In a recent ruling, the Patna High Court clarified that the Central Board of Direct Taxes ( CBDT ) guidelines for the compulsory selection of Income Tax Returns ( ITR ) for scrutiny do not restrict the Income Tax Department from conducting scrutiny on a discretionary or random basis.
The petitioner, Patna Smart City Limited, is a government-owned company based in Patna, Bihar, fully funded by government resources to execute developmental projects. The petitioner challenged a series of income tax assessment orders (Annexure-P/7 series) issued by the Income Tax Department.
The petitioner submitted that the assessments were conducted in violation of guidelines set by the Central Board of Direct Taxes (CBDT) on 10 June 2021, as seen in Annexure-P/9. The main issue was whether the Income Tax Department could conduct a scrutiny assessment for a government-owned entity like the petitioner, given the CBDT’s guidelines on compulsory scrutiny for the financial year 2021-22.
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The petitioner’s counsel argued that it does not fall under any compulsory scrutiny categories specified by the CBDT for 2021-22 and hence should not have been scrutinized. The petitioner also claimed it was not granted a personal hearing. They contended that while filing their response, they requested a hearing which the Income Tax Department did not honor.
The Bench, comprising Chief Justice of Patna High Court K. Vinod Chandran and Justice Partha Sarthy, observed that the CBDT guidelines only specify certain cases or categories that must be scrutinized. The court points out that these guidelines do not limit the Income Tax Department from choosing additional cases for scrutiny on a random or discretionary basis.
The court highlighted that just because certain categories are mandatorily chosen for scrutiny does not restrict the Income Tax Department from scrutinizing other cases outside these compulsory categories.
The court noted that the petitioner did not explicitly request a personal hearing by marking the relevant column. Thus, there was no procedural obligation for the department to grant a hearing. The court found no violation of natural justice principles since the petitioner’s written response was duly considered.
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Therefore, the court dismissed the writ petition, refusing to interfere with the Income Tax Department’s assessment orders. The court advised the petitioner to pursue an appellate remedy if desired, subject to limitations.
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