Receiving a scrutiny notice under Section 143(2) from the Income Tax Department can cause confusion and stress. However, understanding what the notice means and how to respond appropriately is crucial to avoid penalties and ensure proper compliance. In this blog, we will walk you through the scrutiny notice process, explain why it’s issued, and provide a step-by-step guide on how to respond to a scrutiny notice.
What Does a Notice Sent Under Section 143(2) Mean?
When the Income Tax Department identifies discrepancies in your Income Tax Return (ITR), whether minor or major, a notice under Section 143(2) may be issued. These discrepancies could include:
- Under-reporting of income
- Over-reporting of losses
- Incorrect claims for deductions or exemptions
In simple terms, a scrutiny assessment notice indicates that the tax authorities have identified potential issues in your ITR, and they require further clarification. The primary objective of the scrutiny process is to ensure the correctness and genuineness of various claims, deductions, and exemptions made in the return.
When Is Notice Under Section 143(2) Issued?
A notice under Section 143(2) is issued by the Income Tax Department when your Income Tax Return (ITR) is selected for a scrutiny assessment or detailed assessment under Section 143(3).
In simpler terms, the scrutiny assessment is carried out to verify that:
- You have not understated your income.
- You have not overstated losses.
- You have paid the correct tax.
The notice is typically issued within three months from the end of the financial year in which you filed your ITR. For example, if the ITR is filed on 31st July 2024, for the financial year 2024-25, the notice under Section 143(2) can be issued up to 30th June 2025.
What Should You Know About Notice Under Section 143(2)?
When you receive a notice under Section 143(2), it is often delivered in PDF format via email. However, it will also be sent to your registered postal address.
Important Points to Remember:
- If you haven’t filed your ITR, a notice under Section 143(2) cannot be issued. Before this, a notice under Section 142(1) must be issued, asking you to file the return.
- The Faceless Assessment Scheme means that notices are now uploaded directly to the Income Tax Portal, and you will also receive an email and SMS notification about the issue of such notices.
- After receiving the notice, you must produce all documents supporting your deductions, exemptions, income sources, and other claims made while filing the return.
How Does Notice Under Section 143(2) Work?
Here’s a simplified process of how scrutiny assessment works after receiving the notice under Section 143(2):
Step 1: Issuance of Notice Under Section 143(2)
The Assessing Officer (AO) issues the scrutiny notice within three months from the end of the financial year in which the return was filed, to carry out a detailed assessment of the return under Section 143(3).
Step 2: Submission of Documents
Once you receive the notice, you (or your tax representative) will need to appear before the AO to submit your supporting documents and provide explanations for any discrepancies or issues raised in the notice. Alternatively, you can respond online by uploading the documents and providing clarifications.
Step 3: Assessment and Final Order
After considering the evidence and hearing your arguments, the Assessing Officer will pass an assessment order determining the tax payable or refund due based on the information provided.
What Happens If You Don’t Respond to a Scrutiny Notice?
If you fail to respond to the scrutiny notice or the Section 142(1) notice, the Assessing Officer (AO) can proceed with Best Judgment Assessment under Section 144. This means the AO will determine your income and tax liability based on the information available to the department, which may include:
- TDS returns
- AIS/TIS data (high-value transactions)
- Bank statements and other third-party data
If the assessment is completed based on this, it could lead to:
- Additions to income, such as disallowed deductions, unreported losses, or unexplained income.
- Higher tax liability.
- Interest charges under Sections 234A/B/C for delayed filing or non-payment of taxes.
Types of Scrutiny: Limited vs Complete
When a scrutiny notice is issued under Section 143(2), it can be for two types of scrutiny:
- Limited Scrutiny: This involves a narrow review based on specific issues, such as a mismatch in deductions or high-value transactions.
- Complete Scrutiny: This involves a thorough review of your entire ITR, including all supporting documents and financial details, for a more comprehensive verification.
What Are the Consequences of Not Complying with the Notice?
Failure to comply with the scrutiny notice can result in the following consequences:
- Penalty under Section 271(1)(b): A penalty of ₹10,000 for each instance of failure to respond to the notice.
- Assessment Under Section 144: Best Judgment Assessment can lead to the addition of income and higher tax liabilities.
- Prosecution: In extreme cases of intentional evasion or concealment, prosecution under Section 276C may apply, with imprisonment of up to 7 years.
Final Assessment Order Under Section 143(3)
After receiving the scrutiny notice and submitting the required documentation, the Assessing Officer will pass the final assessment order under Section 143(3). This will determine whether any changes need to be made to your income and the final tax payable or refund due.
How Enrichwise Can Help You Handle a Scrutiny Notice
If you’ve received a scrutiny notice under Section 143(2) and need assistance with the process, Enrichwise is here to help. Our team of tax experts and Chartered Accountants offers comprehensive support to ensure that your response is accurate, complete, and submitted on time.
If you need assistance or have any doubts regarding a scrutiny notice you’ve received, contact us today!
