scrutiny norms for income tax assessment
This query is : Resolved
25 June 2009
my assessee ( huf) was having agricultute income in excess of 10 lacs as well as int on fdr & saving int income of rs 90000/- and he had no other source of income or loss. still we filed the return of income to get the more agriculture loan from bank for the asst yr 07-08 by showing above mentioned income. income tax officer issued the notice u/s 143(2) for scrutiny assessment under compulsory norm of agriculture income in excess of Rs 10 lacs. whether he is justified to take the case under scrutiny ?
25 June 2009
Hi Uday,
Yes the A.O. can select the case for scrutiny assessment as you have declared agriculture income more than 10 lacs in your return of income.
Yes the A.O. can select the case for scrutiny assessment as you have declared agriculture income more than 10 lacs in your return of income.
27 June 2009
case selected by a.o.& issued notice u/s 143(2).my asseessee has not filed return of income u/s 139 or in reponse to notice u/s 142(1) & also he is not an asseessee under income tax Act & also norms of scrutiny prescribed for asseessee & not for non asseessee so in my opinion notice is not valid pl guide
23 July 2025
### **Scrutiny Norms for Income Tax Assessment**
In India, **scrutiny assessment** refers to the detailed examination of the tax return filed by the taxpayer. The Income Tax Department conducts this process to verify the correctness of the income, deductions, exemptions, and tax payments declared by the taxpayer.
Let’s address your query in the context of the **HUF** (Hindu Undivided Family) filing income tax returns with agricultural income, and the notice issued under **Section 143(2)** for scrutiny assessment.
### **1. Scrutiny Assessment and Agriculture Income:**
Under the Income Tax Act, agricultural income is exempt from tax, but the exemption is subject to certain conditions. If an individual or HUF declares **agricultural income** exceeding ₹10 lakhs, they are required to file an income tax return even if they have no taxable income. This rule is in place because agricultural income above this threshold might impact the taxpayer’s eligibility for **tax-free loans**, **subsidies**, or other financial considerations. The threshold of ₹10 lakh for agricultural income triggers scrutiny.
* **Compulsory Scrutiny of Agricultural Income**: If a taxpayer reports **agricultural income exceeding ₹10 lakh**, the return may be selected for scrutiny to confirm the authenticity of such income.
* **Notice under Section 143(2)**: This section allows the Assessing Officer (AO) to send a **notice for scrutiny** to verify and cross-check the details of the tax return, especially if there’s a large amount of agricultural income.
### **2. Was the Notice Issued Valid?**
In your case, the **HUF** had agricultural income exceeding ₹10 lakh and also received interest income (from FDR and savings account). The case was selected for scrutiny under the compulsory scrutiny norms for agricultural income.
Here’s a breakdown of the issues involved:
* **Agricultural Income Exceeding ₹10 Lakh**: According to the **Income Tax Department’s guidelines**, if the total agricultural income exceeds ₹10 lakh, the case will likely be scrutinized.
* **Filing a Return to Obtain Loans**: If the return was filed solely to get a loan from the bank and not because there was actual taxable income, it might have raised a red flag. The fact that the return was filed to show the agricultural income could be scrutinized by the tax authorities to ensure that the income was genuine and correctly reported.
* **Notice under Section 143(2)**: Section 143(2) enables the **Income Tax Officer (ITO)** to issue a notice for scrutiny to examine whether the income shown in the return is correct. The fact that agricultural income exceeds ₹10 lakh justifies the scrutiny. Hence, the **AO is justified in issuing the notice** under **compulsory scrutiny norms**.
### **3. Non-Assessment Status of the Assessee:**
You mentioned that the assessee has not filed the return under Section 139 or in response to Section 142(1), and is not an assessee under the Income Tax Act.
* **Filing a Return**: Even if the agricultural income is exempt, the taxpayer is still required to file the return if the income exceeds ₹10 lakh. However, if they didn’t file the return under **Section 139** or didn’t respond to the notice under **Section 142(1)**, then **Section 143(2)** notice can be deemed to be issued under the powers available to the AO for scrutiny.
* **Non-Assessee**: If your client is not considered an assessee (meaning they did not have any other taxable income), the **scrutiny assessment notice issued under Section 143(2)** is valid as it is a routine process for checking agricultural income, especially above ₹10 lakh. The status of being a non-assesse doesn’t exempt them from scrutiny. If they file a return and declare significant agricultural income, they can still be subject to scrutiny, regardless of the lack of other income.
### **4. Validity of the Scrutiny Notice:**
* **Yes, the AO is justified** in issuing the notice for scrutiny under Section 143(2), particularly due to the large agricultural income declared (over ₹10 lakh). The Agricultural Income exemption may be scrutinized to ensure that the declared income is not inflated or fictitious.
* Even if the assessee is a non-assesse (with no other taxable income), once the return is filed and agricultural income exceeds the threshold, it will attract scrutiny. However, the assessee should respond to the notice and provide documentation to substantiate the agricultural income claim.
### **What You Can Do Next:**
1. **Provide Supporting Evidence**: Respond to the notice by submitting appropriate documentation to support the agricultural income, such as land records, agricultural yield receipts, and any other documents that prove the authenticity of the income.
2. **Clarify Intentions**: In case the return was filed only to obtain a loan, explain the situation to the AO and provide justification. However, it's important to clarify that even agricultural income above ₹10 lakh must be reported under the Income Tax Act.
