In cases selected for scrutiny, the assessing officer serves a notice under section 143(2)(ii) of the Income Tax Act, within six months from the end of the financial year in which the return was filed. For example, in respect of the returns filed during the financial year 2011-12, the notice has to be issued by 30-09-2012. The assessee is asked to produce any evidence which he may have relied on to compute the income stated in the return. The evidence will include books of accounts and other documents. In addition to what the assessee produces in support of his return, the assessing officer may call for more information and details for ensuring that the income declared is correct and the expenses claimed have been genuinely incurred.
The deductions claimed are also verified. If there is any information with the department with regard to any investment or expenditure or any other financial transaction, that, too, is verified with reference to the return of income. The assessing officer may also conduct appropriate inquiries for verification of facts stated in the return of income.
Scrutiny provides the assessing officer an excellent opportunity to fully examine the complete financial affairs of the assessee for the year for which the return is being scrutinized. For doing so, the assessing officer may call for the following information:
- Copies of bank statements along with explanations for all debit and credit entries,
- Credit card statements and source of payment thereof,
- Investments made during the year in immovable property, fixed deposits, shares, debentures, bonds, etc., and sources thereof,
- Proof for claims of deductions and expenditures,
- Details of claims of business expenses and genuineness thereof,
- Names and addresses of sundry creditors and sundry debtors,
- Details of loans, gifts taken and given,
- Confirmations from sundry creditors and persons who have given loans or gifts,
- Quantum of household expenses band sources thereof, and
- Reconciliation of income with TDS certificates, etc.
The above is only an illustrative list of information that may be called for. The actual questions to be asked would depend upon the facts of the case and the ability of the assessing officer to probe meaningfully.