Thousands of income tax returns (“return”) filed are reviewed and filing patterns are monitored by Income Tax department (“Department”) annually. Some scrutiny cases are selected randomly whereas some are chosen deliberately as a result of meeting the pre-set watch criteria, laid down by the Department. Income tax scrutiny notice is sent to a large number of individuals as well as businessmen filing returns by the Department as a part of their routine check and annual supervision. The idea behind this process is to assess that all the filings made by any person are in compliance with all the protocols, norms and regulations laid down by the Department.
Critical examination of returns by giving reasonable opportunity to the assessee to substantiate the income, losses and expenses furnished as well as deductions and exemptions claimed, in the return in relation to information provided in the evidence. Income tax officer conducts enquiry from assessee and third party as a part of its assessment. Scrutiny assessment is undertaken to ascertain the factual and legal correctness of the claims for deductions, exemptions, etc.
Purpose of scrutiny assessment
Enquiries are conducted by the assessing officer to ensure that following activities are not performed by the assessee:
- Understatement of income as compared to actual
- Computation of excess loss than actual
- Underpayment of tax
- Concealing any material facts, incomes, etc.
In case information supplied in the return is incorrect under any circumstances, whether in the form of omissions, inaccuracies, discrepencies, etc. as a result of this examination. Assessing officer is authorized to assess the income in accordance with his best knowledge (termed as best judgement) as well as evidence or facts so derived and as per the provisions under section 143(3) of the Income Tax Act (“Act”). Assessing officer further has the following authorities:
- Charging of requisite additional interest
- Levying penalties as per the set provisions of the Act
- Initiating prosecution proceedings
Types of scrutiny assessments
Following are the types of scrutiny assessments:
- Manual scrutiny cases
- Compulsory scrutiny cases
Reasons for selection of cases for scrutiny
|Manual scrutiny cases||Compulsory scrutiny cases|
|Non-filing of income tax return||Cases in excess of INR 10 lakhs on substantial or recurring question of law or fact which is confirmed in appeal or pending before an appellate authority|
|Declaring lesser income or more loss than earned or incurred||Cases in excess of INR 10 crores on substantial or recurring issue of transfer pricing which is confirmed in appeal or pending before an appellate authority|
|Inconsistency between tax deducted at source (TDS) credit and 26AS||Assessments pertaining to Survey under section 133A of the Act excluding the cases as mentioned therein|
|Non-declaration of exempted income||Assessments in search and seizure cases under section 132, 132A, 153A, 153C, 158B, 158BC and 158BD|
|Interest from fixed deposits or savings account||Reopening of cases under section 148 for returns filed in preceeding 6 years|
|Claiming huge refunds in return of income||Tax-exemption claimed for cases registered under section 12AA of the Act for which such exemptions has not been granted or has been cancelled by concerned authority|
|Undue benefits due to change in job||Cases where order denying the approval under section 10(23C) of the Act|
|High value and volume transactions||Cases where tax evasion is verified by government department / authorities|
|–||Cases coming under Computer Aided Scrutiny Selection (CASS)|
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