What is Income Tax scrutiny assessment and how are cases selected for scrutiny?

Once an assesse files its Income tax return, IT department examines the return filed and if there are reason to believe that information declared by the assessee are incomplete or false , the through a notice u/s 143(2) of the Income tax act 1969. The assesse is intimated about the same and is required to take the necessary action.

Usually, people panic or get worried whenever they receive a notice from tax department, but there is nothing to worry as it a common practise of the department.

Cases are selected by either pre – defined Criteria or on random basis. For example: A criteria may be set that an assessee having income from a particular source above 50Lacs needs to be selected.

assessment

What is the time limit in which Income Tax Scrutiny notice can be received?

Scrutiny notice can be served within 6 months from the end of the financial year in which the return was filed.

What to do when a Income Tax Scrutiny notice has been received?

Once the notice is received, the assesse must file a response/reply within the specified time period. All the important documents and Information may be arranged in advance in case it is asked for. In case of complexities, an expert opinion can be sort.

What are the reasons for selection of the cases for Income Tax scrutiny and how can you avoid it?

Some of the most common reasons are:

1. Non filing of Income tax Return timely: Every assessee having Gross total Income above the exempted limit must file its Income tax return by the due date u/s 139(1). Non filing of Income tax return before the due date, can initiate scrutiny assessment. A notice u/s 142(1)(i) may be issued to file its return.

How to avoid: Assessee must file its Income tax Return and must pay taxes before the due date.

2. Tax deducted at source (TDS) credit not matching with 26AS: TDS can be traced by 26AS or form 16/16A and it has be same as per the return filed. Any mismatch can lead to higher chances of getting a notice.

How to Avoid: Before filing the return, assesse must reconcile the Actual TDS with 26AS statement/ form 16/16A. Any discrepancy noticed should be looked upon.

3. High value Transactions: Every High value transaction which is not ordinarily made or is more than your usually reporting income mat attract a Notice. For example, Credit card bill of Rs. 200000 in a financial year, purchased a land or receiving a huge amount in your account etc.

How to avoid: High value transactions needs to reported and all the documents regarding the same should be prepared.

4. Non-disclosure of Income: Revenue authorities obtain information about income of assesses from different sources like banks, employers, tenants, mutual exchange of information between countries etc. If you have not shown some income in your ITR, then you may get a notice from the income tax department if they detect the non-reportage.

How to avoid: Income earned from all the sources needs to be furnished in the Income tax Return which can be taken by Financials and can be checked by 26AS. Any mismatch in the records of the authorities and income not declared may result in issuance of notice.

5. Filing Defective Return: If the Income tax return is not filed in the correct form, due to lack of knowledge. Assesse will receive a defective return notice from the income tax department.

How to avoid: Assesse must revise the return within the specified limit and should have all the documents in hand while filing the return.

Author Bio

Qualification: CA in Job / Business
Company: Mayur Batra Group ( Corporate Services)
Location: Delhi, New Delhi, IN
Member Since: 06 Jun 2020 | Total Posts: 2

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4 Comments

  1. VIPAN KUMAR VERMA says:

    Good Work done. Very much helpful I individuals who have small income. As it is MENTIONED SCRUTINY NOTICE WAS SERVED WITHIWITHIN TIME i.e. with in 6 months of that FINANCIAL YEAR.
    VERY HELPFUL. Monica.

  2. Anoop Kumar says:

    Good work, Monica. Just to add that the first thing we should check after receiving a notice is to check whether it is served with in the time limit of 6 months. I have experience of one such instance during articleship.

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