Income Tax Assessment / Scrutiny Handling

A summary assessment under Section 143(1) is an automated processing of the return where the Department corrects arithmetical errors and applies prima facie adjustments. No detailed examination occurs. A scrutiny assessment under Section 143(3) involves a thorough examination of the return by the Assessing Officer, who issues notices, examines books, and passes a detailed order. Only in scrutiny assessments can the Assessing Officer make additions to income based on evidence and enquiries.

The Department must issue a notice under Section 143(2) within six months from the end of the financial year in which the return of income is filed. For example, if a return for Assessment Year 2023-24 is filed in July 2023, the notice must be issued by 30 September 2024. If no notice is issued within this period, the return cannot be taken up for scrutiny and is treated as accepted under Section 143(1).

Yes, the Department can reopen a completed assessment under Section 147 if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. As amended by the Finance Act 2021, reopening is permissible within three years from the end of the relevant assessment year in normal cases, and up to ten years if the escaped income is likely to be fifty lakh rupees or more and is based on evidence of tangible material. A notice under Section 148 must be issued before reopening.

If a taxpayer fails to comply with notices issued during scrutiny proceedings, the Assessing Officer is empowered to make a best judgment assessment under Section 144 of the Income Tax Act, 1961. In such an assessment, the Assessing Officer estimates the income to the best of their judgment based on available information, often resulting in significantly inflated additions and demand. Additionally, a penalty for failure to comply with notices can be levied under Section 272A.

Under Section 270A, if the Assessing Officer finds that income has been underreported, a penalty equal to fifty percent of the tax payable on the underreported income is levied. If the underreporting is found to be due to misreporting, which includes falsification of documents or suppression of facts, the penalty is two hundred percent of the tax payable on the misreported income. This penalty is in addition to the tax and interest payable on the assessment.

A taxpayer aggrieved by an assessment order under Section 143(3) or 144 can file an appeal before the Commissioner of Income Tax (Appeals) under Section 246A of the Income Tax Act, 1961 within thirty days of receiving the assessment order. The appeal must be accompanied by payment of the taxes admitted as due and the prescribed form and fee. If the appeal is not decided by CIT(A), a further appeal lies to the Income Tax Appellate Tribunal and thereafter to the High Court and Supreme Court on substantial questions of law.

The Central Board of Direct Taxes issues annual guidelines that include specific risk criteria for scrutiny selection. Startups claiming Section 80-IAC tax holiday, companies carrying forward large losses, entities with significant related-party transactions, and businesses where the income reported is substantially lower than turnover are among the profiles that face higher scrutiny risk. The Faceless Assessment Scheme introduced from Assessment Year 2021-22 has made selection more data-driven and objective, but these risk factors remain relevant.

The Faceless Assessment Scheme, notified under Section 144B of the Income Tax Act, 1961 and made applicable from 13 August 2020, eliminates physical interaction between the taxpayer and the Assessing Officer. Cases are assigned randomly to assessment units across the country, and all communication happens electronically through the ITBA portal. The taxpayer or their representative submits documents and responses digitally. A National Faceless Assessment Centre coordinates the proceedings, and draft assessment orders are reviewed by a review unit before finalisation, aiming to reduce subjectivity and corruption.