Scrutiny assessment is the assessment of the return filed by the assessee by giving an opportunity to the assessee to substantiate the declared income and expenses and the claims of deductions, losses, exemptions, etc. in the return with the help of evidence.It is managed by the Committee through a single work plan. Specific work is undertaken through the committee and by establishing informal panels (for in-depth activities) or working groups.

Panels under Scrutiny Assessment:

Informal Scrutiny panels are established by the Scrutiny Programme Committee, with conveners appointed by the committee.

  • Inquiry Panels: These undertake discrete in-depth inquiries into specific and significant areas of concern on a task and finish basis. These will be significant topics where scrutiny can make a real difference. Inquiry panels will produce a final report at the end the inquiry, informed by the extent of evidence gathered. The committee determines the aim of each of the inquiries and the key question that is to be explored. It will also set a clear time limit for the panel to carry out and complete the inquiry.
  • Performance Panels: These provide in-depth monitoring and challenge for clearly defined service areas. Performance panels are expected to have on-going correspondence with relevant cabinet members in order to share views and recommendations, arising from monitoring activities, about the service.

Purpose of Scrutiny Assessment

  • To find out whether a person has concealed/understated any income or not.
  • To find out if any excess loss and refund is claimed by any person.
  • To find out if the assessee is having any underpaid tax.

Time Limit for Completion of  Scrutiny assessment is:

AO cannot take does not have any privilege to complete the assessment by taking his own sweet time.Sec 153 read with Sec 153B requires that an assessment is required to be completed with the following time period otherwise the proceedings will get invalid and the assessment would become time barred:

  • If a proceeding is carried on under section 143 or section 144- Within 2 years from the end of the assessment year in which the income was first assessable.
  • 1 year from the end of the financial year in which the notice was under section 148 was served for an Assessment u/s 147.
  • 1 year from the end of the financial year in which the order under section 254 is received by the Chief Commissioner or Principal Commissioner or Commissioner or order u/s 263 or section 264 is passed by the Principal Commissioner or Commissioner.

Scrutiny Assessment Process:

The process starts with an issue of Notice and it ends with the passing of the Assessment order.

(a) Service Notice u/s 143(2) is issued by AO for the assessee asking in order to come to AO office.

(b) Asking for the various details like books of accounts, supporting documents  & the explanations by sending the questionnaire u/s 142(1)(ii). Questions are generally the same in every questionnaire irrespective about the assessee like nature of the firm, nature of the business etc. But some of the questions differ from assessee to assessee due to the nature of the business, its size, and other factors. The questionnaire can be issued many times if the AO needs additional information.

(c) Discussing the various points with the assessee and where AO has a different opinion, then AO will give a chance to the assessee to justify their point. For E.g. An assessee had claimed a particular expenditure as revenue expenditure but AO disallows the same by treating it as a capital expenditure. After this, AO will give assessee an opportunity to justify their point.

(d) Passing of the Assessment order u/s 143(3) with then Notice of demand. And that assessment may have the effect on:

  • Increasing the income declared or;
  • Decreasing the loss claimed or;
  • Increasing the tax liability or;
  • Reducing the refund claimed.

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