CBDT Office Memorandum 2025: Risk Management Strategy (RMS) Exemption for Search and Survey Cases – Streamlining Reassessment or Legal Loophole?

Introduction

The Central Board of Direct Taxes (CBDT) issued an Office Memorandum on February 27, 2025, fundamentally altering how search and survey case information flows through India’s tax administration system. This CBDT directive exempts information arising from investigation activities conducted between April 1, 2021, and September 1, 2024, from the Risk Management Strategy framework under the Income-tax Act, 1961. Rather than uploading such information to the Centralised Risk Intelligence Unit or Verification Risk Unit functionalities, field officers must now forward it directly to Jurisdictional Assessing Officers for action under Section 147 of the Income-tax Act, 1961.[1] This procedural shift emerges against the backdrop of significant amendments introduced through the Finance (No. 2) Act, 2024, particularly affecting the reassessment provisions that govern how escaped income is brought to tax. The memorandum addresses field formations that sought clarity following these amendments, especially concerning how to handle information already within the system and what procedures apply to cases straddling the old and new legal regimes.

Understanding the Risk Management Strategy Framework

The Risk Management Strategy represents a systematic approach developed by the Central Board of Direct Taxes to identify returns requiring closer examination. Through the Centralised Risk Intelligence Unit and Verification Risk Unit functionalities, the Income Tax Department analyzes patterns suggesting potential tax evasion. This framework evaluates submitted returns against multiple data sources, including Annual Information Statements, Statement of Financial Transactions, Tax Deducted at Source information, and inputs from the Directorate of Investigation and Criminal Intelligence. When the system flags discrepancies or patterns consistent with income escapement, it generates leads for field officers to pursue. The process aims to replace random selection with data-driven identification of cases warranting scrutiny. However, the CBDT’s February 2025 Office Memorandum carves out a significant exception to the Risk Management Strategy framework. Information obtained through search operations under Section 132, requisitions under Section 132A, or surveys under Section 133A of the Income-tax Act, 1961, conducted during the specified period no longer requires processing through these risk management channels.[2]

Search and Survey Powers Under Indian Tax Law

Section 132 of the Income-tax Act, 1961, confers upon authorized officers the power to conduct search and seizure operations when they possess information suggesting willful omission, non-compliance, or concealment by taxpayers. These operations constitute serious investigative measures requiring approval from Director or Commissioner-level officials. During such searches, authorized officers may enter premises, break open locks where necessary, examine individuals under oath, seize books of account, documents, money, bullion, jewelry, or other valuable assets, and create inventories of seized materials. The statements recorded during search proceedings under Section 132(4) carry evidentiary weight in subsequent legal proceedings. In contrast, Section 133A empowers officers to conduct surveys, which represent less intrusive investigative tools. Survey operations permit officers to enter business premises during working hours, inspect books of account and documents, verify stock and other assets, and record statements that may prove useful in proceedings under the Act. However, unlike search operations, surveys do not authorize seizure of materials. Officers conducting surveys may place identification marks on books or documents and require individuals present to afford necessary facilities for inspection, but they cannot remove materials from the premises. The distinction between these investigative tools matters significantly because the CBDT February 2025 Office Memorandum applies differently depending on which power was exercised and when.[3]

Legislative Evolution: From Finance Act 2021 to Finance (No. 2) Act 2024

The reassessment provisions underwent substantial transformation through the Finance Act, 2021, which introduced Section 148A requiring mandatory inquiry before issuing reassessment notices. This amendment aimed to reduce arbitrary reopening of assessments by mandating that Assessing Officers conduct preliminary inquiries and provide taxpayers opportunities to respond before initiating formal reassessment proceedings. The provision required officers to serve show-cause notices accompanied by information suggesting income escapement, allowing taxpayers between seven and thirty days to respond. Only after considering such responses could officers determine whether cases warranted formal reassessment notices under Section 148. These procedural safeguards represented a significant shift from the earlier regime where “reason to believe” permitted more discretionary reassessment initiation. The Finance (No. 2) Act, 2024, further modified these provisions effective September 1, 2024. The amendments altered how information triggers reassessment proceedings and clarified temporal application of old versus new provisions. Section 152 of the Income-tax Act, 1961, as amended, now explicitly addresses search, survey, and requisition cases initiated between April 1, 2021, and September 1, 2024. For these cases, the law mandates application of pre-amendment provisions of Sections 147 to 151 as they existed before the Finance (No. 2) Act, 2024. This temporal carve-out recognizes that investigations commenced under one legal framework should continue under those same provisions rather than shifting mid-stream to new procedures.[4]

