During a scrutiny, the assessing officer, under section 142 (1) of the Income Tax Act, sought details of “break up of quantity and rate in respect of monthly ration expenses including wheat flour, rice, spices, oil, gas, electricity, clothing, shoes, polishes, hair cuts, cosmetics, perfumes, social events expenses, student fees, books, rents, car running expenses, car insurance, health insurance, building expenses, building insurance, life insurance, gift expenses to a relative and others, restaurant visit expenses, get together expenses, social events expenses and similar day to day expenses.” File Photo: Lakshmiprasad S via Canva
According to the government data, only 1% of the returns filed are selected for such in-depth scrutiny. Over 72.8 million people filed income tax returns in the financial year ended March 2024. Sources say that such a detailed notice seeking a granular expense account could occur in case the tax officer feels the income disclosed by the taxpayer is not in sync with the living standard maintained by the individual. File photo: Shutterstock
“It could be that this case pertains to a wealthy individual with almost zero withdrawals or expenses. While this assessing officer (AO) seems to have got a little carried away while framing this question, it is not uncommon for AO to seek details of withdrawals in a few cases. During scrutiny, if the AO finds in any case that withdrawals seem too low to cover common minimum living standards, they may ask for details of household expenses, utility bills, and other costs. This helps them check if the declared expenses realistically match the taxpayer’s yearly expense requirement,” a source explained. File photo: Reuters
“The tax department is concerned about wealthy individuals showing a high standard of living despite minimal documented withdrawals. Instances have come to notice in random scrutiny cases wherein documented withdrawals are insufficient to cover essential living costs. This raises suspicion of unaccounted income. By asking for these details, Assessing Officers try to detect undeposited and unaccounted cash or transaction,” the source added. File photo source: Income Tax Department
Does it mean that the tax department is scrutinising every taxpayer’s living expenses? Well, the answer is NO. However, too much cash expenditure and zero withdrawals may be a red flag for the tax department.
