Under I-T Lens 1.6 Lakh Tax Returns Under Scrutiny
The Income Tax Department has intensified its scrutiny of 1.6 lakh tax returns in FY 2023–24. The focus? High-value transactions and mismatch in disclosures — especially involving M&A discrepancies, foreign assets, and business reorganisations.
Let’s break it down and help you stay compliant.
Why Are Tax Returns Under Scrutiny?
According to sources cited in Economic Times and CBDT disclosures:
- 1.6 lakh returns flagged using AI-driven risk assessment tools
- 60,000 notices already issued
- Focus sectors include:
- Mergers & Acquisitions (M&A)
- Foreign transactions
- High net-worth individuals (HNIs)
- Startups and reorganised entities
M&A Discrepancies: What’s the Problem?
The CBDT is closely examining inconsistencies in merger/demerger transactions under:
- Section 47 – Exempt transfers in business reorganisation
- Section 56(2)(viib) – Valuation issues under angel tax rules
- Form 3CA/3CB mismatches – Audit reports showing capital changes not reflected in ITR
- Improper disclosures under Schedule SH-1 (Shareholding) and Schedule PTI
Common Red Flags in M&A Deals
| Issue Detected | Legal Reference |
|---|---|
| Capital gains not reported | Sec 47 read with Sec 45 |
| Share premium undervaluation | Sec 56(2)(viib) & Rule 11UA |
| Assets transferred without consideration | Potential Sec 28(iv) trigger |
| Lack of reporting in Form 10B/10BB (audit) | Rule 12AB for prescribed reporting |
How to Avoid Red Flags in Your ITR
If your company went through a merger, acquisition or restructuring, follow these best practices:
- Disclose full transaction details in applicable ITR schedules
- File audit reports accurately under Form 3CD or 10B
- Use correct fair market valuation (FMV) rules under Rule 11U and 11UA
- Avoid inconsistency between ITR and MCA filings (e.g., Form INC-28, MGT-7)
- If foreign investment is involved, reconcile with FEMA and RBI filings
Expert Tip: Keep Valuation Notes Handy
“The I-T Department is increasingly demanding valuation reports and board approvals during scrutiny. Keep all documentation ready — especially when claiming exemptions under Section 47 or FMV-based filings under 56(2)(viib).”
— Rakesh B., Chartered Accountant & M&A Advisor
Legal Reference: Notices & Compliance
- CBDT systems use risk-based scrutiny under CASS (Computer Aided Scrutiny Selection)
- Refer to CBDT’s Scrutiny Guidelines for AY 2024–25
- Notices issued under:
- Section 143(2) – Regular assessment
- Section 148A – Income escaping assessment
- Section 139(9) – Defective return
Mobile-Friendly Summary (Snippet Use)
1.6 lakh ITRs flagged by CBDT for scrutiny in FY 2023–24. Mergers, acquisitions, and capital mismatch disclosures top the red flag list. Ensure proper reporting, FMV calculation, and audit linkage to stay compliant.
FAQs: Tax Scrutiny for M&A Transactions
Q1. I sold shares during a merger. Do I pay capital gains tax?
If the merger qualifies under Section 47, it may be tax-exempt — provided all conditions are met.
Q2. I received a scrutiny notice under Sec 143(2). What now?
You must respond within the deadline through your income tax e-filing account with full documentation.
Q3. Can past ITR mismatches lead to notices?
Yes, especially under Section 148A if income has escaped assessment.
🔗 Related:
- 📄 How to Respond to Income Tax Scrutiny Notices (Efiletax Blog)
- 🧾 CBDT Circular on Risk-Based Scrutiny Selection (2024–25)
Final Thoughts: Stay Transparent, Stay Safe
If your entity underwent business restructuring, mergers, or foreign-funded expansion, your return is more likely to attract scrutiny. Ensure professional audit, accurate ITR filings, and clear valuation proof.
Need help decoding your ITR or responding to notices?