The Deemed Information Principle

The CBDT February 2025 Office Memorandum establishes that when search operations under Section 132, requisitions under Section 132A, or surveys under Section 133A occur, the law deems the Assessing Officer to possess sufficient information, eliminating the need for separate Risk Management Strategy (RMS) profiling. This deeming fiction eliminates the need for separate information gathering or risk profiling that would ordinarily occur through the Risk Management Strategy framework. The CBDT February 2025 Office Memorandum operationalizes this principle by directing that such information bypass the Centralised Risk Intelligence Unit and Verification Risk Unit functionalities entirely. Field officers who conducted investigations already possess concrete findings about potential tax evasion. Requiring them to upload this information to risk management systems for algorithmic assessment would constitute unnecessary procedural layering. The Jurisdictional Assessing Officer dealing with the taxpayer’s regular assessments represents the appropriate recipient for such investigation-derived information. This officer possesses familiarity with the taxpayer’s history, pattern of filings, and prior interactions with the department. Direct transmission enables faster action while maintaining appropriate oversight through supervisory authorities who must ensure compliance with specified timelines. The memorandum required officers to complete transfers of previously uploaded information by March 10, 2025, ensuring Jurisdictional Assessing Officers had sufficient time for necessary actions under Section 147.[5]

Section 147 and the Reassessment Mechanism

Section 147 of the Income-tax Act, 1961, empowers Assessing Officers to assess or reassess income chargeable to tax that has escaped assessment for any assessment year, subject to provisions contained in Sections 148 to 153. The section permits officers to recompute losses, depreciation allowances, or other allowances for the relevant assessment year. During reassessment proceedings, if officers discover additional issues where income escaped assessment, they may assess such income regardless of whether it formed part of the original reasons for reopening. This expansive power exists to ensure no taxable income escapes the tax net due to inadvertent omissions or deliberate concealment. The Finance Act, 2021, modified reassessment procedures by introducing Section 148A, which requires preliminary inquiry and taxpayer hearing before issuing formal notices. Section 148 mandates that before making any assessment or reassessment under Section 147, officers must issue notices requiring taxpayers to furnish returns within specified periods not exceeding three months from month-end of notice issuance. These notices must accompany copies of orders passed under Section 148A determining cases as fit for reassessment. The procedural safeguards aim to prevent arbitrary or capricious exercise of reassessment powers while maintaining revenue’s ability to tax escaped income. Section 149 prescribes time limits for notice issuance—generally three years from the relevant assessment year’s end, extendable to ten years where escaped income amounts to or exceeds fifty lakh rupees. These temporal restrictions balance the need for finality in tax assessments against the imperative of preventing substantial revenue loss through income escapement.[6]

Application to Search and Survey Cases

For cases where searches, surveys, or requisitions occurred between April 1, 2021, and September 1, 2024, Section 152 of the Income-tax Act, 1961 mandates application of pre-amendment provisions of Sections 147 to 151. This ensures that investigations initiated under one legal framework continue under the same statutory provisions. According to the CBDT February 2025 Office Memorandum, the Assessing Officer in such cases is deemed to have information indicating income escapement, eliminating the need for separate Risk Management Strategy (RMS) execution. The memorandum directs field officers to transmit investigation-derived information directly to Jurisdictional Assessing Officers, bypassing the Centralised Risk Intelligence Unit (CRIU) and Verification Risk Unit (VRU) functionalities, ensuring faster and more efficient action. This direct transmission respects the deeming fiction while allowing officers familiar with the taxpayer’s history and filings to take timely action. Officers were required to complete transfers by March 10, 2025, giving Jurisdictional Assessing Officers adequate time to act before limitation periods expired. Supervisory authorities monitored compliance to prevent cases from falling through administrative gaps. For investigations not involving searches, surveys, or requisitions, officers must continue uploading information to RMS functionalities to ensure proper execution of the Risk Management Strategy. [7]

