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Income Tax Scrutiny Assessment

Income-tax scrutiny refers to the act of summoning taxpayers for making enquiries about the returns filed in relation to an assessment year. The provision regarding Income Tax Scrutiny is invoked if the concerned tax officials have a reason and evidence to believe that the expenses and income declared in the returns have been incorrectly stated. The scrutiny is aimed at providing taxpayers with an opportunity to substantiate the accuracy of the filing through documentary evidence.

The provision of scrutiny is initiated with the issue of a scrutiny notice to the concerned taxpayers, who are in turn required to respond. The notice is issued under a particular section or clause and would include the reason for such scrutiny. Post this stage, the officer may conduct inquiries with the assessee as considered necessary. As already stated, the notice is meant to facilitate the assessee with an opportunity to substantiate the relevant particulars declared while filing the returns.

Reasons for Scrutiny

The Income-tax Department pursues scrutiny assessment by means of following a set of predetermined guidelines. The process is also carried out using sophisticated technology that aids in identifying instances of errors. Listed below are some of the most common reasons for the enactment of this provision:

  • Non-filing of tax returns
  • Rapid rise or fall in income
  • Abnormal value of transactions
  • Mismatch in TDS credit
  • Understated income
  • Non-declaration of exempted income
  • Underpayment of tax or misappropriation
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