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Regular / Scrutiny Assessment - of Return of Income [Section 143(3)]

  1. Compulsory Service of Notice to the Assessee for Scrutiny Assessment [Section 143(2)]

  2. Selection of Cases for Scrutiny Assessment :

  3. Purpose of Scrutiny Assessment

  4. Procedure for Scrutiny Assessment

  5. Prescribed Authority for Scrutiny Assessment under Section 143(2) [Rule 12E].—

  6. Notice deemed to be valid in certain circumstances for Scrutiny Assessment [Section 292BB]:

  7. Consequences of Failure to comply with Notice for Scrutiny Assessment under section 143(2):

  8. Assessment after Evidence [Section 143(3)]

1. Compulsory Service of Notice to the Assessee for Scrutiny Assessment [Section 143(2)]

The Assessing Officer will issue a notice to the assessee under section 143(2) to take the case in scrutiny. Such notice shall be served on the assessee within a period of 6 months from the end of the financial year in which return is furnished.

After hearing such evidence as the assessee may produce and after taking into account all relevant materials which the Assessing Officer has gathered, he shall pass an assessment order in writing determining

  1. the total income or loss of the assessee, and

  2. the sum payable by (or refundable to) the assessee on the basis of such assessment order.

2. 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 Rs. 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 2019-20 (pertaining to financial year 2018-19) can be reopened by 31-03-2026. Older cases cannot be reopened. In all reopened cases, assessments are framed under section 143(3) after following due procedure.

3. 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.
  • the assessee has not Computed excessive loss, or
  • the assessee has not 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.

4. Procedure for Scrutiny Assessment

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 2018-19, the notice has to be issued by 30-09-2019. 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.

5. Prescribed Authority for Scrutiny Assessment under Section 143(2) [Rule 12E].—

The prescribed authority under section 143(2) shall be an income-tax authority not below the rank of an Income-tax Officer who has been authorised by the Central Board of Direct Taxes to act as income-tax authority for the purposes section 143(2).

6. Notice deemed to be valid in certain circumstances for Scrutiny Assessment [Section 292BB]:

Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was—

  1. not served upon him; or

  2. not served upon him in time; or

  3. served upon him in an improper manner.

7. Consequences of Failure to comply with Notice for Scrutiny Assessment under section 143(2):

The consequence of a default in complying with the notice under section 143(2), may entail an ex parte, best judgment assessment under section 144. Such a default may also attract penalty under Section 271(1)(b) which has been fixed at Rs. 10,000].

8. Assessment after Evidence [Section 143(3)]

The Assessing Officer, on the day specified in the notice under section 143(2) or as soon afterwards, as may be, shall, by order in writing, make an assessment of the Total Income or the loss of the assessee and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. The assessment shall be made after hearing:

  1. such evidence as the assessee may produce on the dates specified, from time to time and such other evidence as the Assessing Officer may require on specified points;

  2. all relevant material gathered by him.

  1. Meaning of the word 'hearing' [Section 2(23C)]:
  2. "Hearing" includes communication of data and documents through electronic mode.

  3. Deduction not to be allowed if claim is not made in the return of income:

    As per section 80A(5), where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of Chapter VIA under the heading 'C.—Deductions in respect of certain incomes i.e. sections 80-IA to 80RRB', no deduction shall be allowed to him thereunder.

CONTENT : Return of Income and Procedure of Assessment (Section 139 to 154)

Related Topics... Return of Income and Procedure of Assessment

 
 

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