Judicial Interpretation and Case Law Development

Courts have consistently emphasized that reassessment powers must be exercised judiciously rather than arbitrarily. The Supreme Court’s decision in GKN Driveshafts (India) Ltd. v. ITO established foundational principles regarding taxpayer rights during reassessment proceedings. The Court held that when taxpayers object to reasons recorded for reopening assessments, Assessing Officers must pass speaking orders disposing of such objections before proceeding further. This procedural requirement ensures transparency and provides taxpayers meaningful opportunities to challenge reassessment initiation. Courts have also addressed the “reason to believe” standard that previously governed reassessment commencement. Judicial interpretation established that this belief must rest on tangible material rather than mere suspicion or change of opinion. Where taxpayers disclosed all material facts during original assessment, courts held that mere reinterpretation of the same facts cannot justify reassessment. The “change of opinion” doctrine prevents officers from repeatedly reconsidering settled positions absent fresh information suggesting income escapement. These judicial principles remain relevant even under amended provisions requiring “information” rather than “reason to believe” for reassessment initiation.[8]

Disclosure Requirements and Taxpayer Obligations

The Supreme Court has articulated that taxpayers’ obligations extend to making full and true disclosure of all material or primary facts relevant to their tax assessments. Once taxpayers satisfy this disclosure burden, responsibility shifts to Assessing Officers to draw appropriate inferences and pursue matters appropriately. If returns contain defects, officers must intimate taxpayers to enable defect curing rather than treating defective returns as justification for later reassessment. This principle protects taxpayers who act in good faith while ensuring officers cannot claim escaped income when taxpayers provided sufficient information for proper assessment. Courts have distinguished between primary facts, which taxpayers must disclose, and legal inferences or conclusions, which represent officers’ responsibilities. Where taxpayers furnish information about transactions but claim particular tax treatment, officers cannot later characterize the same transactions differently and claim income escaped assessment unless taxpayers failed to disclose relevant primary facts. This distinction prevents reassessment from becoming mere review of earlier assessments where officers adopt different legal positions regarding disclosed facts. The judicial framework balances revenue’s interest in taxing escaped income against taxpayers’ interest in assessment finality and protection from arbitrary action.[9]

Practical Implementation and Compliance Challenges

The CBDT February 2025 Office Memorandum created immediate compliance obligations for field officers who had already uploaded search and survey case information to Risk Management Strategy (RMS) functionalities. These officers needed to identify affected cases, extract information from the Centralised Risk Intelligence Unit or Verification Risk Unit systems, and transmit it directly to appropriate Jurisdictional Assessing Officers before the March 10, 2025 deadline. This process required coordination between investigation directorates and assessment charges, particularly where investigations occurred in one jurisdiction while taxpayers’ regular assessments proceeded in another. Supervisory authorities bore responsibility for monitoring compliance, ensuring no cases languished in administrative limbo due to the procedural transition. For Jurisdictional Assessing Officers receiving investigation-derived information, the memorandum triggered obligations to evaluate whether circumstances warranted action under Section 147. Officers needed to determine whether information suggested income escapement, whether applicable limitation periods permitted reassessment notices, and whether pre-amendment or post-amendment procedures applied. Given that affected investigations occurred between April 1, 2021, and September 1, 2024, officers needed to apply pre-amendment provisions of Sections 147 to 151 as mandated by Section 152. This required officers to maintain familiarity with superseded legal provisions rather than simply applying current law.

