Purpose of Scrutiny Assessment as per the IT Act

The cases that are selected for scrutiny are enquired into by the assessing officer who conducts required enquiries during the course of assessment proceedings with the purpose of establishing that the assessee has not understated his/her income, or calculated excessive loss, or has in any manner underpaid the tax requirement.

The cases wherein searches, enquiries and surveys have been carried out also culminate as scrutiny assessments and the determination of taxable income and liability of the concerned person/entity is done. While framing the assessments, all information gathered about the relevant financial transactions through search, survey or enquiry is logically analyzed with a view to determining the correct taxable income. The assessee is given the opportunity to explain his/her position and provide clarifications on the findings of enquiry. The process that is followed to complete the scrutiny assessment in such cases is the same as in case of returns that are selected for the purpose of scrutiny assessment.

In accordance with the directions given to all Chief Commissioners of Income Tax and all Director Generals of Income Tax the targets for completion of scrutiny assessments and strategy of framing quality assessments as contained in Central Action Plan Document for the referred year. The following categories of cases/returns shall be compulsorily scrutinized:

• Cases where value of international transaction as defined under section 92B of IT Act exceeds 15 crores.

• Cases involving addition in an earlier assessment year in excess of INR10lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority.

• Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of INR10 crores or more which is confirmed in appeal or is pending before an appellate authority.

• All assessments pertaining to survey under 133A of the IT Act excluding the cases where there are no impounded books of accounts/documents and returned income excluding any disclosure made during the survey is not less than returned income of preceding assessment year. However, where assessee retracts the disclosure made during the survey will not be covered by this exclusion.

• Assessment in search and seizure cases to be made under sections 158B, 158BC, 158BD,, 153A and 153C read with 143(3) of the IT Act.

• All returns filed in response to notice under section 147/148 of the IT Act.

• Cases claiming exemption of income under section 11 or under section 10(23C) which are affected by provisos to Section 2(15) of IT Act.

• Entities which have received donations from countries abroad in excess of INR1crore during the financial year under the provisions of Foreign Contribution Regulation Act (FCRA).

The process f scrutiny starts with the issue of Notice under section 143(2) by the assessing officer and ends with the passing of the assessment order. The assessment officer will give various provisions and decided cases where the law has been relied on in making the assessment. THE effect of the assessment can be an increase of the income declared, or decrease of loss claimed or increases in the tax liability, or reduction in the refund claimed and in any way penalizing the assessee, if required.