Income Tax Notice for Scrutiny Assessments under Income Tax Act 1961 are made u/s 143(3) if the Assessing Officer considers it necessary or expedient to ensure that- (a) the assessee has not understated the income or has not computed excessive loss; or (b) has not underpaid he tax in any manner.

1. Income Tax audit Under Scrutiny Assessments
Income Tax Notice for Scrutiny Assessments under Income Tax Act 1961 are
made u/s 143(3) if the Assessing Officer considers it necessary or expedient to
ensure that-
(a) the assessee has not understated the income or has not computed excessive loss;
or
(b) has not underpaid he tax in any manner.
If a case is selected for comprehensive scrutiny, the notice u/s 143(2) must be
served on the assessee before the expiry of 6 months from the end of the financial
year in which return was furnished. So for a return filed for AY 2014-15 scrutiny
notice has to be served before 30-Sep-2015.
Approaches for Scrutiny Case Selection
Selection for scrutiny is generally made using two distinct approaches:
(1) Centrally through CASS
(2) Manual selection by the Assessing Officers
At present, the income tax department (ITD) carries out scrutiny of up to 2% of the
total number of income tax returns. The computer aided scrutiny selection (CASS)
system selects the cases at random based on intelligence and annual information
return (AIR) parameters.
CASS
ITD is assisted by an Integrated Tax Payer Data Management System (ITDMS) in
generating a 360 degree profile of a person. It compiles data and information from
all available data sources like, PAN, e-TDS, OLTAS, AIR, CIB etc. These
information are then linked and extensively mined to generate a complete profile
of the person concerned. In case of an individual, the family tree can be created
with links to all related entities.
Basically scrutiny is based on risk-analysis conducted through computer- assisted
programme and also manually with reference to broad parameters decided every
year for the entire tax-payer population, inter-alia, considering factors like gross
income, deductions and exemptions claimed, legal issues involved in litigation,
quantum and nature of specific transactions, status of assessees , etc.
Mismatch in income and investments (Annual Information Return)
Banks, mutual funds, credit card companies and other establishments are supposed
to report certain high-value transactions to the Income Tax Department in their
annual information return (AIR).

2. These establishments have your PAN and other details, so there is virtually no way
one can sneak past them. If the system detects a mismatch in income, investments
and expenses, it will automatically pick the return for scrutiny. Nearly 62 lakh
investors put more than Rs 2 lakh in mutual funds or over Rs 1 lakh in stocks in
2010-11. Almost 27.5 lakh account holders deposited Rs 10 lakh in their savings
bank account that year.
Information of below high value transactions are reported to Income Tax
Department:
 Cash deposits aggregating to ten lakh rupees or more in a year in any savings
account of a person maintained in a banking company to which the Banking
Regulation Act, 1949 (10 of 1949), applies (including any bank or banking
institution referred to in section 51 of that Act).
 Payment made by any person against bills raised in respect of a credit card
aggregating to two lakh rupees or more in a year.
 Receipt from any person of an amount of two lakh rupees or more for purchase of
units of a Mutual Fund.
 Receipt from any person of an amount of five lakh rupees or more for acquiring
bonds or debentures issued by a company or institution.
 Receipt from any person of an amount of one lakh rupees or more for acquiring
shares issued by a company.
 Purchase by any person of immovable property valued at thirty lakh rupees or
more.
 Sale by any person of immovable property valued at thirty lakh rupees or more.
 Receipt from any person of an amount of five lakh rupees or more in a year for
investment in bonds issued by Reserve Bank of India.
The CBDT has already exempt taxpayers from personal attendence if they are
selected for scrutiny on the basis of a transaction reported in the annual
information return.
Form 26 AS – Sources of Income, Taxes paid
Form 26AS contains details of income earned and Tax Deducted for the same.
All Self Assessement Tax, Advance Tax ,TDS details are found in Form 26 AS.
The department will be able to identify undeclared sources of income and
verify details of taxes paid using this source of information.
Central Information Branch (CIB)
CIB formed in 1975 is the nodal agency of ITD of strengthening tax data base.
Its key function areas are:-

3. (i) collection, collation of information from internal as well as external sources
and its dissemination to Assessing Offices (AOs) and other users in ITD;
(ii) widening of tax base through identification of stop – filers and non filers
(iii) deepening of tax base by providing information for proper selection of
cases for scrutiny assessments.
Scope of enquiry in scrutiny cases in FY 2014-2015 on basis of AIR/C1B
/26AS mis-match
CBDT has vide circular 7/2014 instructed that the scope of enquiry under cases
selected for scrutiny through CASS on the absis of either AIR or CIB or Form
26AS should be restricted to verification of these particular aspects only.
Therefore, in such cases, an Assessing Officer hall confine the questionnaire and
subsequent enquiry or verification only to the specific point(s) on the basis of
which the particular return has been selected for scrutiny.
In case, during the course of assessment proceedings it is found that there is
potential escapement of income exceeding Rs. 10 lakhs (f non metro charges, the
monetary limit shall be Rs. 5 lakhs) on any other iss ue(s) apart from the
AIR/CIB/26AS information based on which the case was elected under CASS
requiring substantial verification, the case may be taken u for comprehensive
scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an
approval shall be accorded by the Pr. CIT/DIT in writing after being satilied i
about merits of the issue(s) necessitating wider and detailed scrutiny in the case.
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