Meaning of Scrutiny Assessment

• Scrutiny under income tax refers to a detailed examination of a taxpayer’s return by the Income Tax Department.
  
• It is conducted under Section 143(3) of the Income Tax Act.
  
• The objective is to ensure the correctness of income, deductions, exemptions, and tax paid.
  
• It helps the department detect under-reporting, misreporting, or evasion of income.
  
• Only selected cases are taken up for scrutiny each year.
  

How Scrutiny Cases Are Selected

• Selection is based on risk assessment, data mismatch, or random sampling.
  
• Returns showing high-value transactions or inconsistent reporting may be flagged.
  
• Cases are chosen through a Computer-Assisted Scrutiny Selection (CASS) system.
  
• Manual selection may also occur in exceptional cases with prior approval.
  
• Notices are issued under Section 143(2) to inform the taxpayer.
  

Types of Scrutiny

• Limited Scrutiny: Focuses on specific issues such as mismatch in income or TDS.
  
• Complete Scrutiny: Covers a detailed examination of all aspects of the return.
  
• Manual Scrutiny: Rare, generally applies to exceptional or sensitive cases.
  
• Type of scrutiny is mentioned in the notice issued to the taxpayer.
  
• The scope cannot be expanded without proper authority.
  

Process After Notice

• Taxpayer must respond within the time mentioned in the notice.
  
• Documents, explanations, and evidence are submitted online or in person.
  
• Assessment may be done through faceless scrutiny or traditional methods.
  
• After review, the Assessing Officer passes an order determining final tax liability.
  
• An intimation is issued under Section 143(3) with demand, refund, or nil outcome.
  

Implications and Precautions

• Scrutiny does not mean wrongdoing but requires careful compliance.
  
• Failure to respond or submit correct details may lead to penalties.
  
• Proper documentation and recordkeeping help defend claims made in the return.
  
• Assessment orders can be appealed if the taxpayer disagrees with findings.
  
• Transparency and cooperation can help conclude scrutiny smoothly.