Every taxpayer desire that his return should be accepted u/s 143(1) and not subjected to scrutiny assessment. It is natural that the taxpayer becomes anxious on getting the notice. In such a situation, the assessee starts pondering about various things. So, the taxpayer should know about circumstances in which a case is selected for scrutiny and about scrutiny assessment.

Where a return has been filed u/s 139 or in response to notice u/s 142(1), the case can be selected for scrutiny if the Assessing Officer (A.O) considers it necessary or expedient to ensure that –

a. the assessee has not understated the income or
b. the assessee has not computed excessive loss, or
c. the assessee has not underpaid the tax in any manner.

However, if a case is selected for comprehensive scrutiny, the notice u/s 143(2) must be served on the assessee before the expiry of six months from the end of the financial year in which the return was furnished. [For returns filed upto 31.03.2008 the Notice u/s 143(2) was required to be served within 12 months from the end of the month in which the return was furnished.]

Usually, in practice it is seen that A.O. also consider the amount of turnover, rate of gross profit, total income, quantum of loans taken, investments during the year, in case of companies increase in paid up capital etc. for selecting a case for scrutiny. Sometimes, on the basis of report of survey and other information also, the case may be selected for scrutiny u/s 143(2).

The notice u/s 143(2) served on the assessee requires the assessee to produce any evidence which the assessee may rely in support of the return (without pinpointing any specific allowance, claim, etc. made in the return).

After hearing such evidence as the assessee may produce in response to the notice u/s 143(2) and such other evidence as the A.O. may require on specified points and after taking into account all relevant materials which the A.O. has gathered, he shall pass an assessment order in writing determining the total income or loss of the assessee and the sum payable by the assessee on the basis of such assessment order.