SKP Tax Alert
CBDT improves transparency in tax administration by introducing mandatory electronic proceeding for Scrutiny Assessments

The Central Board of Direct Taxes (CBDT) has taken a huge leap towards transparency in its tax administration by announcing (through a recently issued Circular[1]) that the communication between the taxpayer and tax authorities in relation to Scrutiny Assessments (Revenue Audits) shall be carried out electronically. This will equally apply to Limited Scrutinies, Complete Scrutinies and Manual Scrutinies.

The Circular indicates that taxpayers will receive notices and communication from the tax authorities through an electronic mode. An even more significant implication is that the response to these notices is also required to be given electronically and no personal appearance before the tax authorities shall be required. The online information submission portal has already been activated by the CBDT.

The taxpayer shall be required to personally appear before the tax authorities only in the following cases:
  • Where the Scrutiny Assessment is carried out in case of search or requisition (under Section 153A and 153C of the Income Tax Act, 1961 (ITA));
  • Where manual books of accounts or original documents are required to be examined;
  • Where the tax authorities enforce personal attendance of a person (by invoking Section 131 of the ITA);
  • Where the taxpayer or the tax authorities want to examine a witness; or
  • Where the tax authorities issue a show-cause notice contemplating any adverse view and the taxpayer requests for a personal hearing to explain the matter.
Furthermore, the electronic system shall retain the records of communication between the taxpayer and the tax authorities. This will assist taxpayers in record-keeping.
[1] Circular No. F. No. 225/157/2017/ITA.II dated 23 June 2017
SKP's comments

This is a welcome move by the CBDT which will usher in greater transparency in tax administration, reduce the compliance burden on the taxpayers and assist in the quick closing of Scrutiny Assessment proceedings. This initiative will also be environment-friendly as the proceedings will be conducted in a paperless manner.

The CBDT had earlier introduced an electronic assessment facility as a pilot project for individual taxpayers. Under this pilot project, the taxpayer had a choice to opt for manual proceedings over electronic proceedings. It is important to note that under the recent Circular, the taxpayer shall not have an option of selecting a manual proceeding. It is mandatory, both for the taxpayer and the tax authorities, to adopt the electronic proceeding route, except in a few certain cases enlisted above.

This initiative will save the time and effort involved in submitting information to the tax authorities. For instance, where the taxpayer desires additional time to submit information to the tax authorities, such request will have to be made electronically. This will significantly save the time involved in visiting the tax office only to seek a time extension.

The electronic submission facility will assist the taxpayers in complying with the information requirements of the tax authorities irrespective of the geographical location of the taxpayer. This will particularly assist taxpayers whose place of operation and place of registered office are at separate locations. This will also enable taxpayers to engage tax professionals across the country to handle their tax matters.

Even where an adverse view is contemplated, the tax authorities cannot enforce the personal attendance of the taxpayer. That option remains with the taxpayer.  Henceforth, any adverse view contemplated by the tax authorities will necessarily have to result in a show-cause notice and will usher in greater transparency in assessment proceedings.

The Circular indicates that the electronic proceedings shall be applicable from Financial Year (FY) 2017-18. It is however unclear as to whether this would apply only to proceedings initiated in FY 2017-18 or would cover the existing proceedings as well. Also, the electronic proceedings would be presently conducted for Scrutiny Assessment proceedings. This facility has not yet been extended to other proceedings such as revision proceedings and rectification proceedings.

Going forward, it will be more important for taxpayers to ensure that the email ID quoted in the tax returns and the electronic portal is kept active so that any communication from the tax authorities is taken note of and responded to appropriately. The taxpayers will also have to lay down appropriate governance procedures to ensure that the information uploaded to the tax department is appropriately reviewed and authorised.
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