Mr. Agarwal, a medium size wholesale trader from Meerut, is some what worried and is not able to concentrate fully on his business from the time he has received a notice from Income Tax Department. His tax consultant has told him that his file has been selected for scrutiny and the assessing officer will ask for documents and other details in relation to his financial transaction. Mr. Agarwal is no different. Taxpayers generally becomes anxious on getting notice from Income Tax Department and starts pondering as to on what line the assessing officer would proceed to finalise the assessment. Let’s understand from a  layman’s perspective, the provisions of scrutiny assessment under the Indian Income Tax: The selection of scrutiny is done both by manual selection by the assessing officers and by computer aided source selection (CASS). Central Board of Direct Taxes (CBDT) issues guidelines for selecting cases for scrutiny, which are broadly based on parameters, like Quantum of cash deposits made in bank account in the financial year; Purchase and sale of property and quantum thereon; Quantum of agriculture income disclosed; Deduction and exemptions claimed and quantum thereon; lower profit margins;  substantial quantum of unsecured loan taken or given. Further, the notice for initiating the procedure for assessment under section 143(2) should be served to the assessee before expiry of six months from the end of financial year in which the return was filed. (That is for financial year 2009-10, notice has to be issued by 30th September 2011 Where the assessee claims that the aforesaid notice was not received by him within the prescribed time and the assessment is intiaited  the onus lies with the department to conclusively prove that the notice was served upon the assessee within the prescribed time. Failure to do so shall lead to set aside of the assessment. Generally, in the scrutiny, the assessing officer would ask for following details to start off the assessment:

a)Books of accounts;

b)Bank statements or pass books;

c)Confirmation, certificates of loans, if any;

d)Party wise details of purchases and sales; and

e)Names and addresses of sundry creditors and debtors. The assessing officer may also issue summons under section 131 or may ask the assessee to produce the loan creditors or other parties for verification of transactions. The assessing officer may also call for information from suppliers, customers, creditors, debtors, Bank and other relevant parties to cross check. Further, Indian Income Tax states that assessment proceeding should be completed by issuance of assessment order to the assessee within 21 months from the end of assessment year for which the assessment year is done. For Example- Assessment proceeding for Financial year 2007-08 (that is assessment year 2008-09) should be completed by 31st December 2010.

To Wrap up – Taxpayers should not panic on getting notice from the Income Tax department and their tax consultants’ should also look to educate taxpayers on issues, like books of accounts, the taxpayers should maintain taking into consideration nature of taxpayers, nature of back-up documents to be kept for assessment procedure and other compliance related issues. 

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