INCOME TAX

INSTRUCTION NO. 5/2002

 Dated: June 28, 2002

Subject:- Guidelines in respect of Limited Scrutiny u/s 143(2)(i)

After the introduction of the concept of limited scrutiny vide amendment to section 143(2) by the Finance Act, 2002 (Effective from 1.6.2002) it has been decided that the following procedure shall be adopted for the limited scrutiny u/s 143(2)(i) of the Income tax Act.

1. In case the Assessing Officer has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible he shall serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein or on which the assessee may rely, in support of such claim.

2. A notice is to be issued in the prescribed performa (copy enclosed) for limited scrutiny. Reasons have to be recorded in writing before issue of any notice u/s 143(2)(i). Hence proper maintenance of order sheet is essential.

3. For service of notice u/s 143(2)(i), there is a time limit of 12 months from the date of receipt of return. This will require proper approval of the JCIT/Addl. CIT range. The range head should monitor it on a regular basis.

4. For completion of assessments u/s 143(3)(i), there is a time limit of two years (from the end of the year in which the income as first assessable). As such control registers have to be maintained to ensure that within the prescribed time u/s 153(1) assessments is done in all cases, where notices have been issued u/s 143(2)(i).

5. The process of limited scrutiny has tremendous importance to Department's intent to prevent leakage of revenue through patently wrong claim etc. as such it is essential to fix responsibility for non selection of assessees for limited scrutiny. This responsibility should rest with the concerned assessing officer. This may enable the Department to avoid possible audit objections.

6. In case a new issue comes up during the hearing of scrutiny of one limited issue, it cannot be taken up, without serving of a separate notice in respect of that issue because the two proceedings are separate/parallel proceedings and can run simultaneously. However one consolidated assessment order can be passed u/s 143(2)(i) in respect of proceeding initiated to different notices u/s 143(2)(i). But, a separate notice will have to be served in respect of the new item of loss etc., sought to be disallowed. Where, in a case, more than one notices u/s 143(2)(i) are required to be issued, prior approval of the Addl. CIT/JCIT will have to be obtained before issue of each such notice.

7. Multiple notices could be served u/s 143(2)(i) within the prescribed time limit of 12 months from the end of the month in which the return of income was filed.

8. A disallowance of any claim, exemption, deduction allowance, relief etc. made through an assessment u/s 143(3)(i) would ordinarily result in issuance of notice u/s 271(1)(c) for furnishing of inaccurate particulars of income.

9. The assessing officer shall separate data in a register for cases selected for 'assessment on limited issues', and revenue raised/realised. The JCIT/Addl. CIT range shall check the register once a month.

F.NO. 225 / 54 / 2002 /ITA.II

(SANGEETHA GUPTA)
Director (ITA.II)
Central Board of Direct Taxes