What Do You Mean By Income Tax Scrutiny Notice?

The ITR notices are used by the department to request specific details about certain transactions. The issuance of such notices can be a result of a random check or an intentional effort to cross-verify transaction information.

They are issued under a specific section or clause, clearly indicating the reason for the scrutiny. This provides an opportunity for the taxpayer to verify the accuracy of the declared income, as well as the losses, expenses, deductions, and exemptions stated in the ITR for that particular financial year.

What Are The Types Of ITR Notices?

The selection of Income Tax Returns (ITRs) for scrutiny is carried out through a computer-based system. Upon selection, the taxpayer will receive a notice under Section 143(2) of the Income-tax Act, 1961.

The issuance of a scrutiny notice serves the purpose of initiating a revenue audit process on the taxpayer’s filed tax return. Its objective is to verify and ensure that the taxpayer has not underpaid their taxes in any manner.

What Is Limited Scrutiny?

Computer-Assisted Scrutiny Selection (CASS) is the method employed for this type of scrutiny. It involves a set of predetermined parameters that are used to automatically select the Income Tax Return (ITR) for scrutiny by the computer and subsequently by the department. The notices issued will specify the specific area in which supporting documents are required.

What Is Complete Scrutiny?

A comprehensive examination will be conducted on the filed tax return and all accompanying documents as part of the scrutiny process. The cases will be flagged, based on the Computer-Assisted Scrutiny Selection (CASS). Assessing officer can verify various tax return aspects, including supporting documentation, due to unrestricted scrutiny scope.

What Is Manual Scrutiny?

Central Board of Direct Taxes selects limited cases for comprehensive scrutiny based on pre-established guidelines. It should be noted that these criteria are subject to variation on each occasion.

What Is Re-Assessment?

Such notices are issued when the Assessing Officer (AO) perceives that one of the incomes has not been properly examined, assessed, or verified by the department, warranting the need to reopen the assessment.

When Can You Receive Income Tax Scrutiny Notice?

The tax department can scrutinize ITRs up to 6 months after the end of the relevant financial year.

What If You Receive A Notice?

A notice is a matter that should not be taken lightly, therefore it is crucial to respond to it promptly. Non-compliance allows the assessing officer to initiate best judgment assessment under Section 144 of the Act.

This allows the assessing officer to determine the taxpayer’s income based on their judgment. Furthermore, a penalty of Rs. 10,000 under Section 272A is also applicable in such cases. In such instances, the assessing officer may assess a higher taxable income compared to the income reported in the tax return, leading to the requirement of paying additional tax and interest.

How To Respond To An Income Tax Scrutiny Notice?

For limited scrutiny, taxpayers must provide asset details like purchase date, cost, source of funds, etc. The notice will also specify the deadline by which all the requested details must be submitted.

Above all, it is important not to panic when receiving a notice. Take the time to carefully review the notice and ensure that you respond within the specified deadline. To facilitate the process for taxpayers, the government has introduced an e-proceeding facility, allowing you to submit your responses online. Alternatively, you can seek the assistance of a chartered accountant to help you respond to the notice.