Instruction for ‘Limited Scrutiny’ of cases selected under CASS Retrospective in Nature

Most of the cases selected for Scrutiny are through Computer Aided Scrutiny Selection (CASS). Only a particular class of cases such as those involving Search, Survey and Reopening of Assessment etc. come under Compulsory Scrutiny. A small Number of cases are manually selected by the Assessing Officers where they consider the Income of a particular assessee has been concealed or which require scrutiny for some specific reason. The reasons attributable to selection of cases under CASS are spelt out differently each year. Some of the common reasons are information on the basis of AIR Data, some CIB Information or non reconciliation of 26AS Data.

The CBDT had issued an important instruction no. 7/2014 dated 26-09-2014 directing that for the cases selected for Scrutiny during the Financial Year 2014-15 under CASS on the basis of either AIR Data, CIB Information or for mismatch of 26 AS Data, the scope of Enquiry should be Limited only to the verification of those particular aspects. It has also been directed that in these cases, the Assessing Officer ought to confine the questionnaire/enquiry/verification only to the specific points on the basis of which the specific Return of Income has been selected for scrutiny. It need not be emphasized that these Instructions are binding on all the Officers of the Department.

The relevant portion of the said Circular/Instruction dated 26-09-2014 is reproduced below:-

“It has come to the notice of the Board that during the scrutiny assessment proceedings some of the AOs are routinely calling for information which is not relevant, for enquiry into the issues to be considered. This has been causing undue harassment to the taxpayers and has also drawn adverse criticism from several quarters.  Further, feedback and analysis of such orders indicates that many times the core issues, which formed the basis of selection of the case for scrutiny were not examined properly. Such instances primarily occurred in cases selected for scrutiny under Computer Aided Scrutiny Selection (‘CASS’)  for verification of specific information obtained from third party sources  which apparently did not match with the details submitted by the tax payer in the return of income.

2. Therefore, for proper administration of the lncome Tax Act, 1961 (‘Act’), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/ guidelines on this subject, here by directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.

3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer  in AST  application  and  notice  u/s  143(2), after  generation from  AST, is issued to the taxpayer  with the  remark  “Selected under  Computer Aided Scrutiny Selection {CASS)”.The functionality in AST  is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be mad to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date.

4. In case, during the course of assessment proceedings it is found that there is potential escapement of income exceeding Rs. 10 lakhs (for non-metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.”

The Instructions are a welcome step to curb unnecessary Harassment of the assessees under the garb of a complete & exhaustive enquiry and widest possible verifications. These Instructions are expected to put an end to lengthy routine questionnaires of the Assessing Officers without application of mind to the specific issues on the basis of which the case had been selected for scrutiny. This will mitigate the Hardship faced by the assessees during the Assessment Proceedings. These Instructions also makes it mandatory for the Assessing Officers to mention the reasons for selection of that case for Scrutiny so that the assessee can meet out the same. The same was also incumbent upon the Assessing Officer in order to abide the Principles of Natural Justice.

These Days the scrutiny of Assessment Year 2012-13 is being undertaken for which the Time Barring Limit is 31-03-2015. The Question arises as to whether the Instructions dated 26-09-2014 are applicable to Pending Assessment Proceedings for AY 2012-13? The question is whether these Instructions have A Retrospective operation? If we analyze the said Instructions, it is crystal clear that these are ‘BENEVOLENT’ and ‘CLARIFICATORY’ in nature. There has been no statutory amendment so that it needs to be interpreted as to whether these Instructions are Retrospective or not. There can be no iota of doubt that these instructions being benevolent & clarificatory are applicable with full force in the pending assessment proceedings for AY 2012-13 selected under CASS. No new rights have accrued to the assessees nor have any rights of the Department been pruned. The Instructions are clearly ‘PROCEDURAL’ and only spell out the procedure to be followed by the Assessing Officers during Assessment Proceedings. Had these Instructions been offensive to the assessees, the same could not have been retrospective. It is pertinent that these instructions do not impair or curtail the existing rights of the Assessing Officers.

