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          (A Work Shop and Project for Students – For Details See Part IV )

                         **   Specially written for caclubindia user by CA Surendra Kumar Rakhecha ** 



Every person (Sec…....) is required to file a Return of Income if his total income exceeds the exemption limits. (Sec……………..) 

According to the proviso to the Sec……..…..; if a person does not have taxable income; even though he is required to file a Return of Income. 

If a person has not filed a Return of Income; the Assessing Officer (AO) may issue a notice to the assessee to file a Return of Income. (Sec……………..)

Some cases are selected for scrutiny (called as regular assessment) on certain criteria and accordingly notice is issued to the assessee. (Sec……………..) 

The selection criteria is fixed differently every year.


In the last year; up to 30 09 2009 (the last date of issuing notice by the Income-Tax Department for scrutiny assessment for A.Y.2008-09) ; most of the cases have been issued notices whose sales is above 30 lacs but below 40 lacs. The department took the view that actually these persons are suppressing the sales year to year and not getting their books of account audited. 

In assessment order, the Total Income is computed by the AO keeping in mind the relevant facts and circumstances of the case. (Sec……………..) 

Whenever a case is selected as such; the AO issues a notice to the assessee to submit certain details in support of the return filed. (Sec……….…..)



Now-a-days; whenever a case is selected for scrutiny; the AO issues a detailed questionnaire which generally covers the following points : (Sec……………..) 

1. Nature of Business.

(This is asked to have an idea to know how long business is being run).

2. Address of Business with phone number including its branches and godowns.

(This is asked to have an idea of the volume of the business).

3. Name of proprietor/partners/directors with their residential addresses, phone numbers. 

(This is asked to form an opinion about the living standards of the principal officers and to issue notice in future if it is not received at the principal place of the business).

4. Name and addresses of Sister Concerns. 

(This is asked to form an opinion about the business concerns running by a group).


5. Three years Sales, Gross Profit and Net Profits and its Ratios.

(To know the business trend and ratio of G.P. whether these are in accordance with the business scenario).

6. The source of New Capital Introduced; if any. 

(To have an idea whether unexplained money (Sec………….) has been introduced in the business and if found; penalty proceedings are also initiated – (Sec………….).

7. New loans introduced. 

(To have an idea whether unexplained cash credits (Sec…………) have been introduced and if found; penalty proceedings are also initiated). (Sec………..)

8. Loans confirmations with addresses and their PAN of Lending persons. 

(To form an opinion about genuineness of the loans. If not found satisfactorily ; these amounts are added in the total income).

9. List of Sundry Creditors above Rs.....(as per his discretion) and their confirmation with PAN. 

(To see whether bogus purchases have been shown. If yes, the amount is added in the total income of the assessee and penalty proceedings are also initiated- Sec…………..).

10. List of New plant and machinery or other fixed assets purchased with supporting invoices and Calculation of Depreciation. (Sec…………)

(If excess depreciation is claimed; the same is added in the total income).

11. List of Sundry Debtors above Rs……... (as per his discretion) and their confirmation with PAN. 

(To confirm the genuineness of sales).


12. Investment made above Rs..........(as per his discretion) during the year. 

(To have an idea about unexplained investments) (Sec…………..)


13. List of Bank accounts, Bank Reconciliation Statement and copy of Bank statements. 

(To verify whether loans have been really taken by account payee cheques and/or whether payments have been made by account payee cheques).

14. Monthwise Sales and Purchases.

(To have an idea about matching Purchases with Sales. For example; if there is only purchases for two months but so sales is there; it is questionable as suppressing sales. This specially happens when some assesseees wish to avoid tax audit in last two months).


15. Quantitative monthwise summary of stock records. 

(The most dangerous area which generally assessee don’t maintain properly). Practically; huge additions are made on this ground alone. If proper books of accounts are not maintained, these are liable to be rejected (Sec…………) and best judgment is made by the A.O.). (Sec………)  


16. Valuation of Opening and Closing Stock. 

(To check the accuracy of the stock and its valuation).



17. Summary of major business expenditure. 


(To have an opinion about the expenses incurred according to the business needs). (Sec…………)


18. Copies of TDS Certificates and other deductions claimed in the return. 

(To give credit of taxes deducted at source (Section…………) and deductions claimed (Chapter ……..) . If not supported properly; these are liable to be disallowed and added to the Total Income).


19. Copy of TDS payments (Sec……………) and TDS Return filed (Sec…………); if applicable. 

(To see if disallowance is applicable if TDS has been deducted and paid after the due date of Return ) (Sec…………)


20. Copy of Tax Challans paid

– Self Assessment (Sec. ………) and Advance Tax. (Sec. ………)


21. Details of family members, their Assessment Status and PAN togetherwith Drawings made to support the living expenses, ceremonial expenses, foreign tour, electricity bills, car maintenance, educational  expenses of children etc..

(To form an opinion whether the expenses incurred for households is sufficient to meet the living standards of the assessee. If AO is not satisfied then the difference is added in the total income).

(To have an idea of unexplained expenses, if any). (Sec……….)

22. Previous Assessment order copy; if any. 

(To form an opinion whether the same grounds are still prevailing and to know what is the previous records of the assessee). 


23. Any other point which he can raise on the basis of his checking of books of account and vouchers.

If regular books of account are not maintained or the AO is not satisfied with the method of accounting employed; he may reject the books of account.


24. Copy of Tax Audit Report (Section ……….) and Statement of Affairs with Computation of Income for assessment year and previous two years.

(To form an opinion on the adverse remarks given by the auditors on the statement of affairs. If the assessee failed to get books of account audited; then a penalty equal to 0.5% of total turnover or Rs.1 lac whichever is lower is imposed – Sec. …….. ).



After considering the above points ; he discusses in details all the above points with the assessee to form an opinion about its genuineness and to decide whether the income is suppressed. 

If he finds that something is not acceptable; looking to the case; he makes Recomputation of Total Income after adding those expenses/amount which according to him is not acceptable as deduction and/or income which is not properly shown and accordingly Income Tax liability is decided. 

At the time of making assessment order; first portion says about assessee, his PAN, Address, Previous Year, Assessment year and the section under which assessment order is framed.

Thenafter he writes about the discussion and gives his reasoning why certain items are not accepted as filed by the assessee. This assessment order is same as decided by the courts. The courts decide the cases after hearing both the parties. Income Tax Officer is a quasi-judicial authority; because there are only one party with whom he discusses. 

A demand notice (Section……..) is issued which is required to be paid by the assessee within 30 days of its receipt or he can go for appeal within 30 days (Sec……...)




Homework for the Students : (Fill in the Blanks )


1. Find which section is applicable on the matters discussed above (Put the suitable section number after each point): 

Section 2(31)- 32 - 37(1) – 40 –44AB - 68 – 69 -69A - 69B – 69C - 139 (1) – 140A - 142(1) - 142(2) – 143(2) - 143(3) - 144 – 145A – 156 – 200(1) – 203 - 206 - 211 – 246A – 271(1) (c) – 271B- Chapter VIA. 

Note :


1. Some sections may have repetitive effects on the issues. Treat the above sections as hint only. Specific sub-section; wherever applicable; should be mentioned. An analytical reading of the sections is desired to have in-depth knowledge about the Income-Tax Law.

2. After reading the above sections properly; discuss these with your friends and present it in power point for better understanding; if possible. The work may be distributed section wise by the students between them. These sections are most important from practical point of view so should be very carefully answered when asked by the AO.

3. The Income-Tax is affecting all the persons directly. Not only basic knowledge, but practical exposure in the subject is required to make a good career. 


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(Practising CA at Surat)
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