What is Scrutiny Assessment ?

Scrutiny assessment refers to the examination of an income tax return by giving an opportunity to the assessee to substantiate the income declared and the expenses, deductions, losses, exemptions, etc. claimed in the return with the help of evidence.

How does the Income tax officer start scrutiny ?



During the course of scrutiny, the assessing officer gets an opportunity to conduct enquiries, as deemed fit, from the assessee and from third parties.

Why the scrutiny assessment is made ?

The exercise is aimed at ascertaining whether the income in the return is correctly shown by the assessee and whether the claims for deductions, exemptions, etc. are factually and legally correct.

What will happen when the Income tax return is found to be wrong ?

If any omissions, discrepancies, inaccuracies, etc. come to light as a result of this examination, the assessing officer makes his own assessment of the assessee’s taxable income after taking into consideration all the relevant facts. These assessments are made under section 143(3) of the Income Tax Act. The assessing officer may charge mandatory additional interests and may levy penalties and may initiate prosecution proceedings.


Purpose of Scrutiny Assessment

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that the assessee has not



  1. Understated the income, or.
  2. Computed excessive loss, or
  3. Underpaid tax in any manner.

What are the types of Scrutiny assessments and for what reasons the cases are selected for scrutiny ?

There are two types of scrutiny assessments

  1. Manual scrutiny cases
  2. Compulsory scrutiny cases

They are explained in detail as under (Though the reasons for manual selection of scrutiny cases reasons are case sensitive and case specific and,most of the general reasons are explained, it should not be construed as exhaustive )

Manual scrutiny cases

  1. Not filing your Income tax return

The foremost compliance to law is, you should file your Income tax return in time if you have taxable income.(Recommended Read: Due Date for filing Income Tax Return).

Ensure that you are filing the return correctly and all the details given by you while filling Returns matches with the details available with department.

  1. If your earning from all sources of income is more than Basic Income Tax Exemption Limit.
  2. You should file your return even if the tax is already deducted (TDS) and paid.
  3. If you have not filed your returns for past few years due to your lethargy, laziness, overconfidence, you or your consultantans are pre-occupied, are out of station or country, you could not file due to health reasons, pre occupied with your work, pre occupied with some litigations, Ignorance of law etc etc – will not absolve you from getting your case selected for scrutiny, you are likely to get a notice from IT department.
  1. Declaring lesser income compared to earlier years or Declaring more loss compared to earlier years

There may be substantial & significant reduction in your income or significant increase of losses compared to last year, then it may cause suspicion to the Income tax officer and he may think of selecting your case for scrutiny.

These cases apply more in respect of businessman and traders, because their income is highly volatile for hundreds of reasons. This happens in large income cases. The ITO will make attempt to find out the reasons and may call for all the documentary evidences, books of accounts bills & vouchers, bank accounts, capital accounts, profit & loss account, Balance sheet, statement of affairs, the income of your family members and examine your case.

He may compare your Gross profit ratio with the returns filed in respect of similar trade, and similar income.