CBDT Introduces AI-Driven Scrutiny for ITRs: Key Insights for Chartered Accountants

The Central Board of Direct Taxes (CBDT) has introduced an AI-driven scrutiny system for Income Tax Returns (ITRs), marking a significant shift towards automation and precision in tax assessments. This development is particularly pertinent for Chartered Accountants (CAs) and tax professionals, especially those offering services in Delhi.

Understanding the AI-Based Scrutiny System

Traditionally, the selection of ITRs for scrutiny involved manual processes, often leading to inconsistencies and delays. The new AI-based system automates this process by analyzing vast amounts of data to identify discrepancies and potential non-compliance.

" The new system will allow computers to analyze tons of data automatically — things like income details, high-value transactions, GST returns, property purchases, and so on. "

The AI scrutinizes data from various sources, including PAN records, AIS/TIS (Annual Information Statement / Taxpayer Information Summary), GST data, bank reports, and property registries. It assigns risk scores to each return, flagging those with significant mismatches or anomalies for further review.

Implications for Chartered Accountants and Tax Professionals

With the AI system's heightened sensitivity to discrepancies, the role of CAs and tax consultants becomes even more critical. Ensuring accuracy and completeness in tax filings is paramount to avoid triggering scrutiny.

" If there’s even a small mismatch between what a taxpayer reports and what’s reflected in the AIS or TIS, the system could pick it up instantly. "

Tax professionals should adopt a proactive approach, meticulously cross-verifying client data with official records and educating clients about the importance of full disclosure.

Common Triggers for AI-Based Scrutiny

Understanding the factors that may lead to an ITR being flagged is essential. Some common triggers include:

• Discrepancies between reported income and Form 16, 26AS, or AIS.
• Large cash transactions not justified by declared income.
• Significant deductions under sections like 80C or 80D that seem disproportionate to income.
• Property purchases or foreign travel expenses not aligning with reported income.
• Non-disclosure of foreign assets or income.

By being aware of these triggers, tax consultants can better prepare and guide their clients.

Best Practices for Tax Professionals

To navigate the new AI-based scrutiny system effectively, tax professionals should:

• Reconcile client data with AIS/TIS before filing.
• Maintain thorough documentation for all deductions and exemptions.
• Encourage clients to disclose all sources of income, regardless of size.
• Utilize tools that automatically detect inconsistencies.
• Stay updated on the latest risk parameters and guidelines issued by the Income Tax Department.

Implementing these practices will help in minimizing the risk of scrutiny and ensuring compliance.

Conclusion

The CBDT's move towards AI-driven scrutiny signifies a transformative phase in tax administration, emphasizing accuracy and transparency. For Chartered Accountants and tax consultants, particularly those operating in Delhi, adapting to this change is crucial. By embracing meticulous practices and leveraging technology, professionals can continue to provide exemplary services in this evolving landscape.