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SECTION 143, READ WITH SECTION 142 OF THE INCOME-TAX ACT, 1961 - ASSESSMENT - SCOPE OF ENQUIRY IN CASES SELECTED FOR SCRUTINY DURING FINANCIAL YEAR 2014-15 ON BASIS OF AIR/CIB/26AS MISMATCHINSTRUCTION NO.7/2014 [F.NO.225/229/2014-ITA.II], DATED 26-9- 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 taxpayer in the return- of-income.

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 made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date.

The CBDT has, under section 119(2)(a), the power to issue directions or instructions to the Income-tax authorities (not prejudicial to the assessee) for the purpose of proper and efficient management of the work of assessment and collection of the revenue as to the guidelines, principles or procedures to be followed by them in the work relating to assessment or collection of revenue, and which may be either by way of relaxation of any of the provisions specified therein, which includes section 143, or otherwise. The Instruction F. No. 225/26/2006-ITA.II (Pt), dated 8-9-2010 would, therefore, be binding on the Assessing Officer, an Income-tax authority under section 116. Selection under Computer Assisted Scrutiny Selection (CASS) is on the basis of various criteria listed for selection of returns of income for scrutiny under the Act, including third party information (i.e., information from a party who is not a party to the transaction, as, for example, a registering authority). It is this information, which a third party is statutorily obliged to give to the revenue on an annual basis, that is called the 'AIR information', and the prescribed form for the same as the 'AIR return'. In other words, an AIR case, i.e., a return of income selected for scrutiny on the basis of AIR information is only a sub set of the cases selected on CASS basis. This is confirmed by Instruction No. 7/2014 (F. No. 225/229/2014/ITA.II) dated 26.9.2014 issued by the CBDT. It is made abundantly clear therein that the selection under CASS is only on the basis of either AIR data or CASS information or for non-reconciliation of 26AS data, and that the scope of inquiry in such a case should be limited to verification of those aspects/issues only. Further, that such notice would be issued to the tax payer with the remark 'selected under Computer Assisted Scrutiny Selection (CASS)', as indeed stands notified per the notice under section 143(2) under reference. Further, a wider scrutiny of the return, i.e., on aspects other than for which it was selected for examination, shall be subject to the approval by the higher authorities, in writing, where the income escaping assessment involved is in excess of Rs. 10 lakhs (Rs. 5 lakhs for non-metro charges) (para 4). Though the Instruction dated 26-9- 2014 is after the date of the notice under section 143(2) in the instant case (3-9-2014), the same in fact reiterates what Instruction dated 08.9.2010 states, so that there is no material difference between the two. In fact, the verification commenced only after 26-9-2014, with the assessee being supplied with the requisitions only on 16-1-2015. The non-stamping of the notice as an AIR case, or the Assessing Officer calling for information on other aspects, which is thus in violation of the guidelines, would be of no moment inasmuch as the revenue cannot take advantage of its own wrong. The same would not in any case impart legitimacy to the proceedings.