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The procedure of scrutiny assessment of Income Tax Returns by the Income Tax Department includes requiring the assessee to file returns/ documents/ information or submit physical copies of books of accounts or other evidence.
First a notice is issued to the assessee under section 143(2) of the Income Tax Act, 1961. On receipt of the notice, the assessee is required to comply with the instructions given in such notice. Usually scrutiny notices require the assessee to furnish documents/ information/ ledgers etc. to the Income Tax Department. It may also require an assessee to attend a hearing, either in person or through an authorized representative. On successful compliance of all notices relating to an assessment, the assessing officer verifies all submissions and passes the Assessment Order.
Section 143(3) of the Income Tax Act, 1961 deals with Scrutiny Assessment. Notice of Scrutiny Assessment (Notice u/s 143(2)) may be received by an assessee within 6 months from the end of the financial year in which return in furnished. This notice is sent to those assesses whose files are selected for scrutiny. Usually the selection takes place randomly on the basis of certain parameters. Scrutiny is done to ascertain whether the assessee has correctly shown his income in the return. Usually a scrutiny notice is followed by notice under section 142(1) wherein various information and documents are asked for.
The government, since the last few years have been implementing measures to promote faceless assessment. Finance Act, 2018 introduced section 143(3A) which provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of making assessment of total income or loss of the assessee under section 143(3) so as to impart greater efficiency, transparency and accountability by –
- Eliminating the interface between the Assessing Officer and the assessee in the course of proceedings to the extent technologically feasible.
- Optimizing utilization of the resources through economies of scale and functional specialization.
- Introducing a team-based assessment with dynamic jurisdiction.
Subsequently on 7th October, 2019, the Income Tax Department announced the faceless e-assessment scheme wherein it was decided that scrutiny notices will be issued from National e-Assessment Centre. All communications between the assessee and the National e-Assessment Centre will take place electronically. Finance Act, 2020 has introduced section 250(6A) in similar line to allow faceless appeal. This has reduced the requirement of departmental representation by the assessee in case of scrutiny assessments and appeals in future.
Structure of e-Assessment
The e-Assessment / faceless assessment scheme works as follows: -
- Government sets up National e-Assessment Centre and Regional e-Assessment Centres
- National e-Assessment Centre issues notice to the assessee
- Assessee is required to respond to such notice electronically
- National e-Assessment Centre allots the assessment to a specific unit of Regional e-Assessment Centre
- During the course of the assessment proceedings, the assessment unit may place request for additional documents/ evidence/ information to the National e-Assessment Centre. Upon receipt of such request, the National e-Assessment Centre may issue a notice / requisition to the assessee which the assessee has to comply with
- After taking into consideration all documents / evidences provided by the assessee electronically, the Assessment Order is drafted and forwarded to the National e-Assessment Centre.
- On review of the same, if no change is required, the National e-Assessment Centre shall forward such order to the assessee.
Production of Documents / Information Electronically
The assessee is required to provide information / documents / evidence in the electronic form to comply with scrutiny notices issued by the Income Tax Department. Softcopy of the documents (PDF format) can be uploaded in the e-filing portal to comply with such notices.
- Analysis of Income Tax Scrutiny Notices
- Preparation of Responses
- Submission of necessary documents
- PAN Card
- Copy of relevant notice / letter
- Facts of the case
- Copy of documents / information required as per the notice
- Profit & Loss Account / Balance Sheet / Books, etc
- Any Other document / information as may be required
Scrutiny assessment procedure starts with issue of notice u/s 143(2) to the assessee. On receipt of the notice, assessee is required to comply with the instructions given in such notice. A notice may require the assessee to furnish any document / information. It may also require an assessee to attend a hearing, either in person or through an authorized representative. A scrutiny notice may be followed up with a notice u/s 142(1) requiring further information. On successful compliance of all notices relating to an assessment, the assessing officer verifies all submissions and passes the Assessment Order.
E-Assessment of Faceless Assessment is a new mode of assessment introduced by the Income Tax Department. Usually assessments require the assessee to submit documents in physical form as and when needed. It also requires physical attendance of the assessee or his authorized representative to attend hearings or discussions with the Assessing Officer. With the introduction of e-Assessment, all physical interactions between the assessee and the Income Tax Authorities will be eliminated. All communications shall take place electronically.
e-Assessment system will increase transparency and accountability in the assessment procedures. It will ensure optimum utilization of resources through economies of scale and functional specialization. Further it will promote reduction of use of paper documents. All information will be stored and communicated in the electronic form thereby effecting an efficient assessment system.
The assessee can login to the e-filing portal using his User ID and password and then upload soft copy of the necessary documents in the e-Proceeding section.
National e-Assessment Centre is set up by the Government to implement faceless assessments and removing the interface between assessee and assessing officer. The job of the NeAC is to issue notices / communications to the assessee and to allot assessments to units of Regional Assessment Centers.