Understanding Notice u/s 143(2) for Income Tax Scrutiny Assessment

Receiving a notice under Section 143(2) of the Income Tax Act, 1961 can be a significant event for taxpayers, signaling that the tax authorities intend to conduct a detailed scrutiny of your Income Tax Return (ITR). Here’s a detailed overview to help you navigate this process effectively:

1. What is Notice u/s 143(2)?
   • Purpose: The notice is issued when the Income Tax Department selects your ITR for scrutiny assessment (under Section 143(3)) to verify the accuracy and genuineness of deductions, claims, and other details provided.
   • Common Reasons: It may be issued due to errors in TDS reporting, under-reporting of income, over-reporting of losses, discrepancies in income figures, incorrect claims for deductions, high-value transactions, or general clarifications needed.
2. Issuance and Timeline:
   • Issuance: The notice must be issued within three months from the end of the financial year in which the tax return was filed.
   • Example: For an ITR filed in June 2023 for FY 2022-23, the notice u/s 143(2) must be issued by the end of June 2024.
3. How to Respond:
   • Timeline: Taxpayers usually have 15 days to respond to the notice under Section 143(2) or Section 142(1) if issued concurrently.
   • Steps to Respond:
     • Check for specific discrepancies highlighted by the department and gather relevant documents.
     • Request issuance of a questionnaire (if not received) to provide specific clarifications or documents.
     • Draft a comprehensive response addressing each point in the notice, supported by relevant documents.
     • Submit the response through the e-Proceedings tab on the Income Tax portal within the stipulated timeframe.
     • Monitor further communications or requirements from the department during the scrutiny process.
4. Consequences of Non-Compliance:
   • Penalties: Failure to respond can lead to penalties under Section 272A, with a potential fine of Rs. 10,000 for each failure.
   • Assessment: The assessing officer may proceed with a best judgment assessment under Section 144, potentially resulting in higher taxable income and additional tax liabilities.
   • Legal Consequences: Non-compliance could also lead to legal actions, including prosecution in severe cases.
5. Final Assessment Order u/s 143(3):
   • Timeline: The assessing officer must complete the scrutiny assessment and pass the final assessment order under Section 143(3) within specified timelines:
     • AY 2017-18 or before: 21 months from the end of the relevant assessment year.
     • AY 2018-19: 18 months from the end of the relevant assessment year.
     • AY 2019-20 onwards: 12 months from the end of the relevant assessment year.
   • Opportunity to Respond: During scrutiny, taxpayers have the opportunity to submit clarifications, supporting documents, or evidences to support their ITR.

Conclusion:

Receiving a notice under Section 143(2) should not cause undue concern if your tax filings are accurate and genuine. Responding promptly and with comprehensive documentation is crucial to ensuring compliance and avoiding penalties. By following these guidelines and maintaining transparency throughout the process, taxpayers can navigate scrutiny assessments effectively under the Income Tax Act.