Brief about Scrutiny Assessment Under Section 143(3) of the IT Act

The Government of India introduced the concept of Scrutiny assessment under Section 143(3) of the Income Tax Act, 1961 in order to check that the assessee has furnished ITR and that has furnished correct and true details in ITR. Thereafter, the Assessing Officer (AO) can check genuineness of details of ITR such as proper income, deductions claim and so on.

There are different types of assessment has been enshrined under the IT Act and the most stringent and popular assessment is Scrutiny Assessment.

In this blog, we will discuss about Scrutiny Assessment and other concepts related thereto.

Table of Contents

Scrutiny Assessment: Meaning [Section 143(3)]

Scrutiny Assessment is one of the assessments of the Income Tax Return under the Income Tax Act. As the name suggests, the Assessing Officer (AO) critically and thoroughly inspects and examines all the details of the Income Tax Return of the assessee with a view to check that such details filed by assessee are correct and genuine. The AO tries to ensure that the assessee is not using any illegal practice to avoid the tax liability in any manner.

The AO also gives opportunity of being heard to the Assessee and thus assessee can produce and substantiate all the details filled in the ITR with evidences. In case any discrepancy, disparity or inconsistency is found in the ITR then the AO is empowered to charge penalties from the assessee.

Scrutiny Assessment: Procedure [Section 143(3)]

Firstly, the assessing officer will scrutinize the ITRs. In case the AO is not satisfied with any of the particular of ITR and he finds it expedient to do Scrutiny Assessment in order to check that whether the assessee has understated income or has not calculated excessive loss or has not paid tax in any manner then he shall serve the notice on such assessee to appear before him or to produce any evidence in order to support the return.
Secondly, the notice served above shall be in consistence and accordance with the provisions of Section 143(2) of the IT Act. One of such requirements is that the notice must be given within 6 months from the date of the end of the Financial Year in which the subject ITR was filed.
Next, the assessee or his Authorized representative (AR) shall appear before the assessing officer on such date, time and manner written in the notice. However, now the procedure has been chnaged and instead of representing case manually, assessee or his AR has to furnish required details digitally.
Subsequently, the assessee shall be given an opportunity of being heard and thus, he shall give arguments and supporting evidences as are required to substantiate his claim over the issues raised by AO.

After hearing the assessee and verifying the evidences produced by assessee, the AO may ask the assessee to explain any further specific point or may also ask for evidences on any specific points. If the AO is satisfied or not satisfied then he shall make an order in writing thereon to either accept the return income or by making certain additions / disallowances in the returned income of the assessee on the basis of assessment.

Scrutiny Assessment: Time-Cap [Section 153]

According to section 153 of the IT Act 1961, the scrutiny assessment process shall be completed within a span of 21 months from the end of the assessment year in which income of the assessee was first assessable.

Scrutiny Assessment: Kinds

There are two kinds of Scrutiny Assessment that are:-

Manual Scrutiny Assessment –

There are various cases in which AO can conduct Scrutiny Assessment if he is satisfied that there is a reason to do so.

Compulsory Scrutiny Assessment –
There are various cases in which AO has to mandatorily/ compulsorily conduct Scrutiny Assessment in every case.

Reasons: Manual Scrutiny Assessment –

When the income of any person exceeds the maximum exemption limit and is mandatorily required to file ITR but has failed to file it within due time.
When the assessee has either intentionally or unintentionally has furnished wrong details in ITR with respect to income or any other crucial detail leading to deduction or avoidance of income tax liability.
When there appears a difference between the details of Form 26AS and TDS tax credit claim.
When the assessee fails to disclose income or interest income from fixed account or saving account.
When the high value transaction has been undertaken by assessee.

Reasons: Compulsory Scrutiny Assessment –

When the addition made in earlier assessment year has been more than Rs. 10 Lakh on a substantial question of law or fact which is either pending or confirmed in appeal before the appropriate appellate authority.
Assessment is also required to be conducted under Sections 158B, 158BC, 158BD, 153A, and 153C of the Income Tax Act.
When the tax department authorities have released verified data or information of tax –evasion by suspected assessee.

Conclusion

Every person who is mandatorily required to file ITR must ensure that he furnishes true and genuine details in his ITR not only to avoid penalties but also to avoid such Scrutiny or other kind of Assessments under IT Act.

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