The Courts had on several occasions laid down the Law on ‘Retrospectivity’. The Apex Court in Hitendra Vishnu Thakur v. State of Maharashtra (1994) 4 SCC 602 held that a law which affects the substantive rights of any of the parties, the law cannot be retrospective. Every party has a vested right in substantative law but no such right exists in procedural law. In the case of Mithilesh Kumar & another v. Prem Bahadur Khare AIR 1989 SC 1247, The Apex Court in para 21 of the judgment held as under:-

“A retrospective operation is not given to a statute so as to impair existing right or obligation otherwise than as a matter of procedure….. But laws made justly for the benefit of individuals and the community as a whole may relate to a time antecedent to their commencement.”

Lord Denning had aptly remarked on the law of retrospectivity:-

“The rule that an act of Parliament is not to be given retrospective effect applies only to statutes which affect vested rights. It does not apply to statutes which only alter the form of procedure or the admissibility of evidence or the effect which the courts give to evidence.”

In Govt. of India & others v. Indian tobacco Association (2005) 7 SCC 396, the Doctrine of fairness was held a relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness was applied to hold that a statute was retrospective in nature in the case of Vijay v. State of Maharashtra & others (2006) 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held as retrospective in nature.

In a recent judgment of the Constitution Bench of the Apex Court in CIT v. Vatica Township Pvt. Ltd., Civil Appeal no. 8750 of 2014 decided on 15-09-2014, the Court reiterated that if a proviso is clarificatory and curative in nature, it should be given a retrospective operation. The Court in para 33 held as under:-

“If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective.”

This Instruction being clarificatory, beneficial, procedural, purposive and designed for the benefit of Assessee community as a whole is undoubtedly retrospective and a clarification by the CBDT in this regard would usher in a new environment of mutual trust as envisaged by the new Government.

(Author-  Inder Chand Jain, Agra, Mobile:9319215672, Email: inderjain2007@rediffmail.com)

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0 responses to “Instruction for ‘Limited Scrutiny’ under CASS are Retrospective”

  1. dkgupta says:

    Sir,your ideas are apriciated. Let the associations should write to the Hon’ble finance minister for inclusion in the Finance Bill 2016 to eliminate scrutiny and save from harassment and torture to the assesse.

  2. GITA JHAWAR says:

    INTIMATION U/S/ 143 (1) FOR A.Y. 2007-08 NOT YET RECEIVED FROM IT DEPARTMENT.
    DEMAND NOTICE FROM TRO RECEIVED.FURTHER LD ITO UPLOAD THE DEMAND IN OLTAS(COMPUTER).CPC WANT TO ADJEST THE DEMAND WITH IT REFUND FOR A.Y.14-15. I FILLED A LETTER FOR ISSUANCE OF INTIMATION BEFORE LD ITA.PLEASE SUGGEST

  3. Jignesh Vyas says:

    Assessing officer is not accepting this concept. He says there is no word like limited scrutiny in the notification. He also says in our online system of Income tax department no instruction of limited scrutiny. We wish that CBDT should verify this matter again and pass proper instruction to all officers.

  4. Pravin Navsariwala says:

    Sir,
    Kindly let me know how to draw attention of Computor mistake while preparing order u/s 143(1) not giving credit of Self Assess Tax paid before filing Return and even after the same is appearing in statement of 26AS data.
    There is no option provided in dropdown box for filing rectification except that of ‘reprocessing the return’ since there is no rectification of Return in this case. Kindly advise how rectification request to be made on line selecting what option.

  5. BHARAT AGARWAL says:

    Thats a great article. We have taken such objection before the AOs and almost all AOs have stated that it does not apply to AY2012-13. We have also cited decisions of Mumbai HC in the cases of interpretation of the circulars regarding the monetary limits for filing appeal. The AOs have on the other hand issued the clients notices for assessment u/s 144 (best judgment) on the ground that we are not co-operating. We do not know how things will unfold. However, once we do file the details “under protest” the effect of the departmental directive is lost. Therefore, on a practical note the said directive is unenforceable and no remedy in sight.

  6. suresh paharia says:

    Dear sir

    Your analysis to the inst. is appreciated but dept. must be communicated for circular to that effect otherwise officers are inclined to collect max. information for obvioys reasons

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