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    Scrutiny Assessment

    1. What is Scrutiny? 

    Once the assessee files his return of income, irrespective of whether it is filed within the due date or in pursuance to a notice requiring the assessee to file his return U/s 142 , the department can initiate scrutiny proceedings if it has reason to believe that income is escaping has escaped assessment . 

    1. What is Scrutiny Assessment? 

    ‘Scrutiny Assessment’ means picking up the returns on a *scientific basis and then making detailed checking of the assessee’s return in order to make sure that: 

    1. The assessee has not concealed/understated any income
    2. The assessee has not claimed excess loss
    3. The assessee has not underpaid tax
    4. The assessee has not claimed excess refund. 

    *Scientific basis means the various criteria prescribed by Central Board of Direct Taxes (CBDT) on the basis of which the returns are to be picked up for scrutiny.

    Computer Assisted Scrutiny Selection System (CASS) picks up the returns for scrutiny which meets those criteria.

     

    1. Process of Scrutiny assessment 

    Process starts with issue of Notice and ends with the passing of Assessment order. 

    1. Service of Notice u/s 143(2) by AO to the assessee asking him to attend the office of AO in person or by an **Authorized Person 

    **A CA/CS/CMA can be authorised representative only upto stage of tribunal.in the In High courts and Supreme court, only an Advocate can be authorised representative. 

    1. Asking for various details like books of accounts, supporting documents & explanations by sending the questionnaire u/s 142(1)(ii).
    2. Discussing various points with assessee where the AO has difference of opinion, AO will give a chance to the assessee to justify his point. 
    1. Passing of Assessment order u/s 143(3) with Notice of demand, if any – Completing the assessment If the assessment has the effect of: 
    • Increasing the income declared or
    • Decreasing the loss claimed or
    • Increasing the tax liability
    • Reducing the refund claimed 
    • In any way penalizing or prosecuting the assessee. Then AO will give various supporting provisions and decided cases laws relied on by him in framing the assessment. 

    Note

    If the assessment has the effect of increasing the tax liability of assessee then the assessment order must be accompanied with a notice of demand u/s 156 if assessment order passed without such notice then the assessment is not complete. 

    Case Law : Hon’ble Gujarat High Court in case of Purushotamdas T. Patel 

    AO passed assessment order of Sunset Ltd. for AY 2011-12 on 31.03.2014, the said order had the effect of increasing assessee’s tax liability and the same assessment order was served on 02.04.2014, but AO forget to serve notice of demand u/s 156 as soon as he noticed his mistake he passed demand order on 03.04.2014 and served the same on 04.04.2014. 

    The assessee challenged the validity of assessment and argued that assessment has become TIME BARRED. The court held that if the assessment order passed without such notice of demand then the assessment is not complete and in the above case assessment completed **only on 03.04.2014 and not on 31.03.2012** (i.e date of passing demand order after assessment order), since the assessment could not be completed before the prescribed period of 2 yrs from 31.03.2012(end of relevant AY) Therefore, a small mistake of AO has invalidated whole assessment proceedings. 

    1. Questionnaire issued u/s 142(1)(ii)
    2. Furnish detailed particulars of business operations undertaken during the relevant year like nature of trading/service/manufacturing operations. 
    1. Full particulars of principal place of business, head office and branches, factories, go downs 
    2. Copies of Audited Balance Sheet, P/L, Cash Flow Statement, Audit report (Stat & Tax Audit) for the AY under scrutiny and its previous AY.
    3. Details of investments made during the FY with supporting certificates and other docs. 
    1. Copies of your bank /credit card stats and briefly explaining all dr. and cr. entries more than Rs. 30,000. 
    1. Transactions relating to sale/purchase of capital assets with supportive documents and agreements Also detailed calculations of capital gains. 
    1. Ledgers of Secured and Unsecured borrowings along with loan agreements and PANs of lenders. 
    1. In case of indiv /HUF the AO always ask the assessee about the monthly household expenditure of the family. 
    1. Details of deductions claimed under Chapter VI-A(80C to 80U)also submit various docs and evidences for supporting the same. 
    1. Details of Incomes on which tax was deducted
    2. Details of incomes claimed exempt
    3. Details of shares/MF purchase and sale transactions entered the year. 
    1. Any other information which the AO needs, off course such needs are different in case of different assesses, their size and nature of business. 
    • Time Limit for Serving the Noticei.e. Initiating the scrutiny 
    • No notice to be *served after the expiry of the 6 months from the end of FY in which return was filed. i.e If return forFY 2015-16 is filed on Sept 30, 2016 then notice to be issued before Sept 30,2017. 
    • Service of notice means dispatching the notice to assessee. i.e date at which notice was handed over to **postal department is treated as date of service of notice irrespective of any dateput on the notice. 

    **Once the notice as such is dispatched to the assessee before the limitation period he cannot challenge the validity of assessment even if he could not receive the dispatched notice.

    6)     Time Limit for Completion of Assessment i.e Assessment Order 

    Sec 153 read with Sec 153B require that an assessment must be completed with the following time period. Otherwise the assessment proceedings will get invalid and the assessment will become time barred. 

    S.no

    Particulars

    Earlier Time limit for

    Revised Time Limits

     

    completion of assessment

    w.e.fJuly 1,2012

     

     

     

    1

    Asst  u/s  143(2)  without  making

    21 months from end of the

    24 months from end of

     

     

    reference  to  Transfer  Pricing

    relevant AY

    relevant AY

     

     

    Officer(TPO)

     

     

     

    2

    Assessment  u/s  143(2)  in  which

    33 months from the end of

    36 months from the end

     

     

    Transfer pricing issues involved and a

    AY

    of AY

     

     

    reference was made to Transfer Pricing

     

     

     

     

    Officer(TPO)  in  respect  of  transfer

     

     

     

     

    Pricing determination

     

     

     

     

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