The income tax (I-T) department annually verifies the accuracy of the income tax returns (ITR) filed by taxpayers by sending a scrutiny notice to them. This is aimed at ensuring that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid tax.

Scrutiny notice received by an individual can be grouped into limited scrutiny or complete scrutiny. Under limited scrutiny, a taxpayer is only required to submit details with respect to specified transaction/query for which scrutiny has been initiated. Under complete scrutiny, a tax officer can ask taxpayer to furnish an exhaustive list of documents/information, which he feels is relevant for detailed audit of the tax return.

Pre-determined criteria

In order to issue a scrutiny notice, the tax department follows certain pre-determined criteria (e.g., substantial tax refunds, foreign tax credit, etc.) for selecting cases for scrutiny. Scrutiny cases are also being selected under Computer Aided Scrutiny Selection (CASS) based on broad-based selection parameters.

The ITR can be picked up for scrutiny within six months from the end of the assessment year (AY) in which the return was filed. For example, if the tax return for FY17-18 was submitted on July 31, 2018, scrutiny notice can be issued by September 30, 2019.

Scrutiny notice requires a physical visit by a taxpayer or his authorised representative (i.e., chartered accountant, tax lawyers etc.). However, of late, in order to promote efficiency, transparency and accountability, income tax authorities have launched the ‘e-proceeding’ facility. Under this, the government has mandated income tax officers to take recourse to electronic communications for all limited and complete security cases.

Scrutiny of a tax return is a regular process and a taxpayer should not panic upon receiving scrutiny notice. Some key check points which help in responding to notices include:

1. Verifying details on the notice such as name,

2. Permanent Account Number (PAN)

3. The AY for which the same has been issued, along with details of the jurisdiction of the tax officer.

It is important to review and arrange all documents (e.g., computation sheet, Form 16, details of interest earned, Form 26AS, etc.) depending on the type of scrutiny notice issued before the reply is submitted.

The scrutiny notice prescribes a date by which the requested documents/information need to be furnished to the tax officer/uploaded on the e-filing website. It is advisable that in case the requisite documents are not ready by the said date, then a request letter for adjournment is submitted to the tax officer seeking additional time to collate and submit the required documents/details. In all correspondences with tax authorities, it is important to quote the PAN and the AY.

It should also be kept in mind that the tax department has a mechanism in place to collate the details of major transactions carried out by a taxpayer during a particular year. In case any error was committed at the time of filing of tax return , the tax payer has an option to disclose the same before the tax officer.

It is also important to note that the tax officer has the right to complete the scrutiny on ‘Best Judgement’ basis as he deems fit as per the information available with him in case he is not satisfied with the details submitted before him or if full particulars of information sought, has not been submitted to him as per his satisfaction.