Sec. 143(3) : Scrutiny Assessments by Income Tax Department

Scrutiny assessment refers to the examination of a return of income by giving an opportunity to the assessee to substantiate the income declared and the expenses, deductions, losses, exemptions, etc. claimed in the return with the help of evidence. During the course of scrutiny, the assessing officer gets an opportunity to conduct enquiries, as deemed fit, from the assessee and from third parties. The exercise is aimed at ascertaining whether the income in the return is correctly shown by the assessee and whether the claims for deductions, exemptions, etc. are factually and legally correct. If any omissions, discrepancies, inaccuracies, etc. come to light as a result of this examination, the assessing officer makes his own assessment of the assessee’s taxable income after taking into consideration all the relevant facts. These assessments are made under section 143(3) of the Income Tax Act.

Selection of Cases for Scrutiny Assessment :

Theoretically, each and every return of income can be subjected to the process of scrutiny. There was a time when scrutiny assessment was taken up in every case. Subsequently, returns showing income above a certain monetary limit, say ` 1 lakh or above, were taken up for scrutiny. Then came an era when returns for scrutiny assessment were picked up on a random basis. With the progressive increase in the work load of the Income Tax Department, scrutiny assessment in a few selected cases became the accepted norm. The criteria for selection, however, kept on evolving.


At present, the returns of income voluntarily filed by the tax payers are mostly accepted by the   Income Tax Department without any questions. In a very small percentage of cases, scrutiny assessments are framed under section 143(3) of the Income Tax Act, 1961. The cases for this purpose are mostly selected through the process of computer assisted scrutiny selection (CASS) and there is no element of subjectivity in this process.


In addition to the above process for selection through computers, the cases where there is information about concealment of income, which may be based on an enquiry report, survey report or any other source, can also be selected for scrutiny. Only truly deserving cases are identified for scrutiny assessment in this manner. The selection in this manner is made by the assessing officer only with the approval of higher authorities so that the selection is fair and proper.


All search and seizure assessments are also scrutiny assessments. The issues relating to search and seizure assessments have already been discussed in detail in the preceding Chapter 8 titled “Income Tax Searches”.


There is yet another category of cases in which scrutiny assessment is framed under section 143(3) of the Act. There is a provision in the Income Tax Act which enables the reopening of cases where there is reason to believe that any income has escaped assessment. This reopening can be resorted to even in cases which had been subjected to scrutiny assessment earlier. A case can be reopened within a period of six years from the end of the relevant assessment year. To elucidate this point, it may be stated that the assessment for the assessment year 2006-07 (pertaining to financial year 2005-06) can be reopened by 31-03-2013. Older cases cannot be reopened. In all reopened cases, assessments are framed under section 143(3) after following due procedure.

Purpose of Scrutiny Assessment

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that the assessee has not:

 

  • Understated the income, or.
  • Computed excessive loss, or
  • Underpaid tax in any manner.
Also, the cases where searches, surveys and enquiries have been conducted finally culminate into scrutiny assessments determining the taxable income and the tax liability of the concerned persons and entities. While framing the assessments, all information gathered about the relevant financial transactions through search, survey or enquiry is logically analysed with a view to determining the correct taxable income. The assessees are given an opportunity to explain their stand and rebut the findings of the enquiry. The process for completing scrutiny assessment in these cases is the same as in the case of returns selected for scrutiny assessment.
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