An income tax assessment is a process that determines a person's or a corporation's tax liability based on information that the person or corporation has provided. Once the assessee has submitted an income tax return, the Income Tax department does income tax assessments, which the Central Board of Direct Taxes overseas (CBDT).

According to the Income Tax Act of 1961, the income tax department has the authority to assess any taxpayer. The Income Tax department frequently notifies the assessee and requests information regarding their earnings and outgoings for the previous fiscal year as the initial step in the assessment procedure. Below, we'll go over the many specifics of the Income Tax Act of 1961's scrutiny assessment.

When is a case selected for scrutiny?

If the assessee fails to file a tax return or fails to include all necessary information in the return, the Income Tax administration may decide to choose the case for a scrutiny assessment. It's also possible that the tax office opened a scrutiny assessment because the assessee's tax computations contained an error.

The Assessing Officer will often select a case for additional evaluation to make sure the conditions below are satisfied:

On the part of the assessee, there was no underreporting of income or overestimation of losses.
Or, the assessee failed to make a payment of insufficient tax.

In this reference, it is important to note that the AO must accept the CBDT's recommendations in accordance with Supreme Court rules and customs.

How long does it take to issue a notice under Section 143(2)?

The Assessee must be informed under Section 143(2) no later than six months following the conclusion of the Fiscal Year covered by the Return Under Review. No assessment on any income or profits may be made against the assessee for that financial year if the notification is not received by the deadline by the assessee.

Therefore, even if there are valid grounds for suspicion that a person got illegal income at a particular period, their finances and income tax filing cannot be examined if they have not received such a warning.

The obligation is on the AO's office to prove beyond a reasonable doubt that the notice was issued to the assessee within the appropriate time period if the assessee confirms by affidavit under Section 143(2) that they did not receive the notice within six months of the end of the financial year. In the event that this stipulation is not met, disregard the entire evaluation.

What is section 292BB?

According to Section 292BB's recommendations, it is presumed that the assessee has received the notice if he has cooperated completely with the proceedings. As a result, they will be unable to bring up the issue of a late or erroneous serving of notice in the future.

This clause further indicates that section 292BB cannot be used in cases where the assessee has complained about the no service, late service, or irregular serving of the Notice Under Section 143(2) prior to the assessment proceedings.

Simply put, the proceedings will be deemed lawful if the assessee cooperates with them after getting or not receiving the notice pursuant to section 143(2) without objecting to the lateness or irregularity of the notice's service.

How to respond to a notice under Section 143(2)

The AO will often request the following details when you receive such notice:

• Bank records.
• Accounts ledgers.
• Verification certificates (for loans taken, if any).
• the identities and locations of debtors and creditors.
• Financial disclosures for debtors and creditors (to verify the transactions).
• Taxpayers should be mindful that the burden of proof does not end merely by turning in the paperwork. Instead, in order to prove the disputed transactions, they must present the following.
• Proof of Identity for the Creditor (government-issued ID card).
• a loan creditor's ability or creditworthiness to have repaid the loan or provided the funds.
• It was a legal transaction, so that's good.

If the assessee can demonstrate all of the aforementioned facts, the department is now required to refute them. The AO, however, can only ask for documentation of monetary credits or loans issued or received during the prior fiscal year. They are not permitted to view transactions from earlier years.

Things to know about the Income Tax Act, 1961's scrutiny assessment

1.It's important to give the assessee an opportunity to speak

A chance for the assessee to be heard by the court must be provided during a scrutiny assessment under the Income Tax Act. This is a basic justice system rule, not a Section 143(2) provision. Let's say the AO decides to include any evidence gathered from sources the assessee is unaware of. They must then be given a reasonable opportunity to question this testimony under cross-examination.

The department shouldn't increase the person being assessed income without giving enough time for cross-examination, as was the case in CIT vs Eastern Commercial Enterprises, 210 ITR 103(CAL).

2.Deposits made in a firm

The amount of cash deposited by partners in a firm into a company shall not be considered as income produced by the firm if the AO cannot demonstrate beyond a reasonable doubt that this amount constituted the firm's income. Instead, it will be regarded as earnings made by the partners.

3.Gifts are given to the assessee

If a gift recipient's behaviour is being evaluated, they must provide the following:

• The affidavit of the donor
• PAN no. of the donor
• Gift deed
• The relationship of the recipient with the donor. 

It is typically accepted that producing all of this will suffice to demonstrate that the transaction was a gift.

4.Additions can’t be made on suspicion alone

According to the guidelines, the Assessing Officer cannot add to the assessee's income based solely on suspicion. This stops the AO from abusing its position of authority. To illustrate, the AO is not permitted to simply assert that the assessee has enough money and does not need any more in order to add to their income.

5.Sending a summons request to non-cooperating creditors

Occasionally, the assesses discover that the depositors' creditors are refusing to work with them on the assessment. In that situation, the assessee may request a summons under Section 131 from the AO. Along with their account books and any other materials required to demonstrate the authenticity of the assessee's transactions, they must produce their account books.

Conclusion

You should be aware that trying to handle your scrutiny assessment under the income tax act alone is one of the biggest blunders you can make if you are unfamiliar with the basics of the law. Instead, make a call to the Online Legal India professionals to locate the best financial and legal counsel to support you during this trial. We promise you'll discover the appropriate legal or financial counsel quickly thanks to our access to the largest database of professionals in either field in the nation.