3. **Comply with the Scrutiny**: Ensure that the response to the notice under Section 143(2) is timely and complete. If required, engage with a tax consultant or CA to handle the scrutiny process efficiently.
---
### **Conclusion:**
* **Scrutiny is justified** due to the agricultural income exceeding ₹10 lakh, as per the norms.
* **Non-assessees** (with no other taxable income) can still be scrutinized if they file a return with such agricultural income.
* Responding to the **Section 143(2)** notice is crucial to avoid penalties or further scrutiny.
If you need more detailed guidance on how to respond to the AO or the documentation required, feel free to ask!
In India, **scrutiny assessment** refers to the detailed examination of the tax return filed by the taxpayer. The Income Tax Department conducts this process to verify the correctness of the income, deductions, exemptions, and tax payments declared by the taxpayer.
Let’s address your query in the context of the **HUF** (Hindu Undivided Family) filing income tax returns with agricultural income, and the notice issued under **Section 143(2)** for scrutiny assessment.
### **1. Scrutiny Assessment and Agriculture Income:**
Under the Income Tax Act, agricultural income is exempt from tax, but the exemption is subject to certain conditions. If an individual or HUF declares **agricultural income** exceeding ₹10 lakhs, they are required to file an income tax return even if they have no taxable income. This rule is in place because agricultural income above this threshold might impact the taxpayer’s eligibility for **tax-free loans**, **subsidies**, or other financial considerations. The threshold of ₹10 lakh for agricultural income triggers scrutiny.
* **Compulsory Scrutiny of Agricultural Income**: If a taxpayer reports **agricultural income exceeding ₹10 lakh**, the return may be selected for scrutiny to confirm the authenticity of such income.
* **Notice under Section 143(2)**: This section allows the Assessing Officer (AO) to send a **notice for scrutiny** to verify and cross-check the details of the tax return, especially if there’s a large amount of agricultural income.
### **2. Was the Notice Issued Valid?**
In your case, the **HUF** had agricultural income exceeding ₹10 lakh and also received interest income (from FDR and savings account). The case was selected for scrutiny under the compulsory scrutiny norms for agricultural income.
Here’s a breakdown of the issues involved:
* **Agricultural Income Exceeding ₹10 Lakh**: According to the **Income Tax Department’s guidelines**, if the total agricultural income exceeds ₹10 lakh, the case will likely be scrutinized.
* **Filing a Return to Obtain Loans**: If the return was filed solely to get a loan from the bank and not because there was actual taxable income, it might have raised a red flag. The fact that the return was filed to show the agricultural income could be scrutinized by the tax authorities to ensure that the income was genuine and correctly reported.
* **Notice under Section 143(2)**: Section 143(2) enables the **Income Tax Officer (ITO)** to issue a notice for scrutiny to examine whether the income shown in the return is correct. The fact that agricultural income exceeds ₹10 lakh justifies the scrutiny. Hence, the **AO is justified in issuing the notice** under **compulsory scrutiny norms**.
### **3. Non-Assessment Status of the Assessee:**
You mentioned that the assessee has not filed the return under Section 139 or in response to Section 142(1), and is not an assessee under the Income Tax Act.
* **Filing a Return**: Even if the agricultural income is exempt, the taxpayer is still required to file the return if the income exceeds ₹10 lakh. However, if they didn’t file the return under **Section 139** or didn’t respond to the notice under **Section 142(1)**, then **Section 143(2)** notice can be deemed to be issued under the powers available to the AO for scrutiny.
* **Non-Assessee**: If your client is not considered an assessee (meaning they did not have any other taxable income), the **scrutiny assessment notice issued under Section 143(2)** is valid as it is a routine process for checking agricultural income, especially above ₹10 lakh. The status of being a non-assesse doesn’t exempt them from scrutiny. If they file a return and declare significant agricultural income, they can still be subject to scrutiny, regardless of the lack of other income.
### **4. Validity of the Scrutiny Notice:**
* **Yes, the AO is justified** in issuing the notice for scrutiny under Section 143(2), particularly due to the large agricultural income declared (over ₹10 lakh). The Agricultural Income exemption may be scrutinized to ensure that the declared income is not inflated or fictitious.
* Even if the assessee is a non-assesse (with no other taxable income), once the return is filed and agricultural income exceeds the threshold, it will attract scrutiny. However, the assessee should respond to the notice and provide documentation to substantiate the agricultural income claim.
### **What You Can Do Next:**
1. **Provide Supporting Evidence**: Respond to the notice by submitting appropriate documentation to support the agricultural income, such as land records, agricultural yield receipts, and any other documents that prove the authenticity of the income.
2. **Clarify Intentions**: In case the return was filed only to obtain a loan, explain the situation to the AO and provide justification. However, it's important to clarify that even agricultural income above ₹10 lakh must be reported under the Income Tax Act.
3. **Comply with the Scrutiny**: Ensure that the response to the notice under Section 143(2) is timely and complete. If required, engage with a tax consultant or CA to handle the scrutiny process efficiently.
---
### **Conclusion:**
* **Scrutiny is justified** due to the agricultural income exceeding ₹10 lakh, as per the norms.
* **Non-assessees** (with no other taxable income) can still be scrutinized if they file a return with such agricultural income.
* Responding to the **Section 143(2)** notice is crucial to avoid penalties or further scrutiny.
If you need more detailed guidance on how to respond to the AO or the documentation required, feel free to ask!
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