments is to be reviewed every month and necessary corrective actions are to be taken to expedite completion of assessments

iii. Endeavour should be made to reduce the time gap between search operation and conclusion of search assessments.

iv. The practice of keeping assessment proceedings in respect of all the 7 AYs relating to search pending till the time barring date is to be avoided. The assessments, except in respect of A.Y. related to the F.Y. in which the search was conducted, should be completed in a phased manner without accumulating them till time barring date.

v. General tendency of keeping the Penalty and Prosecution proceedings pending till the finalization of all appeal proceedings is to be avoided. Penalty and Prosecution proceedings in respect of issues on which AO has conclusive evidence and which satisfy the ingredients of relevant provisions of the Act should be taken up immediately without waiting for the outcomes of appeals.

6. Making requests for information/evidence available in a country/ jurisdiction outside India.

(a) The Assessing Officer while making an inquiry for the purposes of assessments may require information which is available in a country or jurisdiction outside India. He cannot obtain this information since the powers of Income-tax Authorities cannot be exercised beyond India’s territorial jurisdiction. In such cases the information/evidence can be gathered by making a request to foreign tax authorities under the provisions of tax treaties i.e. the Double Taxation Avoidance Agreement (DTAAs), Tax Information Exchange Agreements (TIEAs), Multilateral Convention on Mutual Administrative Assistance in Tax Matters and SAARC Limited Multilateral Agreement. India has one or more of such treaties with more than 130 countries/jurisdictions including well-known offshore financial centres.

(b) This request for information should be made through the Indian Competent Authority, which for the purposes of tax treaties are JS (FT&TR-1) for countries in North America (including Caribbean) and Europe and JS(FT&TR-II) in case of rest of the world.

(c) The Manual on Exchange of Information provides guidelines for making requests under the tax treaties including the types of information which is available in the other country/jurisdictions including identity and ownership information of legal entities and arrangements, accounting information, banking information and information available with tax administration. The Manual also provides guidelines for providing clarifications requested by the foreign authorities and utilizing the information received effectively. Guidelines for maintaining confidentiality and data safeguard as per provisions of the treaties have also been provided in the Manual.

(d) To ensure quality in assessments, the Assessing Officers should make requests under the provisions of the tax treaties in all appropriate cases where the information/evidence is likely to be located in a country/jurisdiction outside India. The information received would not only be useful for the purposes of detecting tax evasion and avoidance but may also strengthen the evidence already available with him. If a clarification is requested by the foreign tax authorities the same should be immediately attended to and after completion of the assessment, feedback on the usefulness of the information should be provided.

Source- CENTRAL ACTION PLAN 2016-17- Released by CBDT on 20.06.2016

(Above been Republished with Amendments to earlier Article on the Subject)

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September 2021