What is Scrutiny Assessment?

A scrutiny assessment refers to a detailed examination of the Income Tax Return filed by a taxpayer under section 143 (3). In this process of assessing the ITR, the tax authorities check the accuracy and authenticity of differnt claims, deductions, and all other details in the ITR. 

The assessment is essentially done to check the ITR filed by the taxpayer. The main focus is not on a detailed return scrutiny at this stage, but it involves a basic verification process. There are some adjustments that can be made to the data provided by the taxpayer, such as:

• Identification of the wrong or incorrect claims
• Correction of Errors made Airthematically
• Disallowance of the Loss claimed
• Disallowance of specific deductions
• Addition of the income that is not included in the ITR
• Disallowance of the expense that is not added to the total income

Types of Scrutiny Assessments

Scrutiny Assessment in Income Tax has been divided into two categories:

1. Manual Scrunity Assessments: Due to certain reasons, these are the assessments selected on a case-by-case basis. The manual scrutiny assessments can be avoided by the assessors. They can exercise careful compliance and due diligence with tax filing laws and procedures. 
2. Compulsory Scrutiny Assessments: These types of assessments cannot be avoided as they are compulsory to be done for the assesses. These are authorised by the special criteria set by the tax authorities. 

Reasons for Selecting Scrunity Assessment

There are many common reasons for which the cases are selected for Scrunity Assessments:

1. Errors Related to TDS

• If there are errors in reporting the amount of TDS in the Income Tax Return and if it is recorded on the TRACES website, then this will trigger the Scrutiny Assessment income tax.

2. Non-filing of Income Tax Returns (ITRs)

• If the income of the individuals is above the set exempted limit, then they must file an ITR; otherwise, a scrutiny assessment in income tax will trigger.
• Residents who have foreign assets or have the authority over the bank accounts in foreign countries must file ITR regardless of their gross income.
• Filing ITR is essential even if the employee has already deducted the TDS. 

3. High-Value or Unnatural Transactions

• If you make any transaction that is higher than your income level, then it can lead to a scrutiny assessment. For example: regular deposits of bigger amounts in the bank account which does not correspond with your disclosed income.
• The banks and the financial institutions report these types of transactions to the income tax department if they find any.

4. Not disclosing other incomes

• You have to report all the income that you earn. It includes the interest from the savings accounts and fixed and recurring deposits.
• If the TDS is deducted at a lower rate than the income tax slab of the taxpayer, then the issue arises and demands a scrutiny assessment.

5. Defects in Income Tax Return

• You will get a notice for the income tax scrutiny assessment if there are any errors in your ITR, such as filing the wrong ITR form or not filling in the mandatory information. 
• There are chances that the tax department may ask you to file a revised return under section 139 (9) to correct all your errors.