Impact on Taxpayers Under Investigation

Taxpayers subject to searches or surveys during the April 2021 to September 2024 period face reassessment under pre-amendment provisions regardless of when Jurisdictional Assessing Officers actually receive information and initiate proceedings. This temporal application means such taxpayers cannot claim benefits of enhanced procedural protections introduced through the Finance (No. 2) Act, 2024. However, they retain protections afforded by the Finance Act, 2021, including mandatory preliminary inquiry under Section 148A and opportunities to respond before formal reassessment notices issue. The direct transmission of investigation information to Jurisdictional Assessing Officers may actually benefit some taxpayers by reducing processing delays inherent in routing through risk management systems. When information moves directly to officers familiar with taxpayers’ histories, those officers can evaluate matters more efficiently and may identify contexts explaining apparent discrepancies. Conversely, some taxpayers may prefer systematic risk evaluation that occurs through centralized units, as such processes may filter out marginal cases that local officers might pursue. The memorandum’s exemption means investigation-derived information bypasses such filtering, potentially leading to more frequent reassessment initiations based on search or survey findings regardless of whether systematic risk profiling would flag such cases as priorities.

Policy Implications and Assessment

The CBDT February 2025 Office Memorandum reflects a policy judgment that investigation-derived information warrants different treatment from information obtained through routine compliance activities. When officers conduct searches or surveys based on suspicion of tax evasion, their findings represent targeted intelligence rather than pattern-detected anomalies. Requiring such findings to undergo systematic risk evaluation through the Centralised Risk Intelligence Unit or Verification Risk Unit would constitute unnecessary procedural layering that delays appropriate action. The direct transmission approach recognizes that Jurisdictional Assessing Officers need investigation findings promptly to take timely action before limitation periods expire. Whether this approach creates legal loopholes or closes investigation gaps depends significantly on implementation quality. If Jurisdictional Assessing Officers exercise powers judiciously, evaluating investigation findings critically and pursuing only cases with genuine merit, the system may function effectively while reducing procedural delays. However, if officers pursue all investigation-derived leads without careful evaluation, the exemption from risk management filtering could lead to overreach and unnecessary litigation. The absence of centralized oversight that risk management systems provide means supervisory authorities within assessment charges bear enhanced responsibility for ensuring appropriate exercise of reassessment powers. The memorandum’s requirement for supervisory monitoring of compliance deadlines represents one such safeguard, but broader quality control mechanisms may prove necessary to prevent arbitrary action.

Conclusion

The Central Board of Direct Taxes’ (CBDT) February 27, 2025 Office Memorandum exempting search and survey cases from risk management strategy (RMS) requirements reflects careful calibration of administrative procedures to statutory amendments. By directing investigation-derived information directly to Jurisdictional Assessing Officers rather than through centralized risk evaluation systems, the memorandum operationalizes the deeming fiction that such officers possess sufficient information to initiate reassessment proceedings. This approach respects the distinction between targeted investigations that uncover specific tax evasion and systematic risk profiling that identifies patterns warranting examination. The temporal limitation to investigations conducted between April 1, 2021, and September 1, 2024, ensures the exemption applies to cases where pre-amendment reassessment provisions govern, maintaining consistency between substantive and procedural law. Whether this approach closes investigation gaps or creates legal loopholes ultimately depends on how Jurisdictional Assessing Officers exercise the powers the memorandum facilitates. Careful evaluation of investigation findings, application of appropriate legal standards, and respect for taxpayer rights including opportunities to respond before reassessment proceeds will determine whether the system functions as intended. The judicial framework developed through cases emphasizing procedural fairness, disclosure requirements, and limits on arbitrary reassessment provides essential guardrails. Taxpayers retain rights to challenge reassessment initiation where officers fail to satisfy statutory prerequisites or act on the basis of change of opinion rather than new information. As implementation proceeds, monitoring by supervisory authorities and higher appellate forums will reveal whether the exemption achieves its stated purpose of streamlining procedures while maintaining appropriate safeguards against overreach.