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The Income Tax Act contains provisions regarding comprehensive scrutiny in Section 143. In
simple terms scrutiny assessment is a detailed examination of the return of income filed by the
assessee to check whether:
Income has been understated
Any excessive loss has been computed
Tax has been under-paid or not.
In order that scrutiny assessment is made, a return of income has to be filed. It could be filed
either under Section 139 or in response to a notice u/s 142(1).
It is after filing a return of income, that an assessee may be called up for scrutiny.
If a scrutiny notice is issued prior to submission of return of income, it is not a valid notice - DIT
vs. Society for Worldwide Inter Bank Financial, Telecommunications  323 ITR 249 (Delhi).
Hence, filing of return is a pre-requisite for initiating scrutiny.
Service of notice
A notice shall be SERVED on the assessee under Section 143(2)(ii) requiring him to produce
evidence which he may rely in support of his return. Such notice shall be SERVED on the
assessee within 6 months from the end of the financial year in which the return is furnished. It is
interesting to note that if notice is SENT to assessee on the last day of the period of limitation of 6
months, but was SERVED on the assessee a few days after period of limitation, it is not a valid
notice – Adarsh Traders v. CIT  SOT 12 (Delhi)(SMC II).
Other points regarding notice:
Authentication of notice - Section 282A provides that where an notice/document is
required to be issued, served or given by any income-tax authority, it shall be deemed to
be authenticated if the name and office of a designated income-tax authority is printed,
stamped or otherwise written thereon.
As per Section 292BB, where an assessee has appeared in any proceeding or co- operated
in any inquiry relating to an assessment or reassessment, it shall be deemed that any
notice under any provision of this Act, which is required to be served upon him, has
been duly served upon him in time in accordance with the provisions of this Act and
such assessee shall be precluded from taking any objection in any proceeding or inquiry
under this Act that the notice was—
(a) not served upon him; or
(b) not served upon him in time; or
(c) served upon him in an improper manner:
But Section 292BB shall not apply where the assessee has raised such objection before the
completion of such assessment or reassessment.
Assessing officer shall, in the notice served, require the assessee to produce details which he
thinks are necessary for the purpose of the scrutiny. Some of the frequently asked queries
include requests for furnishing particulars of places of business, nature of business activities,
particulars of directors, books of accounts, audited financial statements, investments made,
related party transactions details etc.
After hearing such evidence and after taking into account such particulars as the assessee may
produce in response to the notice, the Assessing Officer shall, by an order in writing, allow or
reject the claim or claims specified in such notice and make an assessment determining the total
income or loss accordingly, and determine the sum payable by (or refund due to) the assessee on
the basis of such assessment.
Time Limit for completion of Assessment:
The time limit for completion of scrutiny assessment is prescribed in Section 153. As per Section
153(1), scrutiny assessment shall be completed within 2 years from the end of the relevant
assessment year. Where in the case reference has been made to the Transfer Pricing officer, the
time shall be extended by another 12 months.
Procedure for scrutiny in the case of scientific research association, news agency etc
This procedure is applicable to assessees required to furnish return of income u/s 139(4C) or
research association u/s 10(21);
news agency referred u/s 10(22B);
association or institution u/s 10(23A);
institution u/s 10(23B);
fund or institution or trust or institution or any university or other educational
institution or any hospital or other medical institution u/s 10(23C),
university, college u/s 35(1)(ii)/(iii)
Here, assessment order can be made after giving exemption u/s 10. But if Assessing Officer
wants to pass an order without giving effect to Section 10, he needs to follow the below
Intimate the Central Government or the prescribed authority, the contravention of the
provisions of relevant clause of section 10, by such organization listed above, where in
his view such contravention has taken place, and
the approval granted to organization has been withdrawn or notification issued in
respect of such organization has been rescinded.
Where an assessee fails to comply with a notice under Section 143(2), the penalty is fixed at
Rs. 10,000 for each such failure. This is specified in Section 271(1)(b).
Some relevant judicial rulings:
Under Section 143, books of account cannot be detained; assessing officer has the power
to only call for them – Pragdas Mathuradas vs. ITO  18 ITR 757 (Cal).
Once a valid notice u/s 143(2) has been issued, proceedings for rectification u/s 154 of
intimation u/s 143(1) can’t be initiated – CIT vs. Haryana State Handloom and
Handicrafts Corporation Ltd  336 ITR 699 (P&H).
Where an assessment order u/s 143(3) is passed without issuing a notice to assessee u/s
143(2), the said order is invalid – P Sukumar HUF vs. CIT  15 taxmann.com 326